read into Intel's investment behavior/mindset:
(Can someone tell me how to boldface when posting in SI?)
from Sunday version of San Jose Mercury News
mercurycenter.com
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Posted at 1:10 p.m. PST Saturday, February 12, 2000
Intel Capital has two-edged strategy as investor
Les Vadasz runs one of the largest venture capital funds in the world. Yet he isn't a member of any Sand Hill firm. He's the executive vice president in charge of Intel Capital, the venture capital investing unit of Intel Corp. Last year, Intel invested more than $1 billion in about 250 companies and expects to maintain the pace this year. It has a portfolio of about 350 companies worth more than $8 billion.
Intel Capital added $327 million in actual -- not paper -- gains to the company for the fourth quarter of last year. Yet Intel Capital's goals are much more strategic than financial, because they're aimed at expanding Intel's market. Intel typically makes investments of $1 million to $10 million each, though Intel has done deals of as little as $250,000 and as much as $500 million.
Vadasz, 63, joined Intel in 1968 as part of the original management team and has been a board member since 1988. He's held a variety of posts in engineering and management, and in the early 1990s, he began taking on a larger role in Intel's venture investing.
Mercury News Staff Writer Shawn Neidorf met with Vadasz recently to discuss corporate investing and Intel's strategy in particular. Here is an edited transcript of the interview.
Q Do you see this extraordinary influx of money and people into the venture capital industry continuing? Or are we going to see smaller funds being raised? What's the future?
A As long as the market keeps returning the kind of numbers it does, money will continue to flow into the system. A number of things are likely to happen. As the deals get more expensive, maybe the market returns will moderate. The available source of people is already at the limit or beyond, and so I think that the system will have enough self-regulating element.
I don't see this just going up and up and up and up and up. But, even if it turns down, you will see companies like Intel continue to be there, because they discovered that it's a very effective way to do market development.
Q How has Intel thought about corporate venturing, going back to the beginning of the effort?
A Like most efforts, you evolve because of some needs, some internal needs. Let's say that we are building a new generation of wafer fabrication facilities, and we have committed $1 billion to this new facility somewhere 3,000 miles away, and somewhere in northern New England there is a tiny little company with a little instrument that they are designing, and our people really feel that it should be an important part of that new production line.
That's only about a 30-people company. Who knows whether they are going to be there in time? So the first thing that our people say (is) ``Gee, we have to shore them up. We have to send some engineers. Let's invest in the company. Let's make sure that they are not limited. Let's make sure that they can deliver the product because we need it by July 1 next year.' So you make an investment.
And there's another scenario, you make another investment and you find that, ``Gee, I need to shore these little technology companies up because I need their technology for me to be able to advance my technology.' And that's how it starts. The next big stage was really when we realized that if you can align new strategies with that of, for lack of a better word, ``complementers' -- people who complement your products in the marketplace with their products -- you can accelerate the development of new market ecosystems. You know, in a fast moving market, even if that acceleration is no more than two, three, six months that's a big deal. We're talking about multi-billion dollars up, multi-billion dollars down when a new generation of product comes.
Q What kind of involvement do you have with the companies? How active of an investor are you?
A That really depends on the company. Some of the engagement may mean that we will end up tuning software for the company. Some of the engagement may mean they participate in our marketing programs. Some other engagement may mean some technology relationship in either direction, some channel relationship in either direction.
Q How early in a company's life will you invest?
A A seed stage is a difficult one for us since we don't take board seats. We are not really in a mode of overseeing the company's development as a company. We are much more in the technology and the market engagement side. So A, B rounds (financing rounds raised after companies are established for development of the product or service plus marketing and sales) are the most comfortable ones for us.
Q What is the ideal way of exiting an investment for Intel? Are you looking for an acquisition? Are you looking for an IPO?
A The ideal thing for us is that a company succeed in its marketplace because that was really the idea in the first place, that they help our market. The number of times we ended up acquiring a company when we were investors, in my memory, I think there was only one company. When a company has an IPO eventually there are some of the shares that we end up disposing, but we have to be very careful not to hurt the companies in the market.
We don't want a headline that Intel walks from the company. That's not the idea. Strategic relationships are likely to continue, but there will be some sale. It's probably logistically easier if the company gets acquired, but it really doesn't matter. Frankly, if they succeed in their market, the financial returns will be there, in one form or another.
Q Even with the strategic focus, how important is the financial return for Intel?
A It tends to validate that you are investing in companies that may have some market impact, but that's about the most important thing. We are not depending on it to pay the light bill.
Q Are you seeing (more competition) more from traditional venture capital organizations or from corporations or from other sources?
A It's more from new VCs. (With) many of the traditional VCs, we have more established working relationships. Many times we will call the VCs because if there's a deal that we know and there's no VC involved, we don't want to invest. So we end up calling them again because of the complementary nature. And, you know, I have to admit and I'm pretty proud of that, many times VCs call us.
Q If I'm an entrepreneur and I have a networking company, and I'm looking around for financing -- I've already got my team built, my product is going fairly well -- why do I want Intel on my investor roster?
A Intel can be very instrumental in driving standards. Intel can be an amplifier of companies' channel capability (the ability of a company to distribute its products). There may be Intel technologies that are on the drawing board that may be relevant to the company. Our road maps (Intel's product plans) are much more available when we want to do market development for partners that we do (invest) with. I think probably the last on the list ought to be that Intel has money because money is available. And I realize there is some cache value, but I think it's those other areas.
Q How important is the cache value?
A I don't think it's that important. Many times the company feels that it's very important. But I may be underestimating. Maybe I've been too long at Intel.
Q Do you foresee any changes this year, any new challenges, any new areas of focus?
A The biggest change in the business -- it's been rapidly increasing over the last year, you'll see more of the consequences of it this year -- (is) the enormous amount of money in the system.
Q What does that mean to you?
A Irrationality. By all of us. I mean, we are all guilty.
Q With a billion dollars in your checking account ready to write checks, how do you control that irrationality?
A We did mainly more deals. We expanded internationally. We didn't quadruple the money we put in companies. We didn't increase by an order of magnitude the money we give companies. About a third of our deals were international. That's a huge number. Most of the growth in the number of deals (in 1999) came from international number.
Q What's a decision you're proudest of?
A The decision is to really have the guts to start investing in complementers. That was a big step for us.
Q Give me some examples of some the ones that worked out well.
A Well, obviously E-toys worked out well. Most of the networking companies have worked out pretty well, like CopperCom, Copper Mountain, Covad, NorthPoint. These are all companies that did very well. Many of the Internet software, Internet-related companies like Inktomi, like Ariba, and others worked out well.
Q What's your biggest regret?
A The regrets are probably not being aggressive enough early enough. It's more of omission than commission.
Q Anything you're dying to tell me, anything you want to add that I didn't think to ask?
A When are we going to see sanity returning? |
