WESTERN TECH VENTURE CAPITAL

by Linc Jepson & Julia Nekrylova, 74ze Engineering, Inc.

Silicon Valley, presumed to be the heart of the computer world, began in the 1950s, when Stanford University began leasing leasing some of its unused land, creating the first modern tech park. The symbiotic relationship between academia, industry, and investors flourished as labor, ideas, and capital were swapped around in a mix which eventually blossomed into the booming Silicon Valley of the 1990s. Venture capital is money which is invested in a high-risk and potentially high-return endeavor.

The basis for this is simple. Suppose Vasya has an idea and thinks it will take 1 million pieces of gold to execute or at least begin his plan. He does not have this money and so he solicits those who do: banks, rich relatives, and corporate and institutional investment groups. They review his goal (typically a product or service) and his plan to achieve it, scrutinizing his track-record, his team, and the personal sacrifice or investment he has already contributed to his plan. The investor’s confidence in the entrepreneur and his plan, as well as his target market and the anticipated return on investment is weighed against other investment opportunities to determine whether to take a risk with him.

I’ve recently intimately encountered the technology investment world. Entrepreneurs and small technology businesses in the semiconductor and networking industries submitted their business plans for approval to Infocast’s Semiconductor Venture Fair IV and the Dow Jones VentureWire Network and Wireless Venture Fairs.

For each conference, a panel selected the most promising 70 businesses and entrepreneurs to present their companies and business plans to investors who paid about $2000 each to listen to their fifteen minute sales pitches over the course of two days. The presenting companies ranged from the more established (with characteristics such as having over 350 employees, having already raised $120 million dollars, or having reached profitability) to those in their infancy with only a handful of employees and who were still developing their technology and ideas.

Most of the companies were working on products (as opposed to services). The technologies included EDA tools for circuit development, CMOS image sensors, a biometric fingerprint reader, digital control of power conversion, reconfigurable processors, GaAs ICs for communications, low-power GPS chipsets and RFICs, storage processors, a content-processor to screen an incoming data path, quantum cryptology, and a variety of new router and transport technologies.

The solicitation of funding is an unusual scene for the uninitiated engineer. This forum was geared towards an audience, in which representatives from the start-ups, typically the CEOs, address groups of three to thirty. Amidst the crowd, their pitches target the investors or venture capitalists, who are not only valued for their financial support, but also for the power of their personal networks. The presentations all depict a novel device or service and portray a clean, simplified approach to reaching this goal and providing a hefty return on the investment.

At minimum, the presentations include an overview of the key management in the company and their backgrounds, a description of the product or service the company is developing, the work which has been done thus far, and if they are looking for money (some claim not to be) a description of what the money will be used for. A question and answer session usually follows in which questions about competitors, the core technology, implementation of the technology, and other issues are addressed.

Episodes vary. One presentation might offer only standing room to a late-comer. Some generate zero questions. Successful entrepreneurs generate lengthy queues of inquirers after their presentations and are asked to eventually move out of the conference room so that the next presentation may begin. Some executives are challenged with explaining how their company has managed to spend millions of dollars over the course of previous years and still not managed to reach critical milestones. Other presenters attempt to elicit interest while ducking direct questions about their trade secrets. (Typically, detailed information about new technologies is not revealed to casual spectators and small follow up meetings are arranged.)

Angstrem is alive!

Angstrem , the oldest chip manufacturer in Russia, continues it's jorney trough the troubled water of free market.

Ten years ago it was one of the biggest world producers of chips for pocket calculators.

Twenty years ago it was number one in DRAM production for Soviet military computer needs. Look for example: 200 000 000 millions chips 565RU5 (64Kbit x 1 - do you remember...?) a month.


What can we say about this former giant now?

Today Angstrem makes:
o-ASICs for China
1-ASICs for Russian missiles
2-HF RFID chips and readers

Company developed and make now I-code1 and MIFARE (Standard 1K, Mr. Philips, what do you think about Russian MIFARE?) chips and tags. Zelenograd schools, Russian gas stations begin moving to RFID future, Moscow airports Vnukovo, Domodedovo starts using Mifare cards and readers (SBR9) from Angstrem. Mr. Gundarcev (at the photo below), CTO of Angstem RFID division has optimistic look for future.


Sometimes Mr. Putin said not silly words: "No Angstrem - no Russian electronics".
The role of Angstrem as hi-tec incubator for young engineers is important here and now.

So, good lack, grandfather Angstrem! Illness continues but patient is still alive and it's good sign!

LAND, LABOR, CAPITAL, AND IDEAS

by Linc Jepson & Julia Nekrylova, 74ze Engineering, Inc.

As Silicon Valley matured towards the end of the last century, the progress being made became a financial and intellectual magnet for science and engineering talent worldwide. Investment successes led to an increase both in funding and the number of companies. Labor became scarce and the popularity of remote and overseas development offices grew. The dynamics of the flow of labor and capital was changing as investment grew. In many areas it was reversing direction.

While the Silicon Valley community showed there was no shortage of good ideas and there were certainly hungry investors ready to invest, there was a definite shortage of labor. Silicon Valley ties to the homelands of its émigré engineers grew as did the number of foreign development offices setup by larger corporations, especially in Taiwan, Israel, and later India.

As more critical work is shipped offshore, confidence in the experience level of the foreign labor grows. This attracts attention and soon a new type of company is created. Startup companies seeking funding from Silicon Valley investors must convince them that they may produce their product or provide their service at a reasonable cost. Avoiding the fight for high-paid local engineers and utilizing bright foreign talent is one way. (It has even been cited that as recently as a few years ago some venture capitalist teams only considered funding new companies which had a strategy to offshore part of their development.) It is during this stage that independent offshore contract companies began to lay down roots, providing project assistance or sometimes dedicated staffs to foreign companies.

Many entrepreneurs began setting up their entire operations around their foreign labor base – giving their engineering team, which is offshore, the critical task of developing their core technology. Israel, Korea, and Taiwan seem to have long ago entered this stage, and India only recently. This is not to say that outsourcing does not happen, but merely that the climate has changed to create such new businesses. The growing popularity of EDA tool company Aldec is a prime example in which founder and US-based emigrant Stanley Hyduke developed a successful product in his native Poland.

While the initial non-governmental activity in a geographic region has oftentimes been triggered by expatriate engineers convincing management to do development there or by their own return to their homelands with an acquired wealth from abroad, the present state of technology centers in countries such as Israel and Taiwan is also the result of government intervention. The establishment of the BIRD Foundation in Israel in 1977 and theTaiwanese creation of Hsinchu Science Park in 1980 both illustrate government initiative to evolve their tech industries by cultivating local business. The confidence of a national government investing in its own technology sector and altering legislation to facilitate growth can greatly attract foreign direct and indirect investment.

A conviction of immigrant engineers and many who had moved into managerial ranks took root. Colleagues in their homelands were capable of doing the same work which they were being paid higher Western salaries for. Management supported the idea at first by creating foreign offices. Management’s management, that is the owners and investment community, saw this success and realized that they might go straight to the source, investing directly in foreign technical talent. This ongoing shift in investment dollars to find the most cost-effective means to its R&D goals is gradual, as building confidence in technical skills takes time; but it also signifies the slow release of certain skills from the economies of the investor nation. (The current flow of Taiwanese management and investment to mainland China to supply the Taiwanese tech industry is a localized example of this.) In effect, with the entrance of the populous nations India and China to the tech scene, the tables have greatly turned in favor of less expensive, but technically savvy areas of the globe, and away from previous darlings such as Israel and Taiwan. Rather than the labor traveling to the capital, the flow of capital to the labor is growing.*

A later stage of development in the high-tech venture capital world is the formation of a local capital base. Western venture capitalists are now aggressively visiting countries such as India and China, seeking investment opportunities, and even establishing branch offices there. As wealth from technology ventures is accumulated and as local success stories divert wealth from more traditional investments such as natural resources and consumer durables, a local technology investment community develops. Israel and Taiwan are prime examples of nations in which thriving local capital markets have developed. Oftentimes this formation is assisted by the government.

So, what is to prevent Eastern Europe from catching up to the rapidly developing technology nations which presently captivate the Western media? The talent engine, the educational base, is certainly present. Since the fall of the Soviet Union there has been a dramatic polarization of wealth. Just as the economist Simon Kuznets depicted a necessary income inequality (or concentration of wealth) for an agrarian economy to industrialize, is that same inequality needed for the shift from investment in physical capital (industry) to human capital (knowledge) to take place? A concentration of wealth has certainly occurred in Russia for example, but investment trends appear that they will continue to focus on human staples and natural resources for some time. However, with the wave of international outsourcing, Eastern European technology hotspots are increasingly being considered as potential centers for more than the non-critical implementation work which they have primarily been attracting.

Real bosses

Hong Kong and continental China are main partners in Russian chip business now. They plays the role of Electronics Department in the USSR (bust of the former Head of Electronics Department Alexander Ivanovich Shokin at the photo).

China's companies was the real bosses at the 1990-2000. Their demands was vital for Russian chip production industry: their great volume requests plays main role.

What they needs now? Chips. chips, chips. For watches, RFID cards readers, calculators, LCD modules. All that can be doing with 0.5-1um CMOS digital technology but in chips without packages (no IC's).

Test of 1592XM4 family of semicustom chips

Two years ago I finished my Verilog-based chip project MIFARE reader with no little help from my friends. I made translation/modification Shisharin's (see the chuckling man with big books on the photo) FPGA Mifare FLEX600 model to semicustom chip.








In Zelenograd (photo above shows new houses, it's the boom in local real estate market) Angstrem it needed $5000 for such task. Chip was realised in 1592XM4 family with 10 000 gates programming by two layer of aluminium. Family has 100 000 gates matrix too, but it was too much for my project. We run 3 pilot wafers and get near 1000 good chips. Not bad for begining.

At the photo below you see Mr. Simonov, one of the fathers of family 1592XM, with MIFARE reader prototype SBR9 - schitivatel beskontactni radiochastotni, modification number 9 (Russian name) .
What about the chip price? For 5000 gates chip it was 5$ in military ceramic packaged chip.
COB will be about 1$.

Sounds good because now I can put away $40 chip set of Altera FPGA FLEX6000+configarotor ROM from my system.

But CSP packages needed badly for Russians chips!

Russian institutions related to electronics

Institute for Physics of Microstructures RAS (N.Novgorod);

Research Institute of Measurement Systems (N.Novgorod);

Institute of Semiconductor Physics SB RAS (Novosibirsk);

Central Research Institute for Ferrous Metallurgy, Surface Phenomena Research Group (Moscow);

Nizhny Novgorod Research Institute of Device Production “Quartz” (N.Novgorod);

Moscow State Institute of Electronic Technology (Zelenograd, Moscow);

Ioffe Physico-Technical Institute RAS (S.Petersburg);

Physico-Technical Institute UrB RAS (Izhevsk);

Kabardino-Balkar State University (Nalchik);

Saint-Petersburg State Polytechnical University (S.Peterburg);

State Research and Design Institute of Rare-Metal Industry (Moscow);

Moscow State Institute of Steel and Alloys (Moscow)

SILICON VALLEY OPEN DOORS

Linc Jepson & Julia Nekrylova, 74ze Engineering, Inc.
Recently in Silicon Valley, a group of Russian immigrants held the first Silicon Valley Open Doors conference to assist technology companies from former Soviet countries to gain exposure and to network with venture capitalists and potential technology partners. Venture capitalists and successful Eastern European entrepreneurs from the US spoke about the role of venture capital, how VC firms select investments, and their experiences in building companies.

Maxim Levchin (at the photo - Panel Discussion: Entrepreneurship: Founding and Funding a New Venture M. Levchin, Co-founder Pay-Pal. C. Holloway, Kleiner Perkins Caufield and Byers. J. Malloy, BlueRun Ventures.), the co-founder of PayPal and one of his lead investors, John Malloy of BlueRun Ventures, sat on a panel and fielded questions about founding and funding a new venture. Max joked about having gone through six business plans for what eventually became PayPal and having previously failed at a few businesses he created. Emphasizing that “trial and error is the most likely result of a lot of companies”, he stressed that “nothing beats the practical trial”. John echoed this in stating that when they finally did settle on a plan, “what really impressed me was the speed at which they attacked the problem and put together a prototype”. Stressing that investment is a ‘people-business’, John cited the founding team as his focal point in making an investment, followed by the market and then the by the plan’s technical advantage. Addressing the audience of Eastern European entrepreneurs, John acknowledged, “it’s hard to put yourself out there [when looking for funding]”, but “I appreciate persistence.” He further cautioned that upon being rejected, entrepreneurs should ask for an elaboration on why the investor is passing and suggested to be bold enough tell them “I will prove it to you”.


Pitch Johnson, a founding partner of Asset Management company, has been investing in technology since the early 1960s. Reflecting on the considerable amount of time he devoted to investing in and developing the venture capital market in Eastern Europe, he expounded upon the non-financial assistance venture capitalists provide to enterprises. Indicating the importance of the personal and open relationship required between an entrepreneur and investor, Pitch stressed that venture capital is a “local business” and cautioned against investment in a remote company unless the investor has the resources to maintain a close advisory relationship with the executive team at their remote location. In response to an inquiry about the lack of qualified management in Eastern Europe and the benefits of bringing in Western-trained executives to run start-ups there, he pointed out that in the long-term the progressing economies and MBA programs in Eastern Europe were developing the needed people. For the moment, however, Pitch noted that “almost no business plan in Russia ever has a marketing plan – but great technology.”

A successful entrepreneur who currently works with a team in Ukraine, Juha Christensen, echoed the concern about a lack of experienced management, citing “It’s easy to find people who want to solve hard problems, but don’t want to sit and make Gantt charts.”

Funds and investment groups such as Russian Technologies, Delta Private Equity, Intel Capital, and DFJ-Nexus are slowly building interest in Eastern European technology companies and all participated in the conference. Joe Bowman of Russian Technologies elaborated on the opportunities for investment in Eastern Europe and discussed the challenges of doing so. Citing a lack of exposure to aspects of Western business practices, his firm finds itself looking for ‘diamonds in the rough’, helping them to develop a business plan, assemble a qualified team, evaluate the market, and then seek a co-investor.

Besides the talks from the West about venture capital and successful business practices about forty Eastern European enterprises presented their business plans and technology. A sample follows.

WOSTEC, a Yaroslav-based Russian Technologies investment, is developing a next generation lithography solution.

Proposing a therapeutic treatment of progressing myopia, MACDEL has created a non-contact laser radiation procedure.

Yurii Maletin of National Technical University of Ukraine (KPI), presented his departments work on supercapacitors, which might be utilized for pulse power and for load leveling.

Sborka Laboratory, a Russian company, presented its APMatrix Display project, targeted at developing, manufacturing and marketing very large (greater than 100 inches), high-resolution ( ~ 80 dpi) full-color flat ( ~ 0.5 inch) displays.

Ferrobit, a start-up from the A. Ioffe College of Physics and Technology in St. Petersburg, jointly works with Tokyo University to develop silicon-like materials for non-volatile, magnetic memory based on electron spin injection.

Rodnya, a Ukraine-based firm, presented its microcontroller development, which is based on what it terms a “Reductional architecture”.

For now, judging by the optimism of tech émigrés in the US, the future is bright, but somehow the luster of Eastern European hi-tech seems to be permanently eclipsed by activity in other regions of the globe. Eastern Europe is revered worldwide for its high caliber of science and technology talent; however, its entrepreneurial foundation is generally considered to be immature.

Pitch advised the foreign visitors at SVOD to “by your vote and noise, influence legislation” and that in the end “you get to decide what to do” and “are only limited by your own dreams and ideas”.

Let this article be an impetus to Eastern European scientists and technologists to not only remain focused on their R&D, but also to increase their awareness of the forces and trends which drive that development. The world is watching.


*Perhaps it is important to note that the consumer markets of rapidly developing economies are also highly sought, sometimes more than the labor.

Also you can read:
http://www.eetimes.com/op/showArticle.jhtml?articleID=175800053