Success factors for value creation in the era of technology convergence

1. Success factors for value creation in the era of technology convergence Serge Leef Vice President, New Ventures General Manager, System Level Engineering Division Mentor Graphics Corporation May 2012

2. Progression in System Design Integrated System Design Multiprocessing Gigabit,Non-volatile Memory Digital SignalProcessing Microprocessor Packaged IC Consumer Communications Energy Medical Industrial Automotive Aerospace DesktopComputer Military & Aerospace 1970 1980 1990 2000 2010 2020 Serge Leef, Information and Communication Technology Research Forum, May 2012

3. Attributes of Embedded Systems Domain-specific Highly heterogeneous Distributed over networks Highly interactive with physical world Require multiple disciplines to implement Validated mainly through physical prototyping System integration and test organizations are pivotal Subject to rigorous quality, certification, qualification rules Serge Leef, Information and Communication Technology Research Forum, May 2012

4. Typical System Architecture Portable Energy Source (Battery + Alternator) PSU / Power Management Inputs signal conditioning Outputs signal conditioning Solenoids, Valves, Stepper Motors, Sensor Excitation signals, Comms Cockpit commands, Sensors (e.g. speeds, pressures, temperature, valve position) Comms Inputs Processing FPGA or ASIC CPU Control Algorithms Outputs Processing FPGA or ASIC Bypass controls Serge Leef, Information and Communication Technology Research Forum, May 2012

5. System Example: Car NETWORK ECU PLANT • Hundreds of PLANTs • 40-80 ECUs (4-32 bit CPUs) • Up to 10 NETWORKS of 4+ distinct types Modern vehicle is a complex, distributed compute and control system Serge Leef, Information and Communication Technology Research Forum, May 2012

6. System Example: Airplane Terminal Server Display Switch Router Avionics (AFDX + ARINC 429 - CAN) A/C Ops Cab Ops IFE 3rd network Lights ……… Windows Seats Galley Serge Leef, Information and Communication Technology Research Forum, May 2012

7. System Example: Guided Missile In-flight power management for guidance  Post-impact detonation  Serge Leef, Information and Communication Technology Research Forum, May 2012

8. Medical: Multi-physics interaction and test • Multi-domain, multi-physics medical system • Human body physiological sources • Electrical sensors and actuators • Ultra-compact low-level embedded software / digital control • High performance GUI and medical monitor embedded software Pacemaker Surface ECG Data Link Temperature Hospital-based remote heart monitor Blood Pressure Serge Leef, Information and Communication Technology Research Forum, May 2012

9. System Design Challenges • Design requirements are becoming more complex • Lower cost, lower power, lower weight • Increased performance, reliability, or safety • Convergence of multiple disciplines • Everything has to work together: Digital, Analog, Software, Mechanical, etc. • Multi-company, distributed supply chains • Complicated communication via a number of domain-specific file formats, tools, and protocols • Design optimization • More than just getting a design to ship, a successful project relies on predictable schedules, and optimization of Reliability, Performance, Manufacturing Cost, and Life-cycle Cost Serge Leef, Information and Communication Technology Research Forum, May 2012

10. How do you design the whole system? Specifications Network Silicon Platform Embedded Software Multi-Physics Protocols Data Traffic Platform Software Plant / Mechanical Application Software Sensors & Actuators Analog Digital Mixed - Signal Serge Leef, Information and Communication Technology Research Forum, May 2012

11. Need to Remove Walls between Disciplines Mechanical Electrical Digital Control Software Controls Micro-controllers DSP Processing + w ieqs – ies Cmd Angle k s + • Thermal • Mechanical • Fluidic • Mass Transfer Electro-Mechanical Analog, Digital, & Mixed-Signal circuits Sensors & Actuators & Space Control Circuits • Advanced Algorithms • Signal Processing • Embedded Control • Supervisory • GUI & Presentation Transfer functions Serge Leef, Information and Communication Technology Research Forum, May 2012

12. How to Pursue Innovation in System Design? • Big companies rarely succeed in innovating • Stagnant organizations resistant to change (IBM PC example) • Risk/reward ration is all wrong ($10M exit event) • Cycle: dissatisfied employees to entrepreneurs • Purchase model: front and buyout • Solution • Accept a combination of organic and external • Looking at 100 opportunities per year • Closely examined 20 • Bought 7 - ranging from $2m to $70m • Each GM seeks related or augmenting startups • I looked at 10 last year: Sweden, Germany, Hungary, US, France Serge Leef, Information and Communication Technology Research Forum, May 2012

13. What makes a good environment for technology ideas and start-ups? Location, public policy and culture play key roles Creativity is only one factor leading to possible success Elements essential for successful innovation ecosystems: Education infrastructure Business-friendly climate Risk capital ecosystem Culture of failure Serge Leef, Information and Communication Technology Research Forum, May 2012

14. Education Infrastructure • University research • Mechanisms for funding relevant programs • Relationships with professors who recommend best students • Entrepreneurial professors drive commercialization of inventions • Technology transfer • Rights should be transferrable or licensable at predictable cost • If not predictable, established companies do not get involved • Government links • Governments are NOT good venture capitalists • Typical goals are prestige and employment • GREED must be the key driver for capitalist enterprises • Governments can play a role by focusing research • Select areas of national interest • Facilitate through funding University/Industry partnerships Serge Leef, Information and Communication Technology Research Forum, May 2012

15. Educational collaboration examples • France: IRT  Large scale initiative • Government objective: • Keep the French research competitive • Strengthen the link between research and industry • Allocated millions of € to improve GDP growth via tech sector • 5 centers of excellence: biotech, nuclear, semi, aero, systems… • Establishes locations for each; facilities free to participants • Each center is driven by 3-way partnership among • Universities, Government Research Labs and the Industry • 50% to 90% of personnel costs are subsidized • USA: CHREC  Small scale initiative • NSF (National Science Foundation) driven consortium • Focus on “Domain-specific Computing” via reconfigurable hardware • 4 University research teams: UF, VT, BYU, GWU • 10-20 industrial sponsors providing funding and direction • Technology transfer options available to the sponsors and can be licensed to other companies within NSF-inspired framework • Great source of future hires for the industrial sponsors Serge Leef, Information and Communication Technology Research Forum, May 2012

16. Business Friendly Climate Source: Who in the world is entrepreneurial? CNN-Money, Geoff Lewis, June 1, 2007 • Corporate registration • 2-5 days in US, Canada, Australia, New Zealand • 152 days & 50 steps in Brazil • Legal system • Strong protection of intellectual property • Means to enforce contracts • Rapid adjudication of disputes • Bankruptcy laws mitigate downside risks to investors • Tax policies • There should not be any business taxes while the startup is in the investment mode and has revenue below certain threshold • Employment regulations • Need to be able to rapidly adjust to funding and business conditions • Labor costs must scales smoothly and predictably Serge Leef, Information and Communication Technology Research Forum, May 2012

17. Risk Capital Ecosystem • Refine prototype(s) into product • Engage with teaching customers • Pricing, packaging, marketing strategies • Market development • Achieve product differentiation • Win business against competition • Build repeatable success methodology B • Sales organization & execution • Productization and wide deployment • Outbound marketing programs • Public launch • Develop working prototype(s) • Understand the ecosystem • Business model development • Market definition C A Red zone *Based on observations of a typical fabless semiconductor startup company, 2006-2009 Serge Leef, Information and Communication Technology Research Forum, May 2012 • Phases and Milestones* • Series A funding - $1M to $3M • Series B funding - $5M to $8M • Series C funding - $8M to $15M • Red zone – latest exit point for outside investors

18. Risk Capital Ecosystem Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By, Scott Shane, Yale University Press (January 28, 2008) • Venture Capitalists • VCs have specialization; some specialize in A or B rounds; $23.2 billion invested in 2010; $28.4 in 2011* • There are companies that specialize in mezzanine financing including investment banks and pension funds • After Series B… • Private equity players can participate instead of VCs, focus on on-going revenue producing companies • IPOs – most desirable successful exit for the investors, but should not be done until absolutely necessary • Sub IPOs - create public shell company and merge startups into it.. If the venture is too small for a real IPO, then use penny stock market to raise capital (many shady players in this space) • Selling the venture can also be viewed as a success • Most startups fail Source: Interviews with ex-head of Investment Banking of a major Wall Street Company, March, 2012 • Before Series A • Friends and family • Angels • Former entrepreneurs - series A or earlier if familiar with space • Less demanding than real VCs • More proactive in looking for investments • State governments invest in early rounds of subjects of interest- motivation to develop new business segments • Universities – in California: Stanford, UCB, UCLA, USC, CalTech provide facilities and access to professors • Normally nurturing behavior Serge Leef, Information and Communication Technology Research Forum, May 2012

19. Culture of Failure *Source: Confessions of Serial Entrepreneurs, J. Wang, eterpreneur.com, January 8, 2009 “Failure, something we all fear, provides the greatest moment for us to learn. How we manage or better put how we are honed to manage the process of failure provides not only the basis for but is the best indicator of future success” - Entrepreneurship: Cultural Views on Failure A Good Indicator Of Chances Of Success, Ainsley Brown, Commercial Law International, Dec 2011 • Failure carries a huge stigma in some cultures • Can be cross-generational • Need to find ways to cushion social damage • Develop structures that support “serial entrepreneurs” • Motivation factors driving serial entrepreneurs* • Need to prove self • Have a lot of energy • Heed a lot of stimulation • Starting businesses that will make a difference • Typically interested in “big ideas” Serge Leef, Information and Communication Technology Research Forum, May 2012

20. Comparing Success Factors • Educated work force alone is not sufficient for success Serge Leef, Information and Communication Technology Research Forum, May 2012

21. Summary • Convergence of innovations in computing, sensors, mobility, and networking are driving exciting prospects for advances in automotive, aerospace, medical and consumer markets • Capitalizing on these opportunities is a challenge for inventors, entrepreneurs, academics, businesses and governments • Each has a role to play in driving value creation • Proactive public policy should focus on ALL success factors: • Education infrastructure • Business-friendly climate • Risk capital ecosystem • Culture of failure Serge Leef, Information and Communication Technology Research Forum, May 2012

22. Serge Leef, Information and Communication Technology Research Forum, May 2012