It took Rajeev Madhavan three attempts, but with his third startup he figured out how to build a lasting company. Magma Design Automation has a market capitalization of more than $400 million and is now the fourth-largest company in the electronic design automation (EDA) industry (it supplies software tools used to design computer chips). "In five years, we're going to be the No. 1 company," says Mr. Madhavan, the company's CEO and chairman, with bravado.

Magma's tools soothe a long-standing chip maker headache: timing. Traditional tools did a poor job predicting how long electronic signals would take to move across a chip. Unlike other EDA players, however, Magma fixed timing as a constant. To use an analogy, if the signal were a car and it had to get to a destination 60 miles away by a certain time, then Magma ensured that would happen by changing such things as the speed of the car or the number of lanes on the highway.

"Magma started with a clean sheet and that's why its opportunity [is] so large," says Andy Bechtolsheim, vice president of engineering at Cisco Systems, Sun Microsystems cofounder, and the first investor in Magma. "Rajeev has the combination of vision and experience."

That vision and experience (not to mention his two previous efforts) originated with his move to Silicon Valley from India in the early '90s. At Cadence Design Systems--his first job--he was asked to conduct due diligence on a potential acquisition, and he decided that it wasn't so hard to start a company

In 1992, at age 26, he cofounded LogicVision to create chips that decrease testing costs. The technology, however, was complicated and developed slowly. "I didn't have the patience for a nine-year effort," says Mr. Madhavan. He left, and in 1994 he cofounded Ambit Design Systems, which made a better mousetrap--a logic synthesis tool (used to translate circuit schematics into a chip design) aimed at unseating market leader Synopsys.

He was turned down by 31 venture capitalists and finally raised $750,000 from a pool of 47 investors. Ambit got off the ground but its tools fit better as part of a larger product offering and Cadence Design Systems bought Ambit in 1998 for $260 million. Mr. Madhavan, who wanted to grow the company, wasn't satisfied: "Ambit taught me the importance of a strong board and good relations with the board. I goofed it up."

When the time came to start Magma in April 1997, Mr. Madhavan, who had left Ambit before the acquisition, quickly applied what he had learned from his previous ventures. He managed to raise $2.5 million in just 45 minutes from Mr. Bechtolsheim and other angels. He positioned Magma's technology as an entire family of tools, not just a piece of a product line. He took the conqueror's strategy, with no room for retreat.

The first product caught on and eventually grew into eight. By fall 2001, Mr. Madhavan had turned down several requests to buy Magma and was readying his company to go public. The IPO was postponed after September 11, but drawing on his tough Ambit fundraising experience, Mr. Madhavan persevered with his road show. The company went public later in 2001 and was one of the year's top 25 IPOs in terms of stock appreciation.

Says Mr. Madhavan, "I really was not like this when I was young. I'm surprised I have become so competitive. When I moved to Silicon Valley, that changed everything."

Sources From:RED HERRING 2002