Corporate venture capital is one of the corners of the VC world that runs extremely hot and cold. When the startup world is gathering interest and money, practically every large company – even some small outfits – trots out its own venture investment group. But just as fast as they pile in with their corporate cash, the suits also run for the exits when times get dicey.
Take the previous tech boom-and-bust cycle. As the ‘90s ended and this decade began, corporate VC investment in startups soared from $468 million at the end of 1998 to $6.2 billion at the beginning of 2000, according to Thomson Reuters.
When the bottom fell out of the tech economy, the corporate cash crashed too, down to $848 million in the third quarter of 2001. Never mind that corporate VCs inevitably lose money on their deals, it appears that most public companies just don’t seem to have the stomach for it.
Still, a handful of tech companies have consistently stayed in the corporate VC game, including Microsoft MSFT , Qualcomm QCOM , and more recently Google GOOG . For these tech companies, buying technology and talent early is worth the risk (they all also happen to be sitting on billions in cash to invest). But perhaps the most steadfast corporate VC is Intel INTC .
The chip giant has invested some $9.5 billion in more than 1,050 companies since 1991. Its investments run the gamut, from seed investments of a few hundred thousands dollars in startups to buyouts of large companies like its recent $884 million acquisition of embedded software company Wind River Systems WIND (which, let’s be clear, is not VC; it’s a buyout). I had a chance recently to sit down with the head VC at Intel, Arvind Sodhani (his official title is executive vice president, and president of Intel Capital) to talk venture investing at the world’s largest chip company.
The problem with much of corporate VC is the reason for doing it. Is it strategic gains or investing to make a return? Without a clear purpose, corporate VC usually gets neither. Intel Capital’s reason for being is both, Sodhani says. “We need to return money to our shareholders, but we also need create demand for our technology through innovation and entrepreneurship,” he says. What the latter part boils down to is selling more chips.
In the early days of Intel Capital, the 1980s, the selling-more-chips part was accomplished by investing in specific software companies that could run on Intel architecture and promote the sale of more computers systems powered by Intel’s chips. One example was an early application that performed Chinese translation of PC software already tuned for Intel chips.
Today, Sodhani’s mission is a bit more diffuse. He and his team around the world are investing generally in companies that promote computing, the flow of more data through data centers, through smart electric meters or through the latest social network fad. “We benefit from growth in all those areas,” Sodhani says. “Take clean tech and the electric grid. As the grid becomes more intelligent, more computing will go into things like household meters. We want to get our Atom processor into meters, and there are 120 million households in the United States alone.”
At Intel’s recent CEO Summit in Huntington Beach, Calif., Sodhani announced seven new investments totaling some $25 million. The lucky companies included Joyent, a Bay Area-based cloud computing company that competes with Amazon’s EC2 service; a Japanese video conferencing startup, V-Cube; and Korea-based Crucialtec, which manufactures trackballs for mobile devices, among others. He also announced a series of follow-on investments. Among that class are Argentine social gaming company Vostu; India-based local entertainment events portal (Buzzintown.com), and an Israeli security software company (Safend).
It may be a winding route from social gaming in Argentina and trackballs in Korea to selling more chips, but that is the point, Sodhani says. That and making money on his deals. “We have had more than 400 portfolio companies exit,” he says, adding, “We are in the top tier of investment returns.” For those who have spent any time in the VC world, that last statement ought to ring a bell. Every VC, according to their calculations, is in the top tier. Whether that is true or not in Intel’s case (it depends on what your definition of a tier is), is a bit beside the point. Sodhani and his team do have a different mission than most VCs, and their only limited partner is their corporate parent and their shareholders. Even so, it’s nice to hear a corporate VC brag, a sign that these are no dilettantes; they are in it to win.