Mitigating Risk for Startups
Peter Sherratt, Synopsys Northern Europe, considers the importance of stacking the odds when betting the entire company on a successful tapeout, provides Synopsys’ perspective on the current European silicon startup landscape, and presents a UK success story that provides valuable insight into the pressures facing a startup: picoChip.
One of the consequences of the shakeout that followed the dot-com boom is that VCs have become far more technology savvy. The specialist investment companies have brought in experienced technologists – executives who have achieved success in their own ventures, lived through innovation in fabless business models and, more importantly, have experienced the stresses and strains of real chip design.
For those seeking funding, as well as having a compelling product idea and an experienced management team on board, the VC will want to know the team's strategy for mitigating the risks associated with the chip design. Investment in a first tapeout can run into millions of dollars, and the cost of failure is invariably the company’s future. Startups simply cannot afford to get it wrong when it comes to their chip development strategy.
Synopsys has extensive experience working with start-ups across Europe. Invariably, Synopsys’ involvement is at an early stage of the company’s gestation. Choosing the right partner for design and verification tools, professional services, and links to manufacturing is increasingly viewed as a strategic decision and an area where it is possible to mitigate risk. This article provides Synopsys’ perspective on the current European silicon startup landscape, and presents a UK success story that provides valuable insight into the pressures facing a startup: picoChip.
European Startup Resurgence: an EDA Perspective
After suffering heavily in the prolonged European technology recession that spanned the period 2000-2003, the startup market has become more buoyant once again. Lack of funding in the market meant that many startups made the move to a chipless model, offering IP to the market rather than attempting to raise the larger sums of capital required to fund chip manufacturing. This trend started a fundamental restructuring in the industry: so far we have seen a proliferation of IP startups, followed by significant consolidation, with the best successfully exiting – often through acquisition – and others, unfortunately, falling by the wayside.
As a result of the post-dot-com wake-up call, technology startups now need a much stronger business case to gain funding as venture capital firms seek out credible technology innovators that also offer a good, measurable market opportunity. In terms of key markets, there is now more diversity in the European startup arena, with companies pursuing a broader range of applications than before, including networking products, digital TV and radio, and compression technologies for portable equipment.
Geographically, the startup landscape has varied by region across Europe, although the general trend has been one of increasing activity. Israel has been by far the most active country, with continuous startup activity in almost every market segment, including consumer, wireless and networking. France has also been active over recent years, and most recently the UK, Switzerland, Denmark, and Germany have seen a significant increase in the number of semiconductor startups. Historically, the UK has provided a particularly startup-friendly business environment, due in part to the more relaxed employment regulation which encourages more of an entrepreneurial culture.
Overall, Europe is demonstrating strong competitive spirit. The region has developed world leadership in wireless design, multimedia and automotive products, all of which are characterized by above-average growth in the use of ICs. Integration trends are visible across several sectors and as the IC becomes an increasingly important part of the production value of electronic products, the chip industry appears to be healthy and growing across the region.
Focus on Wireless Telecommunications
In the systems arena, a number of sectors continue to be global forerunners for Europe. One of the region's main industrial strengths lies in the radio communications element of telecommunications, excelling in design and development of basestation systems and cellphone handsets. With European manufacturers making significant inroads to the worldwide handset market, recent innovations are stimulating continued market growth. GSM phones have now moved to GPRS and HSDPA, with extra features such as multimedia message capability and built-in cameras, while the growth of mobile data across the region is driving new, multi-function handhelds within the corporate market. Intelligent IC design and finer semiconductor geometries have reduced the size of phones and IC power consumption, helping to propel strong growth as well as interesting cross-market applications.
After the significant investment in 3G spectrum licences undertaken by European operators, preparations are now beginning for the provision and implementation of new wireless 3G infrastructures. With the 2G spectrum becoming saturated, operators across the region need to capitalise on licence outlays, and are ramping up the third-generation networks for the mass European market.
From a Synopsys perspective, this planned technology transition has triggered significant design activity across Europe. Complex new protocols and switching technologies are extending advanced design tools and methodologies with new multicore processors emerging; in the UK in particular, companies are designing novel architectures to address 3G technology issues. Synopsys' services are already deployed in a number of major European companies to support several wireless infrastructure projects.
picoChip is a young company that has enjoyed a close relationship with Synopsys since its startup days. Rupert Baines, Vice President of Marketing, recounts the story.
Case Study: picoChip
Back in 2000, two individuals, Peter Claydon and Doug Pulley, brought together their respective expertise in the semiconductor and wireless domains to develop a product for a specific market opportunity. Their shared vision was to provide a solution to the challenges of the next generation of wireless systems: cost, development time and flexibility.
In the best tradition of technology startups, the first nine months of the company’s history were spent working from one of the founder’s kitchen tables while the business plan was refined, the management team was recruited and VCs were courted. picoChip was bootstrapped from the co-founders’ and early employees’ own funds, working for a minimum wage until A-round funding was secured from technology specialists Pond Venture Partners and Atlas Venture.
“Getting backing from the right VCs is critical,” explains Baines. “Backing is the key word. It’s not just the level of financial investment that will take you to that key milestone, it’s important that there’s also a deep level of belief and trust that will see you through the tough times ahead. The euphoria of getting the term sheet signed off and the cheque in the bank doesn’t last that long. It’s really important that you are mentally prepared for the inevitable difficult times that lie ahead. You want your VC to be right in there with you.”
Besides the finance, Baines believes that the right VC will provide the benefit of experience, strategic counsel, long-term commitment and invaluable connections within the industry, further emphasizing the advantages of working with a technology specialist investor.
Baines feels that there is still a lot of variability in the industry in terms of just how technology-savvy investors are. “You don’t necessarily have to deal with semiconductor industry veterans, although there are an increasing number of those people involved,” he explains. “There are plenty of people out there with accounting-type backgrounds who really do understand the technical issues that can have a major impact on the startup’s business – that’s what really counts. They may not be engineers by training but they are shrewd and experienced business people who understand what’s important and where the pitfalls might be.”
The technology-savvy VC will take a long hard look at your business plan in terms of the risks associated with the product development. Part of the technical due diligence process will seek to understand the parameters of the proposed development schedule and technical complexity. “A good VC will ask probing questions about your development plan,” claims Baines. “One of the things that has changed in the UK investment scene over the past five years is that we now do have a critical mass of VCs who are experienced and understand the broad issues associated with chip design, and that has to be a good thing.”
Baines agrees that for startups like picoChip, you are literally betting the company on the successful outcome of the chip design. “It’s a bit like a parachute jump,” states Baines. “Only on the way up in the plane you’re designing your canopy, and sometimes you’re still strapping it on when you’ve already jumped out of the plane.” What’s more, this isn’t just a one-off. Assuming you land safely, it’s back in the plane for another jump – a process that puts the development team under tremendous pressure.
The cost of building an advanced chip is well beyond $10m, arguably higher for advanced geometries of 90nm and below. There are not many startups that will be able to afford that level of investment in a first project, and so clever cost reduction is often a key factor in achieving early success. However, this must be done without increasing overall risk. By definition, a startup will be trying something new and innovative, which in itself increases the risk associated with the project.
“It’s called venture capital for good reason,” continues Baines. “You are trying to do something nobody has done before, so it is going to be risky. But that doesn’t mean you take all of the risks at the same time. At picoChip, our innovation is fundamentally within the architecture – that’s where our competitive advantage lies. Because of this, we do everything we can to de-risk the chip implementation.”
According to Baines, picoChip spends a considerable time analyzing exactly where the risks can be managed. This includes taking a conservative approach to engineering the chip, which means, where possible, using a generic process and working well within the design rules, and not pushing the limits on clock speed. With its most recent tapeout, picoChip has hedged its bets by processing the design in multiple lots. The first is rushing through on a fast shuttle so they can get their hands on silicon as soon as possible, but by way of an insurance policy they have a second lot being manufactured on a seven process corner skew. This approach will provide six backup samples which cover a spectrum of process variations to provide contingency. Furthermore, half of the slow batch will be held at contact until the first silicon has been tested. This provides a further opportunity to make a final adjustment to the chip before samples are delivered.
picoChip views the partnership with Synopsys as a critical element of its overall risk management strategy. “Just as we were able to draw on the experience of our investors, it is critical that you can take advantage of the wealth of expertise from your design tool partner. Synopsys provides us with leading technology to enable us to do the design and, equally importantly, they are a rich source of expertise when it comes to achieving a predictable path to tapeout. That includes everything from front-end design and verification, right through to links to manufacturing.”
Selecting and managing partnerships is a core skill, according to Baines. He expects the selection process, and subsequently the ongoing management, to require a significant amount of effort in order to profit from the relationship. In selecting an EDA partner, picoChip made a major commitment to dedicating valuable resource to an evaluation. “Before we placed an order with Synopsys, we spent around six months evaluating, marking, giving them test designs, test layouts, and just working with the teams so that we could see how it would work both technically and on a human level. Both parties are making a commitment and we have to view it as a long-term relationship. We want a level of commitment from our partner that will see us through a number of projects.”
So far, that commitment has paid off. picoChip’s first design, the PC101, worked first time. Largely intended as a proof of concept, getting this design right was critical in securing customer wins and B-round financing. Their next design, the highly-optimized PC102 is in volume production and deployed in basestation designs with around 50 different customers, targeting very demanding next-generation wireless infrastructure applications and delivering ultra-high reliability. Since then, picoChip has closed a C-round of funding which has provided working capital to further expand the business.
“Commercially, Synopsys demonstrated that they clearly understood the financial framework that a startup operates in. With big-ticket software licenses there is always flexibility for negotiation, and Synopsys were sympathetic to our situation in terms of the technical risks we were taking. From our side, if the PC101 had not worked, we wouldn’t be here now.”
What would be Baines’ best advice for would-be startups? “Don’t compromise. You will need the best people throughout your design team, management team and board. You also need the best advisors, investors and technology and tools partners. A lot of startups still make the mistake that thinking great technology is enough to be successful. It’s not, and you need to invest in marketing, sales and financial management, and foster close partnerships with your key suppliers. I think that your customers will notice this as well. Ultimately, something that’s fundamental to success of the business is, ‘Will the chip work?’ You are betting the company on that one chip, and if something goes wrong with the tools, well, that’s game over.”
Vice President of Marketing, picoChip
Rupert has spent eighteen years in technology marketing, working on commercialising many leading edge technologies. He spent six years with Analog Devices in Boston, working on semiconductors for GSM and wireless infrastructure before managing their Broadband product line and holding responsibility for the industry-standard ADSL chipset. He has also worked for operators, most recently as Director of Product Development and Strategy for Atlantic Telecom, where he ran a large pan-European DSL rollout and trialled wireless broadband deployments.
Synopsys has an enviable track record of partnering with semiconductor startups within the UK and throughout Europe.
“Working with emerging companies means undertaking specific challenges, both technically and commercially,” states Gabriel Lezmi, VP European Sales, Synopsys. “Very often, start-ups are under extreme pressure not only to deliver designs at the leading edge of technology, but to do it under severe time-to-market constraints. Synopsys has proven to be a valuable partner for numerous start-ups, providing solid experience along with proven technology and a global professional services team, which combined can expand the customer’s project team. What Synopsys provides is a predictable outcome for the design process, decreasing design and manufacturing risk factors, with adapted business models that are sensitive to the needs of a start up’s business plan”.
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