Andrew Gaule talks to Arvind Sodhani, president of Intel Capital and executive vice-president of Intel.
Give an introduction to Intel Capital and what your brief and objectives are.
Intel Capital is the strategic investment arm of Intel. The objective of Intel Capital is to support the strategic initiatives and objectives of Intel’s business units. We support our business units across Intel. And have been doing so over the years.
Give us an insight into the focus areas on the technology of the business models you are particularly looking at.
Yes, so we are a very broad based technology investor. Our mandate to invest stretches all the way from wearables and the internet of things on one end of the spectrum to data analytics and cloud computing on the other end. And everything in between includes clients, laptops, smartphones, base stations, communication, and servers of course. In addition there are other areas relevant to all of those sectors. For example: security is applicable to everything: every device, every piece of software, everything that we do has to be safe and secure. Silicon is also important. Getting the right silicon into the right products is always very desirable and at the end of the day we are a manufacturer of silicon and silicon technology.
I have worked with some of your colleagues before, in China, and these high-growth economies. What is your view on the growth of countries like China and where Intel wants to invest in those areas?
We started investing in China in 1998, and we were one of the first venture capital (VC) investors to arrive in China, and over the years invested over half a billion dollars in VC startup companies. Initially, we started investing in companies to create a total available market (TAM) expansion in those countries, things like getting portals up and running. Companies like sohu.com for example, and other portals that were needed, with software geared towards Chinese language. That was just to get the PC market going in China.
Over the years we have continued to invest in what I would call “business model innovation”, in the sense that every country has their unique way of doing business and you need applications that will address their business practices. For example, banking, and insurance tend to be very unique to each country and each market, and so you cannot take a banking or an insurance application from another country. So we invested in many of those.
We saw a lot of those business model innovations. Now, increasingly in China, we are beginning to see technology innovation, where they are coming up with innovations in technology that have become unique and relevant. One other facet to the Chinese marketplace is that the core structure of Chinese manufacturing and the income levels in China dictate that products have to be a much lower cost than in other parts of the world. So products have to be to meet the price points that make sense in China.
You simply cannot take products that are in the mainstream. You cannot take products that sell in the US or in Europe and sell them in China because you will get the top tier consumers with that product but you will not get the mainstream, high volume because the mainstream price points are very much different and lower.
I have seen in the past in China, and written about, what I would term “enter the dragon”: that we are going to see technologies and business models rising within China, which will then come out. Are you seeing leading technologies or business models that are now going to become global rather than just being local to China?
Yes we are already seeing that. For example the China Technology ecosystem that develops the tablets and smartphones is exporting tablets and smartphones to countries all over the world. One of the biggest markets that they have overseas is India. Indonesia and Africa are also large and growing markets. We are seeing the ability of those manufacturers to be able to address global markets with innovation that started in China.
We are at the CVIP conference at the moment, and people are saying that they are admiring what Intel Capital was doing in terms of linking Intel Capital into the business, particularly in wearables, and how you are linking those into strategy. Have you got any views on how you are approaching those new areas now, or those new value chains?
Yes, we are also in the business of creating and developing ecosystems in which new products can emerge, and wearables is a very good example. We invested in a wearables company, Basis Science, about a year and a half ago and subsequently, our business unit bought Basis and that business became part of the foundation of the wearables business Intel is developing. So we have been very instrumental in helping the wearables group, the “New Devices Group” as they are called at Intel, to get established and get into new businesses. We work with all of our business units hand in glove to help them in a variety of different ways.
One of the dilemmas for a lot of the corporate venture capital units is demonstrating strategic value. How do you demonstrate your strategic value within Intel Capital?
Yes, this is a very difficult issue, and all corporate venturing efforts and units will have to show, and prove time after time that they are indeed adding real value to the business units. This is not easy. It takes years and years of having tried it, and figuring out where exactly investing in start-ups really helps and adds value. Our business units tend to be multi-billion dollar businesses for the most part, and so the ability of a small startup to add value to a very large business unit can be very complicated.
Do you have strong metrics for that? Or is it more about the business unit manager saying, “Arvind and his team are good people”?
I wish it were that simple. We have metrics and measurements in how we are performing. We regularly get feedback from the business units. We ask them to grade the deals when we do them and we ask them to grade the deals when we exit the deals. So not only do we want to make sure that when we invest in a company it is graded by the business unit, but also when we exit the deal, which can be many years later. We may have very successful financial exits which the business unit look and say, “interesting, but it did not do much for me.” So getting business units to engage is not as easy as it looks. We continue to focus on this and it helps.
One of the techniques you do use though is your big technology showcase event for the companies you are investing in, which helps the whole ecosystem. Give us some insight on the programme.
There are two facets to that, what we call the “Intel Capital Technology Day”, ITD for short. It originated with trying to help the portfolio company get in front of customers, and we did this with the Global 2000, our customers at large. Because we have those relationships, we have the trusted relationship with these folks all over the world. So we would take our portfolio companies to meet with customers all over the world because, as a startup company you are not going to get in front of a very large multinational company. Small startup companies are just not going to get in through the door, and it will take six months to a year and you will spend a lot of time and energy and money, and you may not get any business at the end of the day. Because for large, multinational, Global 2000 enterprises it is hard to do business with a $20m revenue company, or a $50m revenue company, they just do not get to the level of comfort.
So it is a win-win, it allows our portfolio companies to get in front of likely customers, supported by us. It is a win for Intel’s customers because they feel comfortable and they get to see technology and innovation that they would otherwise not be able to either find or feel comfortable with. We have curated it, so to speak, so we are bringing the best of the best companies that we are working with. Then it is a big win for us because our customers are happy; our portfolio companies are getting a chance to do some business and establish new products in new markets.
The other facet of that is we also do that for our business units in house. We just had one recently where our laptop business unit, called CCG (Client Computing Group) had an opportunity to meet with 18 of our pipeline companies, not just portfolio companies, but pipeline companies, to see what they think, to get some initial feedback. And that has been very powerful.
Further, we also put together an annual networking event, the Intel Capital Global Summit. This has grown to over 1000 attendees. While this is mainly for our portfolio companies and customers, we find Intel executives eager to attend to work with our customers and portfolio companies.
What do you do to relax?
Well, I have got to tell you, investing and seeing these companies grow and be successful is a lot of fun. We just had an initial public offering (IPO) in one of our portfolio companies called Box, which just had an IPO a couple of weeks ago. So we are always happy and delighted to see our portfolio companies be successful. Last year, we had roughly 26 exits in our portfolio, which was down from our typical 35 to 36 exits. So I am always happy to see this and engage with entrepreneurs. But there are other things I also do that are fun.
What are they?
I am big into wines, so wine is a passion for me, and I recently bought a vineyard in Napa. My first vintage is coming out in the middle of 2015, which is an absolutely blockbuster vintage in Napa, so I am truly excited about that.
Andrew Gaule leads the GCV Academy developing the capabilities and expertise of organisations leading Open Innovation, Venturing and Corporate Venturing programs to drive strategic benefit. Gaule also supports innovation programmes and collaborations in new value chains in global organisations. To contact Andrew Gaule and for future interview ideas email firstname.lastname@example.org or Toby Lewis email@example.com