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.