Symposium: Arvind Sodhani fireside chat

Lewis: Arvind Sodhani has put together a corporate venturing unit that has now invested more than $11bn, which is a staggering amount. This is his first trip to London in four years, and one of our guests commented: “We all want to be Arvind.” Any of our improvisation on stage could not beat the kind of improvisation at your global summit, where this year you tried on two pieces of wearable kit.

Sodhani: Yes, the focus of my keynote was wearables and so we wanted to impress on the audience how focused we were. We have done a number of investments. We have a processor Quark coming out so we have a lot of efforts in wearables and the internet of things and those are all interconnected all the way to the data analytics part – data centres – so that is why I was showing off a lot of devices we had funded.

Lewis: How did Intel Capital get to where it is now?

Sodhani: We got started in the mid‐1980s, and during that time, if you recall, personal computers (PCs) had sort of just come out, there was not enough software, there were not enough devices attached to the PC and we also had a lot of people leaving Intel to start up their own companies.

We were coming to the realisation that we could not fund all the research and development (R&D) needed to grow the PC ecosystem and so I went to Andy Grove, the CEO at that time, and suggested to him that instead of fighting the trend, why don’t we take a minority investment in those companies. Grove, to his credit, agreed to the idea. It was a novel idea – most corporations typically don’t take a minority investment in other corporations.

That’s how Intel Capital got started. It was not called Intel Capital but subsequently we changed the name to Intel Capital. It has evolved over the years. Like any organisation, you have to keep evolving with the needs of the organisation and we have built a very large team. We have close to 200 people globally – 100 of them are investment managers. Our people have a lot of experience. We have physical presence in 25 or 26 countries and it takes a large team to do this.

Lewis: How did you get involved in it?

Sodhani: I sort of started Intel Capital back in the 1980s and I was treasurer of Intel at that time. Then probably about eight or 10 years later – at that point in time there was no formal organisation – Les Vadasz became president of Intel Capital. Les Vadasz was very close to Andy Grove and we supported him through the process.

Lewis: How do you get to this scale? What sort of growth pains do you need to go through?

Sodhani: First of all you need a motivated team. You need the support of the organisation, you need the support of the corporation, you need business units to help and then finally you have to add value.

We are focused on helping the business units, helping the strategies of Intel Corporation and then ultimately providing a risk‐adjusted return to the corporation. Those two elements – strategic value‐add to the corporation as well as financial return – are critical elements in long‐term survival of a corporate venture because, and I would imagine that would be true for most people, you will continually hear that “we are doing this for strategic reasons”, but if your financial numbers are not attractive or are producing lots of losses, then the risk increases that the effort will get shut down.

That is sort of what happened. In the late 1990s we began seeing many corporations start VC efforts and then when the losses showed up in the early part of 2000, many of the corporate groups got shut down. So both the strategic value‐add and the financial returns go hand in hand. We are focused on both adding value to the corporation, doing all the right things that help it long-term, as well as providing a financial return.

Lewis: Say this current cycle – a boom period in corporate venturing – turned, what would your recommendation be to people coming into that kind of situation given that you have been through these changes before?

Sodhani: Not very different from what I just said. You have to make sure that you have the support of the board and the management. It is very likely that the losses will show up first before the gains will. The strategic value‐add is going to be a subjective test. You would have to show exactly how you added value. And then finally it is a people’s business. You have to have the right, motivated people.

We learned early on, and we put together a programme to compensate our people adequately, consistent with what the industry does. We put together a career programme for our investors so that they get paid on the financial success of the deals, so we made sure that we motivated our investors to invest successfully for financial return, to focus not just on the strategic aspect but on the financial return aspect as well. The career programme was instrumental in focusing the effort there.

The career programme was not easy. I have to tell you that in a corporation putting together a career programme that pays out very substantial amounts of money to employees is not a slam dunk. In fact it has to be defended on a yearly basis. It is not easy and gets reviewed every year. I have been doing this for years and years now, defending it and treating it and responding to management’s concerns, but it is very important to have that programme to compensate the investors, to motivate them, to make them compete.

We compete with the venture capital firms (VCs) of the world. If you look at our rankings globally, you will notice that we get ranked first or second or third by exits, by amount of money invested, by the number of deals, and our returns are very significant currently and have been for a number of years. We have been self‐sustaining.

Lewis: How do you get to the stage in a relationship with a VC where they do not say: “You are a big corporation, you have a massive balance sheet, clearly we will get you to pay the highest price for deals”?

Sodhani: That is a danger. The typical approach of the VCs has been that the strategic investors – the corporates – are the second round, the ones that will pay up big time. Unfortunately that is a sad situation to be in, in the sense that I believe corporations have the ability to add a lot of value to start up companies because what the corporates have is the relationships, the customers and the relevant domain technology, domain expertise, that most VCs do not have.

For the most part, VCs have a very limited Rolodex and they can put their start up companies in touch with or introduce them to a number of other players, but they cannot match the Rolodex that you and I have. You and I have Rolodexes that are huge and they are put together with a huge salesforce so we benefit from that enormously. 

Lewis: Presumably in your globalisation efforts, the Sand Hill Road [Silicon Valley] VCs are not going to be very well known by many people in India or China. Presumably the brand of a corporation really helps in those kinds of markets.

Sodhani: Yes. The other thing I should have mentioned was that early on we started building our brand so that the brand itself becomes a very attractive proposition for start up companies.

What we find with our global brand is that we get entrepreneurs calling us based on knowing the brand and the success of the brand over the years.

We started investing in China in the late 1990s, in India a similar timeframe, Latin America in the early part of 2000 and so now we are a global brand and we built our brands in those countries much sooner than anybody else. We probably have a stronger brand in places like China, India, Brazil, Russia, and central and eastern Europe simply because we got there before any other VC with our brand.

Brand is critically important to the success of getting the dealflow.

Lewis: Looking back, going into central and eastern Europe, Asia and China in these periods were great moves but how do you make the decision at the time?

Sodhani: We look at a lot of countries. We have folk in London, in Israel, in Poland, in India, China, Hong Kong, Taiwan, Korea, Singapore and São Paolo, so we have a lot of people and they cover the geographical areas and they keep an eye on countries to monitor economic development, technology adoption and entrepreneurial activity.

We keep an eye on a lot of countries and recently we set ourselves up in Nigeria, so we have hired an investor, located him in Nigeria and he is scoping the country and the region looking for investments in that part of the world.

Not every one of them turns out to be a success. In some places we set up an office and then it turns out that there is not a lot of dealflow so we do not always get it right.

Lewis: You have been pretty active in Russia as well.

Sodhani: Russia was a very interesting situation. We went there in the late 1990s. We cover Russia from Poland and our first investment in Russia was Yandex, which was a home run for us and so we instantly got a brand name in Russia. Now we are a well known brand and we are very active in Russia.

Lewis: What is the core focus for Intel Capital right now?

Sodhani: Let me try to paint a picture. We are investing in the continuum from wearables and the internet of things on the one hand and data analytics on the other and everything in between. It is an interconnected continuum, or an ecosystem. For example, the internet of things involves sensors generating tons of data – your wearables are taking your heartbeat, taking your pulse, taking your blood pressure and that data gets transmitted through the networks, through your smartphone, your laptop, your Ultrabook, your tablet and we are active in all of those through some kind of app.

It goes through the networks – we are very active in the networks and the infrastructure – and then it is transmitted to base stations. We are active in base stations, we are active in, as I said, infrastructure. It finds its way into data centres. We are a big player in data centres, in cloud infrastructure and storage networks so we are investing in all of those.

And finally data analytics – trying to glean from the data valuable information – so we look at it as a continuum, as an ecosystem and as a continuum in which every piece is interrelated and interconnected.

We are following that thesis and investing in everything from the internet of things all the way to big data analytics and there are things in the middle, like the connected car for example. Increasingly cars are getting connected and I suspect the ultimate evolution of the connected car will be a car that will drive itself. I suspect in the next 10 years we will see a car that is going to drive itself and is probably safer than human beings driving cars. There are so many car accident deaths that I suspect that a connected car will be in a position to avoid those.

Lewis: Why does Intel Capital occasionally get involved in these very big strategic deals?

Sodhani: The jumbo minorities as you called them – Toby invented the phrase jumbo minority referring to the Cloudera investment.

Cloudera was a very strategic investment for us. There was an involvement from the CEO himself. It was setting the strategy of our approach to the foundation for data analytics. Data analytics is in its infancy. If you are a corporate IT person you are trying to figure out “Whose Hadoop am I going to use? Am I going to use Intel’s, Cloudera’s, Hortonworks?” There are half a dozen Hadoop offerings.

From a strategic point of view we said we are going to help and endorse Cloudera’s Hadoop distribution. We gave up our own Hadoop version and endorsed the Cloudera one and put all our weight behind them, supporting them as a portfolio company, and they optimise their Hadoop distribution to our silicon.

It is a strategic decision that we have made to partner an existing player and drive that really hard.

Lewis: You were saying that this deal has the buy‐in of the chief executive – he is very closely involved in it. Why does not Intel just buy a company like that at that scale?

Sodhani: It is a strategic decision to partner a software developer and a service organisation because Hadoop is open‐source software and it comes with a lot of service.

For example, we have done that in the past, so, for example, Red Hat was our investment and it was enormously successful as an open-source alternative and so we are sort of repeating the same philosophy again with Cloudera. It was a very successful strategy.

Lewis: What does Intel Capital consider when investing in Africa?

Sodhani: This answer is not just specific to Africa but we are encountering the same problems in Africa.

Whenever we go to a new country, the issue becomes what is the ecosystem there, is there a concept of venture investing, is there a concept of minority investing, are there instruments that we typically use, the preferred recognised by the law, is there a legal system in place, are the people there, do the entrepreneurs have the entrepreneurial zeal to really make it a success, is the entrepreneur looking for a lifestyle or really motivated?

All of the same considerations go in. In Silicon Valley and other parts of the world, like here in London and Israel for example, the ecosystem is highly developed. You have the lawyers, you have the bankers, you have the accountants, you have the headhunters and then you have the willingness of employees to join start up companies.

That is not true in every part of the world. There are places where none of that exists and so what we do and what we have done in many countries of the world is we try and build that ecosystem, and we are in the process of doing that in Nigeria and Ghana, for example. It does not happen overnight but we have got it done in many parts of the world.

For example, when we first arrived in China there was absolutely no concept of VC investing. In fact there was no concept of investing in companies, and so we spent a lot of time and energy working with the Chinese government to get that process started. Now you look at China and it is an incredible situation.

Lewis: Intel Capital is known throughout the world as very much an ecosystem play in corporate venturing, so how do you keep that strategy focused given how broad Intel Corporation is?

Sodhani: From time to time we work on developing an ecosystem. The last major ecosystem development work that we did was wimax, a development that came out of wifi, using the same kind of technology, and it was intended to be the next 4G. We worked on developing the entire ecosystem from silicon to software, to access points, to base stations, to base station equipment, to devices, to the baseband chipset. We had 25, 30 investments in wimax.

That is a very concerted effort we undertake from time to time. It is tough. Getting something launched like wimax is not easy and when our chips are coming out, those chips need a home to go into because when wifi chips first came out if you did not have access points all over the place, it would not have much utility and you get into this chicken-and‐egg problem. Unless there are access points, nobody is going to buy your chip and nobody is going to build access points unless your chips are there to use them. We are always trying to solve that chicken-and-egg problem and it is to try to create the ecosystem for our devices.

Lewis: The next steps seem to be wearables, data centres, those kinds of things.

Sodhani: Yes. Certainly in wearables we are in the process of creating an ecosystem. It is a completely new domain. It is a new space. We have been investing. We recently bought a company, Basis. We have invested in half a dozen wearable companies.

One of our portfolio companies recently won one US Food and Drug Administration approval to measure your blood pressure without a cuff, which is quite a significant development. So those are the types of things we do that it will generate a lot of data. Wearables can read your pulse, your heartbeat, your oxygen level, your moisture content and so on. That is very valuable in gleaning – when millions and millions of people over years have used this, using data analytics it will be possible to glean the consequences of that.

Lewis: If you were to pick one sector, which would be the winner in your portfolio as things are looking right now?

Sodhani: Until recently, a large corporation had an IT organisation. They bought their servers, they bought their storage, they bought their networks, they bought their application suites, they hired a whole bunch of people like IT specialists and programmers and so on, systems analysts, and they wrote their own applications. Then subsequently they started buying applications and adapting them.

What is happening is that that IT infrastructure is moving into the cloud and that transition from the corporate IT to the cloud is a trillion‐dollar opportunity in my view. After all is said and done, most large corporations with very few exceptions will have their IT in the cloud. You will get your IT from the cloud – it will be optimised, it will be organised, it will be infrastructure, it will be software. All of that is a huge opportunity and transition is taking place. That is what I would say is a gigantic opportunity that we are absolutely plugged into and investing in heavily. That would be my one pick.