Intel has been making investments in startup companies since around 1991 — an initiative that then-CEO Andy Grove supported as a way to get “insights into where users were headed,” explains Mark Rostick, a Senior Managing Director at Intel Capital who joined the chip maker and tech supplier in 1999.
A lifespan of more than a quarter-century makes Intel Capital one of Silicon Valley’s longest-running corporate venture capital groups. And the group has put north of $12 billion into more than 1,500 companies around the world, including companies like Cloudera, MongoDB, Broadcom, and Red Hat, all now publicly-traded.
But last October, Intel decided to reduce the size of what had become a 60-person investing group by 25 percent. A key reason was putting more dollars to work in fewer startups. We asked Rostick to explain the new focus, as well as some of the factors behind Intel Capital’s longevity.
Writing bigger checks. “It’s easy to do too many small deals. But then becomes hard to manage a big portfolio with a lot of small bets, and the entrepreneurs don’t have the time to pay attention to small investors. We invest $300 million to $400 million a year. Half [of that is] follow-ons, and half is new investments.”
“We had a thesis — that where we did best was where we had a more active role and position, like 10-20 percent ownership [of a company] as an example, and where we took a board seat. We felt that aligned our incentives [with those of the startup]. That’s the model we wanted to get to, and we felt we were doing too many things that weren’t like that.”
Business unit links. “First, you have to build a relationship with the business units. I work with a number of business unit GMs who manage thousands of people. I have to earn their respect. They’re trying to make quarterly numbers. I have to get them to understand that I’m seeing interesting stuff; that I have an opinion on their business and what’s going on outside; that we’re peers; and that I want to help them find things that will help their business in the future. Nobody wants to listen to me talk about how I think something might be interesting if I don’t know your business.”
“There will always be times when you find a startup that is heading in the same direction as Intel, and they can work [with a part of the business], and it’s great. But what we’re really paid to do is to get out in front of the business units, anticipate what’s coming, and find great teams to execute on those opportunities. [Eventually,] the business unit comes to the problem [and] they realize, ‘That’s the new thing we need…'”
Incentives for corporate investors. “It’s particularly important to create an incentive for the people who’ll be making the investments. If you have a vested stake in the outcome of the investment, you’re going to work a lot harder to make it successful. It’s typical human behavior. But a lot of companies [with corporate venture groups] say, ‘We’re not going to reward people for making a good bet.’ But you have to be on the same side as the entrepreneur. You get rewarded when they win. That attracts the best talent [to a corporate venture group] that finds the best companies, and it makes them work unnaturally hard to win.”
“If an AI mathematician makes twice what a chip designer does, no one blinks. You have to go get the right talent to do this function. Don’t hire second- or third-rate talent.”
Invest to learn. Some companies approach corporate VC with what Rostick dubs an “invest-to-learn mindset.”
“They say, ‘We’re going to not really negotiate terms… We’ll dabble a little bit in equity and take a small position.’ They’re valuation-insensitive, and [they’re] passive investors. The issue with that is, it’s really hard to learn if you’re not active. And if you don’t have a sharp pencil, and you aren’t interested in making a good bet, the risk of making a bad one is a lot higher. You may not be associating yourselves with the best assets. Your whole thesis around learning is hamstrung from the fact that you’re learning from a second- or third-class citizen.”
Long-term commitment. “Every big company goes through period where they look at the venture group and say, ‘I need to make a number in the business. What are you doing to help me make it?’ That is a hard discussion to have. VC is not a good tool for helping people make their quarterly numbers. If [senior leaders] feel they’re wasting money because you’re not helping someone make their quarterly number, that’s where VC initiatives die.”
“The company has to be committed to it — that there’s going to be a certain percentage of risk we’re willing to take to find the next big thing.”