Carbon this week announced a strategic investment and partnership with Samsung. Carbon will use much of the proceeds to drive adoption for virtual prototypes, specifically providing a solution that removes the need to optimize a platform for accuracy OR speed.
You can have both! These sorts of investments offer more than symbiotic benefits; additional working capital, shared expertise, product influence, and early access to new technologies.
Beyond the win-win “micro level” of these relationships lays a macro benefit critical to the industry at large. Our industry is fueled by innovation, and innovation requires investment, expertise and a return on that investment.
In EDA, startups and small companies have always played a key role in driving innovation. Lately, that dynamic has changed. Strategic investors have become a necessary requirement to drive more innovation. This shift is good for the investor, the company and the industry. Here’s why:
Investing in Innovation
Investment in EDA has slowed dramatically from traditional “venture” investment routes. More “mainstream” markets, such as social media and others, have siphoned off investment in the EDA world with lower barriers to entry and sky-high multiples. Companies that rely on EDA technology understand the leverage these tools provide to their bottom line and product development process. Leading-edge electronic companies realize that they cannot solely rely on the existing EDA oligopoly to provide them with the necessary portfolio of new solutions. Consequently, when Samsung, Intel and others invest in companies like Carbon, all parties benefit from those innovations that are rolled out to the market.
An Alternative to the Diminishing Innovation Curve
I have been in the EDA industry for more than 30 years and have been a part of several successful, and a few failed, startups. The task of building a successful EDA company has never been more difficult than it is today. Many reasons contribute to this fact. Certainly, the aforementioned investment drought is a significant culprit, but that drought is heavily influenced by the current structure and practices of the EDA oligopoly.
The common practice of “all-you-can-eat” deals (a blanket agreement for substantial money allowing access to whatever products are on the “shelf” during the term) is a double-edged sword for both customer and vendors alike. On one hand, it provides financial predictability for both parties (cost and revenue). On the other hand, it diminishes the incentive to innovate. Why? The basic premise of the deal is to remove risk from both sides and risk, for better or worse, is a component of innovation. These deals have a way of masking the internal return of innovation and driving development toward existing solutions and away from more risky endeavors.
I suppose we could argue this point but, in essence, the structure of these overall deals is to reduce the financial exposure/risk to both sides. It works! The other side effect is reduced competition. All-you-can eat deals force smaller companies to compete against products in these “all-you-can eat portfolios” whose marginal cost to the consumer is close to zero when compared to purchasing tools outside the “portfolio.”
This may not be all bad since it forces smaller companies to offer a decisive advantage over a “zero” cost alternative, but creates a significant cost disadvantage for innovation. The net result is less investment due to this practice yielding less innovation.
The industry needs corporate investment that feeds directly into small EDA companies who increase competitiveness and innovation. Without this growing financial vehicle, innovation left to larger companies will be slow to market, if it appears at all.
“Partner” is a word overused today in EDA, much as the word “friend” is overused today in social circles with the advent of Facebook. A true strategic partnership creates a shared vision and goal. Both companies are invested in this solution and have a stake in the outcome.
In a world where design is becoming more and more complex and engineering talent a precious and limited resource, such real partnerships are critical. They provide talent and user expertise to drive a solution that immediately meets design needs with efficient resource allocations, a specialty often overlooked at small startup companies. A quicker development cycle for innovative solutions certainly benefits both sides of the partnership but also has a positive impact on the market in general.
The announcement about the Samsung/Carbon partnership is exciting. It allows us to step a bit harder on the product development accelerator. I believe that is a good thing for our mutual customers, investors and the market as well.