Bechtolsheim uses a simple rule of thumb in deciding whether to invest in an EDA startup. "My whole strategy in dealing with companies is that if I can't figure out what they're doing in a 15-minute phone call, I'm not interested," said Bechtolsheim, the engineering vice president at Cisco Systems Inc. (San Jose, Calif.) and, in his spare time, one of the design automation industry's best-known angels. "If it makes sense, then I'll listen to more. I invest in companies that make sense to me, companies that are doing things that need to be done. If I like the idea, other people probably do too."

By and large, design tools and the companies that create them haven't made it onto Wall Street's radar screen. Investors are too busy fawning over dot-coms. But Bechtolsheim is confident of the earnings potential of EDA companies at the cusp of the very deep-submicron chip revolution.

"Most venture capitalists have lost interest in CAD," he said. "It takes too long to go public and there are too many [competing] opportunities in the Internet space. In addition, there has been some confusion about CAD revenue models on Wall Street, leading to lower valuations of public CAD companies.

"I beg to differ. We are about to enter the largest CAD retooling phase in history, driven by very deep-submicron technology. The best next-generation CAD tools will generate significant revenue and company valuations."

Thanks to breakthrough work for Sun Microsystems Inc. dating back to his student days, Bechtolsheim has the wherewithal to put his money where his mouth is. He helped design the first workstation Sun ever made, and owns enough Sun stock to fund a few startups-with enough left over for a beach house. And that is exactly what he has done.

Included in his current portfolio of about 15 companies are some of the up-and-comers of EDA, including Magma Design Automation, which specializes in ASIC physical synthesis; Synplicity, which focuses on physical synthesis for FPGAs; and Cadabra Design Automation, which designs tools for transistor-level layout. His involvement makes Bechtolsheim a central figure in EDA.

"I certainly put Andy up there with the top-five knowledgeable investors," said Gary Smith, chief EDA analyst at Dataquest Inc. (San Jose). "What he brings to the party is an understanding of the problem, especially in the physical-design space. He also isn't unwilling to place his bets on multiple approaches to solving the same problem."

Right now, Bechtolsheim is most interested in three areas: improving verification, speeding simulation and reducing the back-end time.

"We have seen the first results from tools that combine synthesis, placement and routing, and they are stunning," said Bechtolsheim. "This is truly a breakthrough technology that is much needed. The front-end design can be no longer disassociated from the back end."

As a user, the Cisco VP wants to continue riding the advances that come with shrinking silicon geometries. He strives to avoid any conflict of interest by not getting involved in CAD purchasing decisions at Cisco. But he's not shy about taking advantage of the latest design tools, regardless of where they come from.

"I do have a personal motivation. I would like to design chips faster," Bechtolsheim said. "I love to work with people that are going to change the rules here."

Bechtolsheim points to the imbalance between the rate of change in silicon and advances in the tools that let engineers get the most from those changes. "It is amazing to witness the speed of progress in deep-submicron technology-chip technology is advancing at a fantastic rate," he said. "CAD tools have become the limiting factor. With all the money going into foundries and equipment, people are underinvesting in creating and deploying better tools, in my view."

In his own investments, "I have focused on companies that have the potential to drive a tenfold improvement in designer productivity. This is what is required to keep up with the growth of transistors per chip going forward."

Two of the firms Bechtolsheim has backed, Synplicity and Magma, plan to go public later this year. That's one pathway to financial payback, but it isn't the only route. Mergers are another.

"While there are between 50 and 100 startups in CAD each year only a few have a realistic chance to go public," he said. "But many companies are doing quite well and many of those will get acquired."

Bechtolsheim's interest in design tools began shortly after he came to the United States as a student in the mid-1970s. In his native Germany, his engineering tools were a pencil and paper. When he got to Stanford University, at 19, he embraced EDA technology wholeheartedly, with legendary results.

"I was supposed to work on CAD," said Bechtolsheim, "but at the time, the only systems were mainframes. My feeling was there was no way I could run the software on a mainframe, and that instead we needed a workstation to give each user dedicated mainframe power. This led me to design, at Stanford, what became known as the Sun workstation." That design, in turn, led "into starting Sun Microsystems."

Bechtolsheim has used his earnings from Sun to underwrite his investments. Besides EDA companies, he has a stake in chip maker Tensilica and a few computer-system startups that are not involved in Internet activities or other areas where Cisco competes. Still, his main interest is design tools.

In this small but vibrant niche are all kinds of startups and many more concepts that never make it to fruition. Bechtolsheim usually limits his interest to the early stages of the financing cycle, picking risk-takers attempting big strides, not incremental ones.

"I typically get involved with companies in the first, or seed, round," he said. "I invest in companies that have the right ideas and the right team, companies that are doing things that need to be done."

Bechtolsheim maintains a low-key involvement with the companies he backs, offering advice when he can. He could easily become a full-time investor, serving on boards and becoming more active in the management. But, he likes his day job.

"Since I am totally focused on product development at Cisco, I only have a limited amount of time to spend with each of these companies," Bechtolsheim said. Nor does he have time to travel, so it's rare that he invests in a company outside Silicon Valley.

In fact, the only place Bechtolsheim really likes to go is a little ways south of San Jose. "I've got a weekend house in Big Sur," he said. "It's nice to get down there and watch the whales. Nothing has changed down there in the last 10 years."