Gaule: Give a brief description of the Intel fund, when it was formed and how the process occurs in your organisation.
Guefor: Intel Capital invests wholly off its balance sheet and has been strategically focused from its formation. We have designated certain pools of cash over the years as separate funds, the most recent being a $100m AppUp fund announced in November 2011 to catalyse the development of applications and digital content for Intel-based devices. Being a balance sheet investor has been a huge advantage. While other investors have suffered from liquidity pressures or difficult fundraising environments, we have been able to continue investing without hindrance. It also means we can take a much longer-term view of our portfolio, rather than be forced to manage on a fund-by-fund basis with a shorter term outlook. Intel Capital has been investing for over 20 years and has refined its approach over that time.
Gaule: What is the need driving the Intel Capital approach?
Guefor: Intel Capital is one of the tools that Intel uses to drive innovation that fills gaps and paves the path for years to come. Intel’s business is becoming more complex and wider in scope as Intel enters new product segments and expands its geographic coverage. The work Intel Capital does helps our business strategically with its expansion plans and also helps us to learn about new ideas and technologies outside Intel.
Gaule: Give us some insight into the approach you are taking to emerging market investments.
Guefor: We take our role as a pioneering investor in emerging markets very seriously. We were one of the earliest international investors to set up shop in China and India in the late 1990s. Similarly, we entered eastern Europe and Russia around the same time and have developed a portfolio in the Middle East, Turkey and Africa over the past five years. We think the growth of a vibrant venture capital community accelerates the adoption of new technology and spurs innovation among entrepreneurs. The fact that we cover all major economies of the world means we can compare and contrast the best ideas and entrepreneurs on a worldwide basis. (Guefor gives further insights on emerging markets, including deals in Russia and Turkey, in the audio recording.)
Gaule: Give us a brief overview of the people in the team and the partners you work with.
Guefor: The EMEA team consists of two sub-teams totalling some 15 investment professionals spread throughout the region. The two sub-teams focus on the more mature parts of the region – western Europe and Israel – and the faster-growth areas – eastern Europe, Russia, the Middle East, Turkey and Africa. The team has been stable for quite some time, and that is needed as it takes around three years to build the skills and get to know the partners and the business units. Keeping in contact with the business is a key role, so finding the right people internally and externally with technology and deal experience is important. Intel Capital is seen as a destination and not a location to rotate staff.
Gaule: How do you measure the benefit of Intel Capital to the business in hard and softer metrics?
Guefor: In my treasury role we measure internal rate of return [IRR – a measure of annual financial performance] and cash-on-cash returns, as all investors do. The strategic benefits that accrue to Intel are as important and these are more difficult to quantify. We have worked on having a range of measures which had a strategic milestone focus but these became too bureaucratic and did not add that much value. We run a profit and loss approach of accounting – as Intel does off-balance-sheet investment – and we also run a shadow accounting structure to enable us to do a comparison of a fund investment with costs and carry to enable us to indicate an IRR and cash-on-cash return metric which is comparable to the VC stats. Ultimately we have found that asking our business partners is the best way to measure the strategic benefits. We regularly talk to the heads of the business units at Intel that we work with and they grade us on whether we have helped them, both in devising their strategies as well as with investments and how we can do better.
Gaule: What happens when there is a difference in view with the business unit in making an investment decision?
Guefor: There is a tension between the time horizon the fund is looking at and the focus the business unit has on current developments, so Intel Capital aims for around 10% of investments to be eyes and ears for the business, and this includes the Intel laboratories, so we can do investments that may not initially be supported by a business unit.
Gaule: What has been your most interesting recent deal?
Guefor: 2011 was a very busy year for Intel Capital, both in EMEA and worldwide. We will have invested around $500m. There have been many interesting deals and we have been doing deals much closer strategically to Intel than we perhaps did in past years. I would call out the two deals we closed in Turkey this year, Nokta and Grupanya, as they were the first we closed in Turkey after watching and visiting that market for many years. We see great opportunities there for technology investors. We also closed two deals this year in the area of perceptual computing, Omek and Total Immersion, and we think the way we interact with technology in future will change. Just as we went from keyboards to mice to touch, we think gesture recognition is the next phase and we hope our investments will help accelerate this trend.
Gaule: What do you do to relax?
Guefor: Spare time is precious, and there is nothing more important than spending it with the family. However, as my three kids grow older, I am spending more and more time helping with homework. I also love to get out on my bicycle and I find the sights and smells of the countryside really help me unwind and declutter my mind.
Guefor will be stimulating the discussion at the Corven CV Senior Executive Forum on March 29 on the topic of measuring and reporting the benefits of coporate venturing.