Early-stage venture capital fund Formative Ventures (Menlo Park, Calif.) counts Pyxis Technology, Innocomm Wireless and Staccato Communications among its portfolio. General partner Clint Chao held management roles at SkyStream Networks, C-Cube Microsystems and Motorola. His co-founder, Brian Connors, also a general partner, was with Redpoint Ventures and Institutional Venture Partners. He also worked at C-Cube and Synopsys. General partner Dino Vendetti worked at MetaWave and Qualcomm before moving to Vulcan Ventures and then Bay Partners. EE Times' Brian Fuller recently asked all three where they see the next money ideas coming from.
EE Times: The industry seems to be in the midst of fundamental change, shifting from technological innovation to cost and customers.
Dino Vendetti: There's still a huge opportunity for innovative companies to enter the market and solve problems. We see them every week. There are exciting new companies we meet with and evaluate and, in some cases, fund. There hasn't been a good IPO market for four years. [But] there are huge funds raised even now. If you build a product that solves a real problem in a space that's got attractive market dynamics, the exits take care of themselves.
EE Times: What are you seeing that's caught your eye technologically?
Clint Chao: As a venture firm, we have to be really careful about adding an extra dial to the evaluation parameters. Not only do you have to have the right team and the right tech, you have to bet the market's going to be right. So you have a lot of entrepreneurs trying to figure out what the next cell phone is going to be like. People are talking about putting TV reception on cell phones. People are talking about geolocation technology.
Brian Connors: New architectures that will run new applications.
Chao: We have to decide whether it's worth making that kind of bet. I'd much rather invest in a technology that's going to have to be on every single cell phone, where I don't have to make a market prediction on a feature set.
Vendetti: For the first time about five years ago, the industry could implement entire radios in CMOS. So you had startups that said, "We're going to suck a little bit of this functionality out of this chip, and that's going to be our part." [But] that dog really doesn't hunt. It's not enough. You can't just say you're going to repartition the functionality and do a little bit more on your chip. It doesn't justify the kind of capital investment [that's needed].
But market conditions are such that you can develop a proprietary solution and not have that be a barrier to entry in the marketplace. The marketplace isn't going to reject it because it's proprietary. If startups are staffed properly, you can become the first in the market or the second in the market, and you can build a nice business. You don't want to be the fifth or the tenth player in a market that's standards-based.
Chao: You'll see a number of companies coming out with programmable solutions [because] you don't have to predict which standards are going to work. We'll work with all of them. But they're very dangerous investments, because while it sounds like you're future-proofing your designability in these high-volume sockets, at the end of the day the OEMs won't let you get away with it. Once the feature set is known, they're going to ask for hardwired pricing.
At the end of the day, cost is the issue. We have an investment in an UWB company, Staccato Communications. They're building ultrawideband receivers for wireless USB and applications for the computer. The solution is a completely hardwired approach to UWB but has a single-chip architecture that integrates the radio with the baseband. So when the market does take off--and we think that will be fairly soon--they will have the cost advantage.
Vendetti: Or if you have a two-chip solution, if it's CMOS plus SiGe, you're not going to be at the same price points when you go into volume production. And that's a market that's a half-billion USB ports shipped per year, and the next-gen technology for Bluetooth, so there are another half a billion Bluetooth handsets. It satisfies the requirement that it's going to be a very large market, and your volume ramp could be substantial.
EE Times: Cost is increasingly important in an all-consumer world. So why hasn't all design moved offshore?
Connors: There are a lot of great universities here.
Chao: You have to look at the cost of fragmented companies. When we were at C-Cube, we were based 100 percent in Milpitas, Calif. We had three buildings. You had a door separating engineering, marketing and sales. We were 50 feet apart, yet we had huge communications issues, knowing what kinds of features to put in our products and how to communicate with customers. So imagine if you took that engineering building and plopped it in the middle of China or India, many, many time zones away. Now you have a language delta. Is your organization able to operate as efficiently as required?
These markets are fast-moving, and the most important thing is to stay connected with what the customer base is asking for.