With the speed and scale of the changes in the innovation capital ecosystem around the scaling up of the industry from a localized, cottage industry to a globalised, professional asset class it can be easy to lose sight of the fundamentals.
Intel Capital president Wendell Brooks’ (pictured) update on where the $566m it has invested so far this year has gone, and why, was a timely reminder of what it takes to build a world-class corporate venturing unit: thoughtfulness about what the entrepreneurs are looking for, and how they can be helped or be relevant to the parent corporation providing the money.
Brooks had indicated his intentions in his keynote at the Global Corporate Venturing and Innovation Summit in January 2016 when he took over the running of Intel Capital from Arvind Sodhani.
Brooks said while it would continue investing $300m to $500m per year, the unit would shift to leading more deals, at an earlier-stage, working with more diverse entrepreneurs, and that they would be more relevant deals for Intel given its shift from developing chips primarily for personal computers into what it now terms a data company, but that the focus would be on “what can we do for our portfolio companies, not what can they do for us”.
The update showed how Brooks had executed on these themes. Intel Capital has led more than 70% of its 32 new investments through October 2017. When he took over, Intel Capital had been leading about 40% of its deals.
Assuming this year’s new deals are broadly spread over the time period, and it is comfortably doing more than five per quarter even without leading any follow-on investments as would be expected, Intel Capital is in fairly limited company.
Data provider Crunchbase identified more than 1,250 separate investors that led one or more rounds, out of some 3,200 deals in Q2 2017, but indicated only 20 had led at least five in the three-month period, compared to 19 that had reached this milestone in Q1.
Brooks also said Intel Capital had moved further to earlier-stage deals, where 60% of its dealflow is now concentrated. The 15 deals it announced this week were concentrated on the seed and A stages, where disclosed.
The fact one of the newly announced investments, China-based artificial intelligence chip developer Horizon Robotics, was part of a $100m series A+ round indicates how far the stages have been stretched over the past few years.
As my colleague Kaloyan Andonov noted at the start of the week, the median size of rounds has grown considerably over the past few years, but especially at the later stages.
Intel Capital has also been pushing slightly against the mainstream, as professional services firm KPMG, using Pitchbook data, showed in its venture pulse report for Q3 2017 that nearly 2,000 series A deals were announced in the first nine months of the year, while last year’s series A rounds by volume had been lower than 2015 and 2014’s.
Intel Capital’s portfolio companies cover the waterfront of some of the most interesting areas in technology right now. Brooks said it was trying to be the “eyes and ears” for Intel for 2020 and beyond.
In practice, this means the unit’s investments were concentrated on cloud and storage; semiconductors, memory and integrated circuits (field-programmable gate array – FPGA, in the jargon); sports and entertainment; augmented and virtual reality; 5G wireless connectivity; software and security; new technologies and robotics; and artificial intelligence.
What all these areas seem to have in common is an expectation of requiring or creating more data, hence why the 15 selected for showcasing were focused in this “data” world, and why Intel is increasingly referring to itself a data processing and storage company rather than just a chipmaker.
But while the areas might be hot, the type of entrepreneurs being backed has been changing in other ways. Brooks said in 2015 when he joined Intel Capital 6% of its portfolio were diverse, in terms of being female or ethnic minority-led.
The proportion climbed to 15% in 2016, and in the first half of this year it increased to 20% as the entire Intel Capital team began to look at the issue rather than just a few partners.
Brooks also referenced a new program started this year to take one Hispanic sophomore student and four African-American students and give them a summer internship at Intel, before paying for them to come back in 2018 to hopefully work at portfolio companies.
These levels of diversification are considerably higher than most of Intel Capital’s venture peers. Bryce Roberts, head of media group O’Reilly’s AlphaTech Ventures corporate venturing unit, in a blog post about peer Softbank’s $93bn Vision Fund said: “One look at their investments and we can see this sameness already playing out – to date, they have only backed companies led by guys.
“One look at their team, and we can see that sameness playing out another way – the team is all men. Mostly bankers.
“95% of current VC dollars go to guys just like them, so it is no surprise that they are doing more of the same.”
Still, when Jonathan Bullock, chief operating officer and managing director of SoftBank, spoke at the 2017 Global Corporate Venturing Symposium in London just a few days after the initial close of Vision Fund in May, it was alongside Ana Segurado Escudero, director of Open Future at telecom firm Telefónica, and Heidi Roizen, operating partner at venture capital firm DFJ, and the importance of building something unique through differentiation and far-sighted strategy was clear.
In Softbank’s case, the focus is on rounds of at least $100m in size and often $1bn or more with a particular emphasis on data and AI as the world moves towards “singularity”. In this light, and given venture’s historic focus on backing men, it is of little surprise the larger, later-stage rounds are male-dominated, whether for Softbank or anyone else.
The difference in future will come when the more diverse cohorts backed by Intel and other thoughtful investors such as Backstage Capital, which this summer hired Christie Pitts from Verizon Ventures as investment partner and chief of staff, mature, and whether the likes of Softbank then back them.
If so, Intel Capital will reap even more rewards than it already does, its 25 exits so far this year including the flotation of businesses such as MongoDB’s this week.
Overall, therefore, Intel Capital’s approach under Brooks is setting new standards in best practices, but the real differentiation comes in its execution.
