Intel Capital, the corporate venture capital arm of Intel, the world's largest-chip maker, has invested $9.5 billion in 1,050 companies till now. The VC arm of Intel had a relatively slow year (2009) with startups hesitating to raise equity due to fears of lower valuations in a downturn. But, the firm is expecting a better deal year in 2010 and is eyeing opportunities in the emerging BRIC (Brazil, Russia, India and China) markets, says Arvind Sodhani, president, Intel Capital and Ex-VP, Intel Corporation. In an interview with VCCircle on the sidelines of the Intel Capital CEO Summit 2009 in Huntington Beach, California, the 54-year-old Sodhani said, innovation in technology will lead recovery. Excerpts:-
Intel Capital has invested over $200 million over 102 deals in 2009 so far. What is your outlook for 2010?
In 2008, we invested $1.59 billion over 169 deals including a billion dollars in Clearwire (a US-based wireless broadband service provider). Till November this year, we have invested above $200 million. Clearly, we are not going to invest as much as we did last year. Many companies have been unwilling to seek capital. My guess is that 2010 will be a bigger deal year for us. But, it is very difficult to predict how much we will invest as it is a function of lot of variants: companies have to seek financing, meet our strategic objectives, financial viability test and diligence. We are likely to see more deal flow.
Do you see any geographies leading deal flow?
In 2008, Intel Capital invested about $1.59 billion in 169 investments with approximately 62% of funds (excluding Clearwire) invested outside North America. A lot of our investments are currently going to China, India and South East Asia. We have a small presence in the Middle-East. We are driven by the fact that innovation takes place all over in the world. BRIC countries and emerging markets are going to experience higher rates of growth. But, the challenge is that we need technology that is specific to these markets. These factors position us to invest in BRIC countries and emerging markets. We have large teams in China and India and people in Korea, Japan, Singapore and Taiwan. We have more investments going into that part of the world.
Do you see valuations correcting?
Valuations have come down from levels reached in 2008 and 2007. I can’t make predictions about 2010. The valuations are somewhat benchmarked to the equity valuations, which have gone up this year.
How is Intel Capital different from other corporate VCs?
The most unique way in which we help our portfolio companies is by introducing them to their customers. We are a global investor. We invest in more countries than anybody including all VCs. We are a technology company and we help our portfolio companies with technology and M&A roadmaps. We are active on their boards.
Any particular sectors where you are comfortably placed to leverage the upturn?
The keyword remains innovation and it is the most critical part of our investment strategy. We remain focussed on data centres, enterprise sector and mobility. Consumer internet, software as a service, cleantech and education are of interest to us.
What are the key takeaways from the challenging environment?
Investing in startup companies is inherently a risky proposition. The survival rate and success of these companies are a function of the economic environment. We do have a challenging economic environment currently, more so, in some parts of the world. When you are an investor, particularly in the innovation space, you cannot back off during periods of downturn. (Intel Capital announced 10 follow-on investments this year including two in India, Financial Information Network & Operations Pvt. Ltd, a biometric smartcard-enabled banking solutions, and Wortal Inc, a local entertainment events portal Buzzintown.com). You have to be consistent and persistent during such periods, particularly because they provide the opportunity to have better valuations. Innovation does not stop because there is a slowdown. Creative minds continue to think and come up with better ideas. In fact, innovation solves some of the problems during the downturn.
Is Intel Capital adopting a cautious approach by favouring more late stage deals?
We are a stage-agnostic investor and we make investments from pre-revenue to a pre-IPO company. We have invested in 1,050 companies till now over 20 years and our teams understand investing at various levels. Obviously, a pre-revenue company is riskier than a pre-IPO company. We evaluate companies on the risks they represent. We look at a company on its own merit.
You have said there is a tsunami of social media networks. What is the opportunity that this presents?
These trends will change the way companies advertise and build their brands. This is changing the face of internet and the way we conduct our lives, communicate, shop and so on. That will have repercussions across the board and it will require bigger data centres and networks. As a fall-out, energy efficiency and cleantech will become important. Going forward, companies will have to look at creating new ways of power generation and optimising it.
Shrija Agrawal of VCCircle attended the event held in Huntington Beach, California on Intel Capital’s hospitality.