New semiconductor startup debugs the high-tech commercialization model

A Vancouver-based startup claims it has developed a breakthrough technology for debugging chips in the semiconductor industry.

Veridae Systems Inc., which includes former members of technology heavyweights PMC-Sierra Inc. (Nasdaq:PMCS) and Teradici Corp., also has some lessons about the importance of adapting to the new realities of the venture capital environment with a lean commercialization strategy.

The company operates in a very high-tech space, but is run more like a lean Internet startup than a typical multimillion-dollar research-and-development-driven technology operation.

Set to launch its first products, Veridae has managed to stretch $150,000 in seed funding over two years from early stage R&D to commercialization.

The company’s low-cost, bare bones development cycle is a direct reaction to the venture capital (VC) environment, which Veridae’s CEO Jim Derbyshire is familiar with. His last major private-sector role was helping Ottawa-based semiconductor-maker SiGe Semiconductor Inc. raise nearly $100 million in venture capital. But that was a couple of years ago – in a very different financing environment.

“Go back 10 years in this sort of business and you’d have started looking for a big angel round and then out to the venture capitalists,” said Derbyshire. “And you’d have raised probably $10 million or $20 million for this company. The VCs have gone and the angels, in general, are not willing to invest in this space.”

Veridae, which is anticipating generating $1.3 million in revenue in 2011, was spun out of PhD research that the company’s CTO Brad Quinton began at the University of British Columbia (UBC) six years ago.

Prior to that, Quinton was a senior engineer at Teradici and, earlier, PMC-Sierra.

Veridae says its debugging technology addresses the rising complexity of chips, or integrated circuits (ICs), in the semiconductor industry.

It says that IC manufacturers can use its tool kit – a blend of software, algorithms and intellectual property for designing hardware – to reduce debugging process times from days or months to hours.

Debugging technologies look inside circuitry, much like an X-ray, to examine its functional health.

“In a nutshell, we’ve sped up the whole process of proving out chips and getting them to market,” said Derbyshire.

The company beta tested its debugging technology in the summer and has four potential customers that are testing the tool for a month.

If all goes well, those trial customers will become long-term customers – and Veridae will be generating revenue.

Derbyshire is mentor-in-residence for Simon Fraser University’s Venture Connection program.

He’s also a member of the New Ventures BC (NVBC) competition, where, in 2009, he was initially introduced to Veridae.

He was teamed up as a mentor to the company as it competed in NVBC.

Veridae didn’t win the competition – its proposed target market was too small, said Derbyshire – but it was a finalist.

It also found a new CEO with experience in business development in the semiconductor industry: Derbyshire took the helm of Veridae shortly after the competition.

“I sat down with them and tried to work out a business model that worked,” said Derbyshire. “I understand the lean startup model. That model doesn’t quite fit this space, but there are lots of elements of it that do.”

For one, the evolution of software and the Internet has reduced costs for Internet-driven companies.

Rather than creating its own development software, Veridae licensed proven software and free open-source software – both of which would largely have been unavailable 10 years ago.

“With those two elements, we’ve been able to drastically cut down the development costs we would have had 10 or 15 years ago.”

It has leveraged $150,000 to obtain licensing and other support from UBC and to attract government grants.

And while Veridae has nine employees, which is more than the lean Internet startups that Derbyshire compares the company with, it has kept payroll down by easing employees into full-time roles only when necessary.

Some staff initially worked a day a week, while maintaining roles elsewhere, and advisers have been given options rather than wages.

Derbyshire acknowledged that bootstrapping Veridae has stalled its development cycle slightly – but not by much.

“We’ve had to be really cautious that we don’t expend too much on marketing ourselves until we have a product that makes revenue.”

Every week Techvibes republishes an article from Business in Vancouver. This article was originally published in issue #1099 – November 16 – 22, 2010.