Deal of the month: Embedded Solutions Limited – Jon Treanor, president and CEO of ESL, wants a lot: $20 million – for now, a net

When EVCJ met with Embedded Solutions Limited (ESL), a developer of reconfigurable computing solutions, in late March it had $20 million on the table – provided the due diligence being carried out by the investors rounded up by Beeson Gregory’s Index IT unit held water. $5 million of that total was committed by Creative Labs. Other investors included US and UK-based venture capital firms. This is ESL’s third round of funding since last year. An undisclosed investment by Richard Farleigh enabled ESL to recruit its current president and CEO Jon Treanor who joined the company on April 1st 1999, of which he makes wry note. The second round of funding, again an undisclosed figure, was raised from the UK-based venture capital firm Newton Investment.

But what’s a developer of reconfigurable computing solutions and where did it come from?

The latter is easy to answer and so is the former if you’re an experienced marketer used to selling a concept, which Jon Treanor is. In essence ESL’s product is a piece of software that can change the profile of hardware i.e. the microchip. ESL’s product will eventually work to change any device – such as a computer, mobile phone, palm pilot – that works using a microchip called a Field Programmable Gate Array (FPGA.) The FPGA microchip is key to ESL’s product offering. This is because it can be changed – in tech terms it’s reconfigurable’. And, says ESL, a FPGA can be changed by the product that the company is promoting called Handel-C toolset. Handel-C is the key component in ESL’s solution and the complete toolset that partners use is marketed as ConfigR.

For example, the hardware (mircochip) from a mobile phone can be changed/reconfigured/reprogrammed by a software engineer to receive a particular television channel as well as or instead of phone calls. At present this particular scenario is academic as Treanor points out: “The only thing that is holding back functionality is the technology.” Some of the technology ESL is targeting has long been in place, such as the computer. With ESL’s software, Treanor says, it is possible to change a computer fitted with a FPGA microchip to perform additional functions. The beauty of this says Treanor is that it enables software people to design or redesign the hardware (the FPGA microchip) in as little as a quarter of the time it takes to design a new piece of hardware. Treanor confirms that FPGA is currently the fastest growing sector of the microchip market.

That answers the second question. But back to the first question: ESL’s origins can be found at Oxford University. Ian Page a lecturer at the University has been working on this design for 10 years. According to Treanor, Page was interested by the increasing complexity of hardware, the time it took to build, and consequently to bring to market. And then in the early 1990s with the launch of FPGA and its with its reconfiguration possibilities Treanor settled on a course of action. However, it wasn’t until 1996 that ESL was formally born out of Isis Innovation Limited, the Oxford University technology transfer organisation that manages the formation of new companies.

Despite Page’s founding influence he did not actually join ESL until late in 1999. Treanor says both he and Page had reservations given that Page has been a life-long academic and was in Treanor’ s words moving out of his comfort zone.’ Treanor and Page have know each other some eight or nine years since Treanor, in another career guise, come to Page looking for software programmers.

However the change in relationship appears to have worked. Treanor credits Page with being “commercially aware”, no small praise from a sales and marketing man. Treanor and Page have been on the road ever since Treanor hammered out the business plan in the spring of 1999. This has involved presentations to Universities, global corporations, investors and the like. Treanor describes the routine as a double act. The learned academic Page gets up and talks the tech and then Treanor, whose eclectic career, (Philips Electronics and Sony Video Software for starters), meant he didn’t get his degree – in sales and marketing – until he reached his thirties, runs through the business model. Treanor says audiences appreciate the dual perspective noting that many good ideas spawned from academia flounder because the business element is not visible or just not there. Treanor acknowledges that the link with Oxford University has opened doors, noting that a lot of global corporations with which ESL has sought an audience say they see presentations from around 30-odd scientist groups a year.

The road shows have begun to pay dividends. In January this year ESL announced partnership agreements with Marconi and Xilinx, the latter being a FPGA microchip manufacturer among other things. Under this agreement ESL will provide Marconi with its Handel-C toolset and consultancy services for rapid hardware prototyping and embedded system reconfiguration. Xilinx will provide FPGA components and project auditing services as part of its Xilinx Online programme. Treanor says: “Eighty-five per cent of the people who look at this technology in view of becoming a partner come back and say they want to invest in it.”

The $5 million received from Creative Labs in its current round of fund raising has also given ESL a boost. As Treanor puts it: “trade money validates the technology.” Talking about fund raising Treanor is pretty scathing of those operating in the technology end of venture capital. He says: “The technology venture capital fraternity is in big trouble. Very few of them know what they are doing and don’t really understand it as well as they could. Gone are the days when money was everything. The business, the technology and the money should be in three equal parts. There is better added value for us with a corporate venturer.” With no joy from the venture capital community it was Richard Farleigh who introduced ESL to David Norwood at Beeson Gregory. Norwood’s speciality is raising funds for small IT companies.

ESL will have to engage in another round of fund raising before long. Treanor predicts that the $20 million will last around a year. Much of it is being spent on opening new offices, primarily in the US, and on recruitment which, he notes, is getting ever more expensive – not surprising given that ESL has grown from four to 50 plus employees in less than a year. Treanor is pushing to build up to an IPO on the London Stock Exchange (LSE) and then Nasdaq within six months of the LSE listing.

ESL’s current sales pitch is aimed at the hardware companies from whom Treanor concedes the reaction has been mixed. Hardly surprising given that with the ability to keep reconfiguring and therefore constantly updating the FPGA microchip in Treanor’s words: “the functionality of each

lifestyle will be longer and more flexible.” Lengthier product lifecycles is unlikely to be music to the ears of the consumer high tech industry which has for years enjoyed a healthy bottom line thanks to the endless round of revised product launches that often incorporate only minor functionality enhancements on the previous year’s model.

Nevertheless ESL’s partner programme is progressing and the intention is to have ESL’s technology incorporated into the hardware design process. Treanor promises announcements regarding three new partnering agreements before long. And further down the road each time ESL grants a license it will be done on a royalty basis. If all goes to plan this looks like a lucrative proposition given the scale of the market Treanor is talking. And even if/when some techie cybergeek deconstructs the technology and makes it available to download free of charge on the Internet, given the high tech naure of the product, this is unlikely to erode a quantifiable market segment.