News & Analysis
Cadence CEO laments loss of VC in semis
Sylvie Barak
10/26/2011 2:24 PM EDT
SANTA CLARA, Calif.--Collaboration and more semiconductor VC investment is what’s needed to continue innovation in the hi-tech space, said Lip-Bu Tan, president and chief executive officer of Cadence Design Systems Inc., in a fireside chat with ARM’s executive vice president, Simon Seagers, at TechCon.
With new technologies driving relationships between companies up and down the ecosystem, Tan--a longtime venture capitalist who remains chairman of Walden International, the VC fund he founded in 1989--agreed that collaboration had become an essential ingredient to product innovation, from startups to larger, more established companies.
This collaboration could take multiple forms, he said, and was “very important in terms of shared risk.”
Pointing to recent collaboration between Cadence, Samsung, Ambarella and ARM, Tan noted how important commitment and trust were in an environment where so much customer IP is shared. The vertical collaboration demonstrated by the Ambarella partnership was a good example, Tan said, adding that Cadence was “delighted to be the flow of choice” in the deal.
Tan lamented the significant drop in investment to the space, noting that in 2001, there was some $2.5 billion in private equity flowing into semiconductor startups, while the last couple of years have seen only around $1.2 billion in investment.
“All the big investment is going into social networking,” said Tan, adding that it was harder than ever for him to find partners to share in financing rounds for new companies. “I try to encourage funding in semiconductors,” he said, but admitted that the investment fad currently lay in cheap-to-operate social startups, rather than equipment-intensive, expensive to run semiconductor seed companies.
“Social media investing is easy money,” he said, lamenting the fact it cost very little to build up a social startup, which would likely see its valuation go into the billions, whereas semiconductor firms took millions of dollars to establish and had to reconcile themselves with much lower valuations.
The high costs and long term returns involved with semiconductor investment, he said, were the reason corporations were taking over the role of investors in the space, with companies like Qualcomm and Intel boasting very active investment arms.
The problem with having corporate investment of that kind, he said however, was that companies tended to push their investments to work on specific applications for their particular platforms, something which limits the startup’s potential. It also tended to stop them from becoming standalone platforms in their own rights, said Tan, noting that what often happens with corporate VC funding is that smaller startups get absorbed and acquired by the bigger company, rather than be allowed to become formidable competition in their own right.
Intellectual property, too, was crucial to startups, said Tan, explaining that this was another reason it was so important for young companies to align themselves strategically with the right partners and foundries. “Align partnerships vertically,” he advised, adding that it was very important to define the product right the first time around.
Software, Tan said, was also becoming increasingly important in the hardware world, and something which could also be both “very costly and timely,” but he suggested that today’s entrepreneurs try to be a little more fearless, noting that “little budgets can make you more creative.”
Speaking of creativity, Tan said it was crucial to create more excitement about engineering in education, especially to kids in high school, still mulling over what to pursue in college.
“We have to show kids the exciting things they can do, create interest in engineering and try to position hard work as fun,” said Tan adding that the industry needed more innovation and new blood.
Tan noted that in countries like China, everyone wanted to be an engineer, something that was not the case in the U.S. “They’re proud of it. Even ministers in the government are proud to tell people they’re engineers. How many U.S. government officials are engineers?” he asked.
In terms of other factors impacting industry, Tan also highlighted the cloud as a game changer for startups and hardware makers alike, noting that as hosted services were becoming more and more popular, the customer base for servers was changing and the operating costs for young companies was decreasing.
“Cloud is the way to go,” Tan affirmed, concluding, “We have to embrace the cloud.”
With new technologies driving relationships between companies up and down the ecosystem, Tan--a longtime venture capitalist who remains chairman of Walden International, the VC fund he founded in 1989--agreed that collaboration had become an essential ingredient to product innovation, from startups to larger, more established companies.This collaboration could take multiple forms, he said, and was “very important in terms of shared risk.”
Pointing to recent collaboration between Cadence, Samsung, Ambarella and ARM, Tan noted how important commitment and trust were in an environment where so much customer IP is shared. The vertical collaboration demonstrated by the Ambarella partnership was a good example, Tan said, adding that Cadence was “delighted to be the flow of choice” in the deal.
Tan lamented the significant drop in investment to the space, noting that in 2001, there was some $2.5 billion in private equity flowing into semiconductor startups, while the last couple of years have seen only around $1.2 billion in investment.
“All the big investment is going into social networking,” said Tan, adding that it was harder than ever for him to find partners to share in financing rounds for new companies. “I try to encourage funding in semiconductors,” he said, but admitted that the investment fad currently lay in cheap-to-operate social startups, rather than equipment-intensive, expensive to run semiconductor seed companies.
“Social media investing is easy money,” he said, lamenting the fact it cost very little to build up a social startup, which would likely see its valuation go into the billions, whereas semiconductor firms took millions of dollars to establish and had to reconcile themselves with much lower valuations.
The high costs and long term returns involved with semiconductor investment, he said, were the reason corporations were taking over the role of investors in the space, with companies like Qualcomm and Intel boasting very active investment arms.
The problem with having corporate investment of that kind, he said however, was that companies tended to push their investments to work on specific applications for their particular platforms, something which limits the startup’s potential. It also tended to stop them from becoming standalone platforms in their own rights, said Tan, noting that what often happens with corporate VC funding is that smaller startups get absorbed and acquired by the bigger company, rather than be allowed to become formidable competition in their own right.
Intellectual property, too, was crucial to startups, said Tan, explaining that this was another reason it was so important for young companies to align themselves strategically with the right partners and foundries. “Align partnerships vertically,” he advised, adding that it was very important to define the product right the first time around.
Software, Tan said, was also becoming increasingly important in the hardware world, and something which could also be both “very costly and timely,” but he suggested that today’s entrepreneurs try to be a little more fearless, noting that “little budgets can make you more creative.”
Speaking of creativity, Tan said it was crucial to create more excitement about engineering in education, especially to kids in high school, still mulling over what to pursue in college.
“We have to show kids the exciting things they can do, create interest in engineering and try to position hard work as fun,” said Tan adding that the industry needed more innovation and new blood.
Tan noted that in countries like China, everyone wanted to be an engineer, something that was not the case in the U.S. “They’re proud of it. Even ministers in the government are proud to tell people they’re engineers. How many U.S. government officials are engineers?” he asked.
In terms of other factors impacting industry, Tan also highlighted the cloud as a game changer for startups and hardware makers alike, noting that as hosted services were becoming more and more popular, the customer base for servers was changing and the operating costs for young companies was decreasing.
“Cloud is the way to go,” Tan affirmed, concluding, “We have to embrace the cloud.”
Lip-Bu Tan, (right) president and
chief executive officer of Cadence Design Systems Inc., in a fireside
chat with ARM’s executive vice president, Simon Seagers, (left) at TechCon.
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garydpdx
11/1/2011 10:08 AM EDT
Urban Airship is a company that I like to present as an example of what we are up against in EDA and semiconductor when seeking investment.
They're in Portland, Oregon and started from scratch the first week of June, 2009. At the end of July, 2010, they raised $5.4 Million in Series A financing. Yesterday, they announced what I believe to be their first acquisition ...
http://uncrunched.com/2011/10/31/simplegeo-to-be-acquired-by-urban-airship/
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