Focusing on EDA Helps Telos Close Its Third Fund –

Telos Venture Partners, which announced the close of its $50 million third fund in early August, added two new GPs to its roster as it continues to invest in electronic design automation and fabless semiconductors, two narrow sub-sectors of the semiconductor industry that are garnering more attention lately.

Telos beefed up its management ranks by adding General Partners James Hogan and Charlie Huang, both of whom are long-time participants in the EDA industry. In July, Telos lost GP Athanasios “A.K.” Kalekos, who was named CEO of Sand Hill Systems, which is backed by 3i.

Hogan has been in the semiconductor industry for more than three decades. He joins Telos from Artisan Components, where he served as senior vice president of business development. He was previously a senior member of the Office of Chief Technologists at Cadence Design Systems and COO of Smart Machines.

Huang joined Telos after serving as corporate vice president of integrated circuit solutions business development at Cadence. He previously co-founded CadMOS Design Technology. As CEO of CadMOS, Huang raised venture capital and oversaw the company through its acquisition by Cadence in 2001.

Cadence and its affiliates are the sole limited partners in Telos’s new fund.

The GPs join Telos not only as the firm closes Telos Venture Partners III, but also as investment activity in the EDA sector heats up. In the first six months of 2004, a number of firms – such as Accel Partners, Intel Capital, Menlo Ventures, Sequoia Capital and Storm Ventures, among others – have pumped about $105 million into 12 EDA startups, compared to $47.5 million invested in nine EDA startups for a similar period of 2003, according to data from Lois DuBois of Cayenne Communications.

The reason for the increased activity is that the industry is undergoing a change, says Garo Toomajanian, a research analyst at RBC Capital Markets in Boston. In the past year, says Toomajanian, about 10% of new designs have moved from 130 nanometer (NM) to a smaller 90 NM in size. He predicts that next year, another 20% to 30% of companies will move to 90 NM.

“That means semiconductor firms have to update their design software,” Toomajanian says. “And design starts are already underway for in 65 NM, the next generation of semiconductor products.”

In closing its third fund, Telos also announced it has made three EDA-related investments from the fund. Clear Shape Technologies raised a Series A round, in which Telos invested $1.65 million and was joined by U.S. Venture Partners (USVP) and AsiaTech. Telos also invested $3 million in E-Z-CAD’s Series A round, with un-disclosed investments from USVP and Incubic. And Telos invested $2.1 million into the Series B round of Xpedion Design Systems, which raised an un-disclosed amount from Menlo Ventures and Telesoft Partners.

No other details on the three deals were available.

Bourbon says he expects Telos to make five more investments in the new fund over the next two years.

Telos Venture Partners

Palo Alto, Calif.

Founded: 1996.

Fund Name: Telos Venture Partners III.

Fund Size: $50M

Capital Under Management: $180M

Previous Funds: TVP II (2002) $30M; TVP I (1996) $100M

Investment team: Bruce Bourbon, founder and managing general partner; James Hogan, GP, Charlie Huang, GP, and Jonathan Barek, GP.

Recent Investments: Took part in funding of three different EDA companies: Clear Shape Technologies, E-Z-CAD and Xpedion Design Systems.

Focus: Next-generation EDA and fables semiconductors. Telos typically invests between $1M to $3M in early stage technology companies seeking first- or second-round financing, with up to $7M across two stages of investment.

Portfolio: Three of its companies have gone public, but none since 2001. Nine have been acquired, the most recent of which came in April when Ariba bought Softface for an undisclosed price. Softface had raised about $20M from Telos and other investors.

Did You Know? “Telos” is a Greek word that means to reach one’s objectives.

Source: PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey and original research.