Intel Capital: How one big boy treats funding

• Chip giant’s investment arm out to evangelize technology and drive usage
• Investments must have both strategic and financial merit

WHEN it comes to startups and entrepreneurs, the funding discussion usually revolves around venture capitalists and business angels (or the lack thereof), and complaints about the conservatism of the banking industry when it comes to disbursing loans to technology startups.
 
We tend to forget that there are private equity funds and that the big boys play that game too.
 
Two decades ago, microprocessor giant Intel Corp established its global investment and M&A organization Intel Capital, with a mission to “make and manage financially attractive investments in support of Intel's strategic objectives.”
 
That arm was extended to South-East Asia in 1999, and has since invested US$95 million in technology companies in the region – and not necessarily startups alone.
 
“We’re a ‘stage-agnostic’ investor – we look at early-, mid- and even late-stage companies; even those on the cusp of an initial public offering (IPO),” says Sudheer Kuppam, managing director, Intel Capital South-east Asia.
 
“We have even invested in five-start, public-listed companies,” he adds.
Which of course then begs the question ‘why?’ ” Why would a chip company even want to do this?
 
“Historically, our intent has always been to nurture the ecosystems that are required to seed the marketplace to absorb Intel’s products. For a microprocessor to sell, you need a whole ecosystem – motherboards, the components that go into motherboards, the PC OEMs (original equipment manufacturers), and those making the various form factors, whether laptops, tablets or smartphones.
 
“At the end of the day, you always need innovation and entrepreneurship that will bring new technologies to the marketplace,” Sudheer says.
 
Since 1991, Intel Capital has invested more than US$10.6 billion in over 1,234 companies in 51 countries. In that timeframe, 199 portfolio companies have gone public on various exchanges around the world and 296 were acquired or participated in a merger, the company claims.
 
When Intel Capital started, its initial focus was on building up the largely hardware-based ecosystem. Its strategy in this part of the world is however distinctly different.
 
“In emerging markets like South-East Asia where the PC and broadband penetration rates are relatively low, what we do is try to evangelize technology,” says Sudheer (pic).
 
“The areas we’re looking at education, consumer Internet, data center and cloud computing – to ensure the region is ready for a growth explosion of broadband users – along with other interesting stuff like mobility, games, apps development, etc.
 
“At the end of the day, we want to make sure that we create enough interest, applications and customer experiences that would drive more people to get on to the information highway through their smartphones, ultrabooks or tablets,” he adds. “This explains our most recent investments.”
 
US$17mil in two companies
 
On March 31, Intel Capital announced it was investing a total of US$17 million in two South-East Asian companies: Singapore-based Reebonz.com, which it described as one of the largest private sales e-commerce groups in Asia for luxury goods; and Hanoi-based Vietnam Communications Corporation (VC Corp), an Internet infrastructure and services company.
 
Sudheer declines to say how much of the US$17 million went to each company, but notes that the one company would help drive engaging local online experiences and the other would potentially increase high speed broadband usage.
 
“Reebonz.com is a Singapore-based company with customers in Thailand, Indonesia, Malaysia and Vietnam,” he says.
 
Reebonz.com claims to be one of the largest private sales e-commerce groups in Asia, selling luxury goods, including fashion items such as handbags and accessories, to customers across South-East Asia and even North Asia and Australia.
 
VC Corp (Vietnam) offers online content, e-commerce, social media, ad networks and mobile value-added services, creating what it claims is the largest ecosystem of online and mobile services in Vietnam.
 
In Malaysia, Intel Capital has invested in Dealmates.com, Packet One Networks (Malaysia) Sdn Bhd (P1) and SelectTV Sdn Bhd.
 
Dealmates is an e-commerce company that leverages group buying principles to offer popular brands, products, and services to consumers; P1 provides broadband access, products and services; while SelectTV provides end-to-end systems for IPTV (Internet Protocol TV) deployment in the hospitality sector, and to consumers via partnerships with telcos and content providers.
 
Selection criteria
 
Intel Capital approaches its investments differently in other ways too. The investment must have strategic and financial merit, says Sudheer.
 
“If the investment has no strategic merit but is extremely financially attractive, we won’t invest in it – and the same applies the other way around. One without the other is not good enough,” he says, adding that both have equal priority.
 
“Financial merit is pretty straightforward to measure: Like any other investor, we would look at the IRR or investment rate of return.
 
“On strategic front, it can be about whether it benefited any of our product groups or pushed the market forward towards any of the features we’re trying to embed in our products, but essentially, we want to see growth in that marketplace being catalyzed by our investment,” he says.
 
Focus to continue
 
Intel Capital does not see its strategic focus in South-East Asia changing anytime soon, at leats not until the region with a population of about 600 million emerges into a more mature economy.
 
“In general, if you look at where we’re heading, South-East Asia has anything between 100 million and 120 million broadband users; we expect to add or enable another 200 million to 300 million broadband users in the next three to five years,” says Sudheer.
 
“Right now we have portfolio companies in Malaysia, Singapore and Vietnam; we continue to look for opportunities in Indonesia and the Philippines as well, and hopefully in the future we will close a deal or two there,” he adds.
 
As for searching for potential investments, Sudheer says his team sources information from venture capitalists, trade shows and other avenues, occasionally getting a lead from its business units or channel partners in the region.
 
“Typically, because we’re Intel and we have a local presence in many of these countries, entrepreneurs tend to reach us directly,” he says, adding that interested entrepreneurs can also contact Intel Capital’s investment professionals directly too.
 
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