Ecosystem Environment for Starting a

Semiconductor Company
DesignCon 2008
February 5, 2008

Financial

Marketing PR

Founder

Legal Funding

Technology

The Internet Channel for Semiconductor Entrepreneurs and Investors

 Startup Ecosystem Panel
Steve Szirom Steve Bengston
Senior Analyst, InsideChips Director, Emerging Ventures Practice,
President, HTE Research
PriceWaterhouseCoopers
Lucio Lanza Glen Balzer
Managing Director, President,
Lanza techVentures
New Era Consulting
Dave Guzeman James Prenton
President, Partner,
Mindpik
K&L Gates

2
2007
2007 World
World Electronics
Electronics
Worldwide Markets Markets
Markets
WW GDP $48,000B

Total Electronics
$1,765B 100.0%
Semiconductors
$252B 14.3%
Consumer Electronics
$145B 8.2%
Semi Equipment
$42B 2.4%
Semi Materials
$41B 2.3%

EDA 0.3%
$5.6B

Source: InsideChips.com

3
 Ecosystem: Legal
• Pre-incorporation: employer issues,
NDA/confidentiality/IP issues, founders
agreements
• Incorporation package, form of equity
• Added value
– May have synergistic relationships/network
– Adds credibility for potential investors

4
 Ecosystem: Technology
• EDA tools and IP core partners
• Design team strategy and formation
– Architecture, circuit design, software, algorithm, compiler
– WW design teams
• China, Taiwan (multimedia, consumer)
• India (software, tools)
• Central Europe (software, algorithm)
• Israel (DSP)
• Russia (algorithm, mathematical)
• Reference design customer partner
• Wafer fab, test, assembly partners

5
 Ecosystem: Marketing
• Marketing objectives, strategies and tactics
• How big/where is the market today and in five years
– Key customers
– Product definition, segmentation
– Price trends
• Key reference/development customer relationships
• Sales and market forecasts
• Competitive landscape, unique differentiators
• International strategy

6
 Ecosystem: Financial
• CPA consultant or part-time CFO
(semiconductor experience helpful)
• Accounting firm relationship
– Pre-sales burn rate, sales ramp, break-even,
profitability => P&L, Balance sheet, cash-flow
– May have synergistic relationships/network
– Adds credibility for potential investors

7
 Ecosystem: Public Relations
• Sets the stage for company’s external image/visibility
– Investors, customers, partners, distributors/reps, others
• Company name, logo and brand
– Memorable, what does it mean, domain available, lasting,
original, craft a unique and visionary story for the new venture
• Web site design and content
– Drives the company image worldwide (big bang for the buck)
• Create and increase the “buzz” level as appropriate for
stage of company

8
 Ecosystem: Public Relations
• Use “guerrilla” tactics to stretch limited $$$
• Use combination of external and internal
resources
• Combine various elements, have an integrated
marcom plan for various stages of growth
• Think globally, act locally
• Do it right the first time!

9
 Craft A+ Communications
Financial

Marketing PR

Founder

50 pages
Legal Funding
Business Plan
5 pages
Design
Exec Summary
15 minutes

2 minutes
Short Pitch

Elevator Pitch

Credibility
+
Potential
10
 Ecosystem: Investors

Stage Funding source

• “Kitchen table” • Founder(s)

• Seed • FFF, Angels, Incubation

• “A” round • VCs, Corporate

11
 Key Success Factor: Founder/CEO
• Organize founding team, expectations, share agreements, vision
• Experience (ideal) in development, operations, marketing, and
finance, such as business unit director of mid-large chip maker
• Ethics/integrity, creativity, adaptability, persistence, intelligence,
experienced, moderate ego
• Wisdom to turn reigns over to seasoned management
• Openness in internal and external matters
• Energy and drive to thrive in resource constrained environment
• Act as coach and therapist in early tough going

“Startups fold or perform poorly as a

result of CEO failure more often than
any other single cause”
NEXT

12
Top 5 Legal Issues for Semiconductor Startups

James Prenton
[email protected]
#5 – Effect of Employment Agreements

ƒ ASSUMPTION: I possess all ownership rights to an idea I conceive

or develop.

ƒ ASSUMPTION: I own all inventions that I develop entirely on my

own time without using my employer’s equipment, supplies, facilities
or trade secret information.

ƒ ASSUMPTION: My employer wasn’t interested in my idea so I can

pursue development.

ƒ FACT: Potential investors will carefully examine IP ownership to avoid buying

into a lawsuit. Certain market segments are notorious for litigation against
former employees. When in doubt, seek guidance!
#4 - Timing and Form of Entity
ƒ Timing:
ƒ Dictated by need to memorialize ownership of the business by the founders, sign
contracts with third parties, secure IP ownership in the Newco, adopt and use
incentive stock plans and set the stage for investments.
ƒ Delay may result in: (a) dispute among founders (“forgotten founder”), (b)
uncertainty over IP ownership and (c) adverse tax consequences when founders
try to acquire shares at a nominal price (“cheap stock”).

ƒ Form of Entity: Corporations over LLC

ƒ LLCs – Ease in legal maintenance and can be taxed as partnership (losses and
gains of business flow through the members’ individual 1040 returns). However,
(a) VCs will not invest in an LLC, (b) stock options are not available as
incentives, and (c) cannot be acquired tax-free in a stock acquisition exit.
ƒ Corporations – Sophisticated investors will prefer corporate form. Employees,
consultants and advisors will appreciate familiar stock-based incentive plans.
More alternatives for successful exit.
#3 - Ensure Company Owns IP
ƒ EMPLOYERS. Ensure former and current employers of founders,
consultants and advisors will not have a claim against the
company’s IP.

ƒ FOUNDER(S). Individual ownership of idea is not the same as

ownership by the company. Each founder must assign their rights
to the idea to the company.

ƒ CONSULTANTS/EMPLOYEES. Ensure agreements with third

party developers and employees expressly requires assignment of
intellectual property to the company.

ƒ FACT: Company ownership of IP is one of the key areas investors

will focus on when conducting investment due diligence.
#2 - Manage Equity Carefully
ƒ Founder Allocation – Difficult to discuss as friends or colleagues. Consider
contributions by each and agree in writing. Assumptions and delays re:
contributions and equity percentage problematic.
ƒ Repurchase Right – Ensure shares subject to company’s repurchase right
which lapses over time (vesting schedule). Provides incentive for founders to
remain with the company.
ƒ Right of First Refusal – Give company and other shareholders right to acquire
shares in the event of a proposed share transfer. Helps avoid unwanted
“partner” from joining.
ƒ Securities Law Compliance – Offering and selling securities highly regulated.
Failure to comply can create liabilities and limit ability to raise capital in the
future.
ƒ Avoid Promise to Issue Percentage of Shares. Promises to give certain
percentage of shares to consultants and employees can be problematic. Best
to document and agree in terms of number of shares. Any cloud over stock
ownership will jeopardize the success of a potential fundraising.
#1 - Seek Help from Experienced Advisors Early!

ƒ Experienced entrepreneurs, lawyers, accountants, consultants and

investors can offer valuable advice to assist in the development of
your new startup.
ƒ Many investors rate judgment of entrepreneurs by their choice of
the advisors.
ƒ Certain advisors will offer promising startups special arrangements
which may include a combination of reduced rates, fee deferral or
equity ownership.
ƒ Silicon Valley: a unique concentration of the key components
necessary for a startup to succeed. Take full advantage of what the
environment has to offer!

Dave Guzeman, President, Minkpik

Marketing Chip Startups
Dave Guzeman, CEO - Mindpik

[email protected]
 Starting Up…
What to do on Day One
Marketing & Sales

ƒ Strategies and initial roadmap set by founders and

thrashed out in business plan
ƒ Critical to have all six Big-M Marketing functions explicitly
assigned to people
ƒ One of the founders should be VP Marketing / Sales
ƒ Identify six target customers… call them and share that
with them
ƒ Have a plan for achieving financial credibility… why
should customers feel safe betting their companies on
you?
 Big-M Marketing
Executing the Complete Marketing Function

ƒ Driving the Products – Product Marketing

ƒ Making the Market – Tactical Marketing
ƒ Entering Orders – Order Entry / Customer Service
ƒ Creating a Buzz – Promotional Marketing
ƒ Working the Technical Community – Technical Marketing
ƒ Developing Strategies – Strategic Marketing

Intel at $50M had Product Marketing, Tactical Marketing,

Promotional Marketing, and Order Entry
Intel at $100M had added Strategic Marketing and
Technical Marketing
 The Intel Startup Model
ƒ Sell memory chips to IBM and the Seven Dwarfs
ƒ Limited direct sales force – total 12 direct sales people at
$100M – leverage reps and distributors
ƒ When you know someone’s home phone number… don’t
advertise to them… call them! Top company salesman
was Bob Noyce
ƒ Use Noyce, Moore, and Art Rock (VC) to gain credibility
ƒ Marketing & Engineering driven
ƒ Extensive publicity campaign
ƒ Even at $100M, marketing headcount was still 3 times
sales headcount
 The Pitfalls
ƒ The more earthshattering and revolutionary your product
is, the more important it is to have financial credibility
ƒ Don’t skimp on promotional marketing in the early days –
outsource it and buy great stuff
ƒ The more complex your product, the more important
product marketing becomes
ƒ It takes as long to develop a sales channel as to do your
chip… and costs about the same
ƒ Sales channels are driven by relationships… even though
your company is young you need to hire a sales manager
with 20 years of relationships
ƒ Customers and contract manufacturers are working to
prevent you from selling proprietary products
Build it and they will
come… hahahaha
I don’t know who you are.
I don’t know your organization.
I don’t know your service or product.
I don’t know what you stand for.
I don’t know your customers.
I don’t know your track record.
I don’t know your reputation.

Now, what was it you wanted to sell

me?
 What has changed?
ƒ WWW – the world’s largest flea market
ƒ Killed most printed tech publications
ƒ Zero printing costs for web-based tech literature
ƒ Still have layout costs plus web programming costs
ƒ Works well when people know who you are and search by
company name
ƒ Disappearance of printed publications has made it harder –
not easier – to get attention
ƒ Sales reps are harder to find and much more
expensive to sign
ƒ Distributors are disappearing – replaced by CM’s…
contract manufacturers and you need a “Fast Eddy”
to deal with them
NEXT
Creating a Sales Presence
Glen Balzer, President, New Era Consulting
[email protected]
 Creating a Sales Presence
• Avoid Exclusive Arrangements in your
sales channel
 Creating a Sales Presence
• Avoid Exclusive Arrangements in your
sales channel
• Build Direct Sales only when necessary
 Creating a Sales Presence
• Avoid Exclusive Arrangements in your
sales channel
• Build Direct Sales only when necessary
• Cause and Convenience – Always reserve
the opportunity to terminate a channel partner
for cause and convenience
 Creating a Sales Presence
• Avoid Exclusive Arrangements in your
sales channel
• Build Direct Sales only when necessary
• Cause and Convenience – Always reserve
the opportunity to terminate a channel partner
for cause and convenience
• Due Diligence – must be performed
seriously
 Creating a Sales Presence
• Avoid Exclusive Arrangements in your sales
channel
• Build Direct Sales only when necessary
• Cause and Convenience – Always reserve the
opportunity to terminate a channel partner for
cause and convenience
• Due Diligence – must be performed seriously
• English Language Skill in a foreign market is
not very important

Steve Bengston, Director, PwC

DesignCon 2008

Steve Bengston
[email protected]
650 281 9843

© 2007 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers

LLP (a Delaware limited liability partnership) or, as the context requires, other member firms of PricewaterhouseCoopers
International Ltd., each of which is a separate and independent legal entity. *connectedthinking is a trademark of
PricewaterhouseCoopers LLP. SJ_07_0080
MoneyTree Total Investments: Q1 1999 – Q3 2007

($ in billions)

$32.0 $28.4
$28.2
$26.4

$24.0
$23.3

$22.2

$16.0
$13.2

$12.8
$11.4
$11.0

$8.0
$8.3
$8.1

$7.5
$7.2
$7.1
$6.9

$6.9
$6.8
$6.6

$6.4
$6.3

$6.3

$6.3
$6.0

$5.9

$5.9
$5.8
$5.6

$5.3
$5.0

$5.0

$5.0
$4.9
$4.6
$4.5

$4.3

$0.0
1999 2000 2001 2002 2003 2004 2005 2006 2007
1999 2000 2001 2002 2003 2004 2005 2006 2007
#
of Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Deals
918 1304 1421 1865 2128 2107 1931 1743 1283 1217 1001 974 837 849 687 719 692 735 711 782 709 850 682 832 724 819 783 805 864 935 897 912 850 1000 887

November 2007
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
Slide 2
based on data from Thomson Financial
MoneyTree Total Investments: 1980 – YTD Q3 2007

Annual Venture Capital Investments

($ in billions)
1980 to YTD Q3 2007

$105.1
$120

$100

$80

$54.1
$60

$40.6
$40

$26.4
$23.0
$22.4
$21.9

$21.8
$21.1

$19.7
$14.9
$11.3
$20

$8.0
$4.1
$3.7
$3.3

$3.3

$3.3

$3.5
$3.0

$3.0

$2.8

$3.0

$2.8

$2.2
$1.6
$1.2
$0.6

$0
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05

D 6
07
Y T 200
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20

20
November 2007
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
Slide 3
based on data from Thomson Financial
Investments by Region: Q3 2007

Upstate NY
$31.5 New England
Northwest 12 Deals $998-14%
$290.6 119 Deals
47 Deals
Sacramento/N. CA
NY Metro
$14.5 North Central $385-5%
2 Deals $111.0 57 Deals
17 Deals
Silicon Valley Philadelphia Metro
$2,485-35% Midwest $238.3
287 Deals Colorado $343-5% 26 Deals
$196.6 45 Deals
24 Deals
LA/Orange County DC/Metroplex
$425-6% $331-5%
Southwest South Central
56 Deals 34 Deals
$134.2 $19.2
San Diego 23 Deals 7 Deals Southeast
$359-5% $353-5%
37 Deals Texas 52 Deals
$386-5%
KAU AI
39 Deals
AK/HI/PR NIIHA U

O AHU

$4.1 MOLOKAI

MA UI

LANAI

3 Deals KAHOOLA WE

HA W AII

Q3 2007 Total Investments - $7,104 in 887 Deals

November 2007
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
Slide 4
based on data from Thomson Financial
 Investments by Industry: Q3 2007
($ in millions)

Software $1,108.1
Biotechnology $1,091.2
Industrial/Energy $920.6
# of % Change $
Medical Devices and Equipment $825.5 Industry
Deals from Q2 ’07
Telecommunications $585.1 Software 187 -27.18%
Biotechnology 99 -10.04%
Semiconductors $513.2
Media and Entertainment 96 9.68%
Media and Entertainment $508.5 Industrial/Energy 83 69.42%
Medical Devices and Equipment 76 -19.86%
IT Services $353.9
Telecommunications 74 13.56%
Networking and Equipment $289.1 Semiconductors 55 12.19%
IT Services 51 44.7%
Financial Services $280.2
Financial Services 31 420.22%
Business Products and Services $194.7 Networking and Equipment 29 -22.16%
Business Products and Services 23 -2.59%
Electronics/Instrumentation $152.8
Electronics/Instrumentation 21 -1.95%
Healthcare Services $96.3 Consumer Products and Services 20 -65.91%
Healthcare Services 15 251.14%
Computers and Peripherals $87.7
Computers and Peripherals 13 -41.07%
Consumer Products and Services $57.3 Retailing/Distribution 13 -56.89%
Undisclosed/Other 1 -100.00%
Retailing/Distribution $40.0
TOTAL 887 -1.43%
Other $0.0
$0 $900 NM = Not Meaningful $1,800

Q3 2007 Total: $7,104 in 887 Deals

Visit www.pwcmoneytree.com for Industry definitions
November 2007
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
Slide 5
based on data from Thomson Financial
Investments by Stage of Development: Q3 2007
($ in millions)

Later Stage $2,976.4

Expansion $2,718.5

# of % Change in
Stage of Development $ Amount
Deals from Q2 2007
Early Stage $1,185.3
Expansion Stage 294 16.00%

Later Stage 288 -7.07%

Early Stage 213 -17.54%

Startup/Seed 92 0.29%
Startup/Seed $224.0
Total 887 -1.43%

$0 $1,000 $2,000 $3,000

Q3 2007 Totals: $7,104 in 887 Deals Last

November 2007
PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report
Slide 6
based on data from Thomson Financial
 Questions and Discussion?
• Steve Szirom, InsideChips (www.insidechips.com)
– Marketing, PR, business, international, strategy
• Lucio Lanza, Lanza techVentures
– Incubation, venture capital, VC trends, other
• Dave Guzeman, Mindpik (www.mindpik.com)
– Marketing, other
• Glen Balzer, New Era Consulting (www.neweraconsulting)
– Sales, distribution, international, other
• Steve Bengston, PriceWaterhouseCoopers (www.pwc.com)
– Financial and accounting issues
• James Prenton, K&L Gates (www.klgates.com)
– Legal issues, founders’ agreements, incorporation, employment issues

The Internet Channel for Semiconductor Entrepreneurs and Investors