Lucio Lanza, managing director at Lanza TechVentures, warned that EDA companies that perceive that the value they provide is in their software are in for a rude awakening. With the semiconductor industry rapidly taking hold in China, where intellectual property protection has traditionally been lax, the value of EDA companies' actual software, contained on compact disks, will diminish, he warned.

"That same CD that you charge your customers $1 million for is going to be available on the streets of Shanghai for $5," he said.

Instead of focusing on shipping products like contract manufacturers, Lanza and other panelists argued, companies need to build an asset base that can be protected and becomes more valuable to customers with time. Vendor value, they agreed, comes simply from providing the solution to customers' problems.

Jim Hogan, general partner at Telos Venture Partners, said EDA customers value above all the EDA applications engineers, who are responsible for helping them solve problems. "AEs are the asset," said Hogan, a longtime Cadence Design Systems Inc. executive who at one point managed all of the company's applications engineers. "The tools are how you do it, not what you do."

The panel, hosted by the EDA Consortium and moderated by EE Times' Ron Wilson, emphasized the importance of forming strong partnerships with customers early in development and ensuring that the direction of a company's technology development is in-sync with the evolving needs of customers and potential customers.

Mike Gianfagna, president and CEO of startup Aprio Technologies Inc., said it is critical that startups pick and choose a small number of customers to engage with initially. In selecting which customers to work with early on, he said, startups should select companies of like-mind that can help guide the startups' vision of its technology roadmap.

"You need to determine if you have a product that people will want to buy," Gianfagna said. "The revenue that you make on your first couple of customers is inconsequential to your success. But their success is crucial to your success."

Startups should also be cautious, Gianfagna said, anytime they are asked to invest the time and effort required to build an actual tool. If the potential customer and startup do not have what Gianfagna called "vision lock" — the same idea about the technology direction — doing so could ultimately be detrimental.

Mark Templeton, co-founder and longtime CEO of Artisan Components Inc. prior to its acquisition by ARM Holdings plc in 2004, told the audience, quoting a business guru he could not recall, that a startup needs to be patient for growth, but impatient for profits. Templeton, who is now ARM's general manger of physical intellectual property, said Artisan went through six or seven business models before finding one that worked.

"Find a customer early, throw your stuff at them, and see if they are willing to pay you for that," Templeton said. "If they aren't, find out why. You want to get out there fast, and if you are going to fail, fail fast." 'Design-for-acquisition' is not smart
Panelists were nearly unanimous in their disapproval of the currently pervasive "design-for-acquisition" EDA business model, with startups building their companies with the sole goal of being snapped up by an established EDA player.

"Design-for-acquisition is design-for-failure," Lanza said. He said startups should build companies that can withstand the scrutiny of going public, because "you might have to end up going all the way." He add that going public is a five-to-10 year goal, and that it is not possible to predict the condition of stock markets that far out.

The panel's lone investment banking representative, Christian Falk, RBC Capital Markets director of technology investment banking, did not entirely agree. Falk said entrepreneurs need to keep an exit strategy through merger/acquisition in mind when structuring finances and negotiating term sheets in order to avoid potential entanglements should that come to pass.

Though warning of many pitfalls, panelists nevertheless agreed that EDA is still an area of great entrepreneurial activity.

Lanza said that the challenges of moving to the 65-nanometer node and beyond are creating "many more opportunities for companies today than there have been in many, many years." He pointed to design-for-manufacturing (DFM) and IP as particularly exciting areas.

"If the traditional EDA world is collapsing in terms of value, customers still have a lot of problems that need to be solved," Hogan said. "That says there are a lot of opportunities."

Falk, who earlier in the discussion noted that there are fewer later-stage, pre-IPO EDA companies than in years past, said RBC continues to see institutional investors hungry for new EDA companies to invest in.

Lanza provided plenty of colorful and humorous commentary throughout the discussion. In one example, bemoaning EDA for its lack of responsiveness to changing conditions, "If EDA guys were in the business of providing tools for cars," Lanza said, "they would offer a whip, because that is what worked for horses."