Of all the corporate venture capital outfits putting money into startups right now, none are as storied or provably successful as Intel Capital—yet neither of the men who started it were proven investors.
Les Vadász was hired as employee number four in 1968 and went on to help create Intel's first microprocessor. Avram Miller joined the company in 1984 to work on computer products. In 1991, they teamed up to form what would become Intel Capital. The 25 years since have brought more than 1,400 investments, roughly 600 successful exits, and a reputation as a Tier One venture capitalist. But it didn't start out that way.
In a personal history of the group, Miller writes that at the end of the 1980s he'd taken on responsibility for corporate development, which included exploring mergers and acquisitions (M&A), joint ventures, strategic partnerships, and minority investments. Early deals didn't work out well. In particular, he says that small acquisitions failed to add value because the "Intel anti-bodies" attacked the cultures of the acquired companies.
"I was slowly learning that M&A would not work at Intel. It was also clear to me that joint ventures were like running in a three-legged raced with lots of coordination and little speed. Strategic partnerships could be useful but they were typically short lived with the exceptions of the symbiotic relationship represented by Intel and Microsoft. That pretty much left me with exploring minority investments," Miller writes.
In 1991, Vadász convinced then-CEO Andy Grove to authorize $5 million in minority investments as a way to get "strategic insight and market impact without the issues of integration," Miller writes. The pot would grow quickly. By the end of the decade, Intel had made successful investments in Broadcast.com, Verisign, and Broadcom, among others. Yet that was just the beginning.
From Strategic Investor to Tier One VC
Long-time Intel finance executive Arvind Sodhani became Intel Capital's president in 2005 and oversaw billions in new investments over the next decade.
On stage at the 2015 Intel Capital Global Summit, he described the team's approach as seeking "fellow travelers"—first in terms of startups helping to improve the functionality and usefulness of the PC and related technologies, and later in terms of partners with similar interests. Today, Intel Capital has a new president in Wendell Brooks but the global syndicate of partners with which it co-invests—a hallmark of the years Sodhani led the group—remains intact.
"What [has] really made the difference and was valuable to us was helping a company be disruptive, or innovate in a whole new segment, help create a new industry that in turn will need a lot of our products. Well, that turned out to be a very powerful thesis," Sodhani said in a recent interview with Declan Denehan, Managing Director at BNY Mellon.
Successful investments from this period include Box, MySQL, and VMware.
Key Takeaway: First, Provide Value
Can you offer something another corporate VC can't? Or could you partner with a traditional VC firm and create leverage that a startup founder may not be able to find elsewhere? Intel Capital gets significant deal flow by offering founders unique value, argues former partner Lisa Lambert.
"I think Intel is the most complete corporate venture firm in that [it] brings strategic value and the tactical tools to help companies go global," says Lambert, now a Managing Partner with The Westly Group, in a recent interview. At Intel, she helped orchestrate both the MySQL and VMware investments in addition to other successful bets.
Whether you're investing to incubate a useful technology for an eventual tuck-in deal or hoping to earn multiples on your invested cash, your ability to achieve superior returns is equal to the amount of value you can create for entrepreneurs. Intel Capital has "contributed billions in cash to Intel in its history" by approaching corporate VC in this way, typified by its annual summits that bring together entrepreneurs, executives, and VCs. Over 1,100 attended last year's event.
"In the beginning we thought the primary benefit [of corporate VC] to Intel was strategic," writes Miller, the Intel Capital co-founder. "We would have been happy if we just made a bit of money on our investments. But later, we realized that for a company to have strategic impact and help grow our market, it would have to be very successful and than mean we would receive a substantial return on our investment. That turned out to be much truer than we could have imagined."
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