Altera, Cadence and Xilinx are making their mark on startups
For years now, technology companies have been getting in on the venture capital game, by forming their own VC arms and participating in rounds of VC funding. From Intel to Oracle, these companies have used funding to boost development of products that make their own products salable—funding "ecosystems."
And recently a couple of chip companies and an EDA company have revealed that they have been working to take such relationships a step further by working with startups and venture capital in less traditional ways. Programmable-logic chip companies Altera and Xilinx are both promoting the benefits of their products to venture capitalists as an economical alternative for capital-starved startup companies looking to get product to market quickly.
"If you are a VC and you've got a startup that comes to you and says it has a great idea for a chip, we want the VC to say, 'Have you talked to Altera?'" says Robert Blake, VP for product planning at Altera.
Blake says that Altera's HardCopy chip could be a particularly valuable tool for startups, because it allows them to prototype their product as an FPGA, which is less costly than an ASIC in development and manufacturing (although more expensive per chip) and then later, as the product ramps up in the market, move it to a structured-ASIC format, which is less expensive per piece.
Blake first told EB sister publication Electronics Weekly about Altera's efforts with venture capitalists in March, but the company has since stepped back from discussing it as a separate program, saying that Altera targets a variety of channels and that its programmable-logic technology offers significant value to both startups and established companies. Still, Altera says, it has been pitching that value to VCs for about two years.
Altera competitor Xilinx, which has its own venture capital arm and introduced a second fund in December dedicated to "ecosystems," says it has also been building relationships with venture capitalists since the first fund's inception, in 1998. The company's goal goes beyond strategic investments. Xilinx also wants to influence the buying decisions of startups.
"We've spent some time educating venture capitalists about our technology," says Hans Schwartz, senior director of business development at Xilinx. "Most venture capitalists are on the boards of these companies, so they have an influential role. They can't tell companies what products to use, but a board member can question how funds are used and whether the company should go the ASIC route or the FPGA route. The cost of developing chips by using those technologies is so different."
Schwartz points out that creating a robust ASIC engine can cost $12 million in development alone whereas FPGAs may cost only a couple million dollars. That's a message that can be compelling to VCs, he says, and one some VCs have responded to.
"I do see more startups using more FPGAs to test their designs before they spend millions to build ASICs," says Victor Westerlind, a partner at venture capital firm Interwest Partners. Other companies that have been reaching out to venture capitalists include Intel and IBM
, Westerlind adds. But the approach is not for everyone. "It's a small set of companies that have products startups can use." More likely candidates are EDA companies, which create the software used to design chips, he says.
Synopsys does not offer such a program, but Cadence Design Systems
' comprehensive program began in 1996, with a traditional venture arm called Telos. Other components of its program include offering tools the startup uses in exchange for equity rather than for cash or consulting advice. "Sometimes what an early-stage company needs isn't our cash but, rather, our knowledge and our technology," says Chairman Ray Bingham.
"It's a very collaborative approach in which we provide temporary access to our technology and help them figure out what they need and when," Bingham adds. Communications chip maker Sequoia is one such company that was taken under Cadence's wing, when it had just one employee, and now Motorola and Nokia are also investors in the company.
Ultimately, companies believe that today's economic climate of a challenging funding environment and smaller rounds of capital make for a perfect opportunity for FPGAs to shine.
"The economics are such that startups have to look at alternatives now," says Xilinx's Schwartz. "Sure, there are still the ASIC bigots who say the only way they can develop their product is through ASICs. But to start an ASIC or ASSP company, they need $50 million plus. The problem with ASIC development is that if they guess wrong about where the market is going to be, they have to do a respin"—something that's too costly and too big a risk these days.