This morning I attended a panel discussion on EDA Exit Strategies: What’s Next? This presentation was given at DAC on the Pavilion Show Floor. It was a one hour interactive discussion between the panelists and the audience. Below is my take on the two most interesting discussions.
Kathryn Kranen – Jasper Design Automation, Inc., Mountain View, CA
Rajeev Madhavan – Magma Design Automation, Inc., Santa Clara, CA
Andrew Yang – Apache Design Solutions, Inc., Mountain View, CA
Jay Vleeschhouwer – Merrill Lynch & Co., Inc., New York, NY
Moderator Question: What are the exit strategies for startups in EDA?
Madhavan: Don’t think about the exit. Worry about building a sustainable, viable business. Worry about satisfying customer needs. In terms of exists, I predict that there will be less and less IPO’s. There will continue to be M&A’s, but I think most successful companies will look like Denali, a privately held corporation.
Yang: There has not been a IPO in six years. The last was Magma in 2001. I agree with Rajeev that most exits will be M&A and privately held companies that share liquidity and pay dividends. I still believe there is a vibrant ecosystem in EDA which is driven by the innovation from startups. In terms of exists, essentially you only have four options.
- You fail
- You build a successful privately held business
- You are acquired (M&A)
- You go public (IPO)
Vleeschhouwer: Do not focus on an exit. An exit is not a right but only a privilege. Since Rajeev and Andrew did such a great job of covering the importance of building a business first, I will talk about the trade offs of being a public company. Public companies are ruled by the thumb of stockholders, meeting quarterly goals, and different management structure.
Public companies have different customer penetration objectives, product portfolios, profitability requirements, and market goals. IPO is simply a financing strategy, it is not a means to cash out. Only if it is strategic to the business objectives, does a company go public.
Compared to other tech markets, it is very difficult for investors to understand the EDA market. Most likely investors will take another company public. In addition, there are not enough users in the EDA market, thus growth limitations to support an IPO strategy.
Audience Question: How do you know when a company is ready for an M&A? Is a company ever too big or too small?
From the company’s perspective, its not whether the company is too big or too small for M&A. The important issues include; how are you going to manage the post M&A and how do you manage the R&D and embed the technology into the companies line of business? Many company M&A’s do not succeed. Developers leave, over development, not enough development, off strategy, and slow customer acquisition. It is all about the execution of the merger.