The team at Global Corporate Venturing has been fortunate enough to work in or visit a host of countries in North America, Europe and Asia this past 12 months and this Outlook edition sums up the innovation spirit alive in all corners of the world and across all companies, from start-ups to multinational conglomerates, and in all sectors.
Perhaps no other corporate venturing unit best exemplifies the opportunities that exist in this globalised innovation paradigm than Intel Capital, which has invested more than $10.7bn over the past two decades in more than 1,200 companies on behalf of the chipmaker.
And, for this special Innovative Regions analysis, Intel Capital’s cadre of senior executives talking at their Global Summit in California in October provided insights into the innovation ecosystem globally and what opportunities they are seeing.
Arvind Sodhani, president of Intel Capital and executive vice-president of its parent (pictured), summed up its mandate to be a truly global venture investor looking for the best entrepreneurs and offering value-added help for their growth beyond simply providing capital.
He said: “We believe innovation happens everywhere and is not limited to the US and Silicon Valley. Downturns come and go but innovation never stops and investment is the mother’s milk of innovation.”
Intel Capital had more than 300 – about three-quarters of its total – portfolio company senior executives at its Global Summit to swap ideas and benefit from the insights of the technology company as well as meet other large corporations that could be investors, suppliers or customers. The portfolio companies attending the Global Summit were drawn from all sectors and regions.
Last year, Intel Capital made 59% of its investments outside the US, with some countries, including Ghana and Spain, receiving their first Intel Capital investments.
Intel Capital is located physically in 26 countries, including places where it is one of the few true venture investors (see table below).
Intel Capital’s size and broad interests also give it the ability to help create new technology ecosystems.
Lisa Lambert, vice-president and the senior managing director of Intel Capital’s software and services group, gave the example of digital store-fronts, where her team of eight had made 20 investments in the previous year to help build the required ecosystem of infrastructure – such as payments, analytics, recommendations, loyalty, as well as content and the mobile and operating systems – ready to formulate delivery of the product to the customer.
The entrepreneurs that can support this ecosystem can be found almost anywhere and then scaled, potentially globally, using Intel’s contacts and help. Broadly, Intel Capital is looking for entrepreneurs in countries that can boost the region’s total market for its chips and innovative technologies, but will invest if the business promises to be a financial success, sustainably and profitably.
Marcos Battisti, managing director of Intel Capital in western Europe and Israel, said: “We want to be global but invest locally. Our advantage is being able to tap Intel when we have found a portfolio company. The challenge is getting the entrepreneur adopted by a big company. We invest ahead of Intel and identify and take a view on trends.”
For his region, he added: “Europe is not only competitive in innovation with US technology but, like the US, has everything and in many areas is ahead, such as perceptual computing, automotive, digital signage and communications.”
In other regions, the potential for investment can be broader.
Keith Larson, vice-president and the senior managing director for Intel Capital’s manufacturing sector investments, said: “We look at emerging markets in terms of total available market for expansion for PCs [personal computers] and services but also for ways to bring innovation back to [Intel’s] core sectors, as innovation knows no boundary.
“For example, [look at] the speed of geographic shift in mobile leadership – I backed [Blackberry smartphone maker] Research in Motion in 1996, and it has gone from Europe to the US and China and now [interesting plays in] eastern Europe or Africa.”
On Larson’s emerging markets panel at the Global Summit, Marcin Hejka, managing director of Intel Capital in eastern Europe, Middle East and Africa, said central and eastern Europe could boast competitive technology and acumen in basic science.
He added that while there were opportunities in copying western business models in his region, its entrepreneurs also produced innovation relevant globally, especially in software, such as anti-virus provider AVG and Russian language search engine Yandex.
In the Middle East and Africa, he added that while the team were not always following consumption patterns in a European way, they were leading in areas such as mobile payments provider M-Pesa in Kenya, which Hejka said was now handling 15% of its country’s gross domestic product in aggregated transactions.
While regional innovations, such as M-Pesa’, were often responses to local challenges, broader commercial success often requires the entrepreneur to look outside its borders to more populous areas.
Sudheer Kuppam, managing director for Intel Capital in India, Japan, Australasia and south-east Asia, said while markets in Malaysia, Singapore, Thailand and Vietnam were often individually too small to support an entrepreneur internally, going across the region opened up a market of 500 million people, more by targeting big markets, such as China and India.
India, with its 1.2 billion people, has only about 10% personal computer and broadband penetration, Kuppam said, so there is a role in evangelising technology.
However, while economic growth has slowed slightly to about 5% last year, from 8% in 2011, valuations were still “frothy”, as there were more than 40 venture capital firms,including those from Silicon Valley in California, competing for hot deals in a “very small” market for technology companies.
He said he “expects valuations to come down in 2013”.Richard Hsu, managing director of Intel Capital in China, said valuations had already been dropping on the mainland but there was “room for more” falls this year.
But he said the longer-term prospects for investing in China were good as “its people are both large and competitive, which breeds innovation”.
Hsu added: “China has a homogeneous population and scale, which will in future offer unique models. Intel is looking at the long-term story, not just the next few quarters.”
While China’s economy slowed last year, its rate of growth is still far faster than that of western Europe or the US.
However, it was surpassed by Turkey, which is now the 15th-largest economy after a tripling of gross domestic product in the past eight years.
Hejka said it had “fantastic software and engineering skills”, so Intel Capital opened an office in Turkey last year under Baris Aksoy and has so far done two deals. Hejka said Intel Capital needed a base on the ground in emerging markets as intermediaries offered fewer deals to non-resident investors.This is similar to Latin America.
David Thomas, managing director of Intel Capital in Latin America, said some Silicon Valley firms were “testing the waters with one or two deals before deciding whether to set up shop”.
He added that while Intel had “lost some deals because Silicon Valley firmsare paying more, but we are competing on how we help after the deal closes through intro-ductions and strategy roadmaps”.
Table:
Where corporate venturing units are based
US 343
Japan 81
UK 57
China 47
Germany 41
France 40
India 28
Canada 21
Switzerland 21
Taiwan 17
Israel 12
Italy 12
Netherlands 11
Russia 11
Norway 10
Spain 10
Denmark 9
Australia 8
Sweden 7
South Korea 7
Belgium 7
Saudi Arabia 6
Ireland 5
Finland 4
Singapore 4
South Africa 4
Kuwait 3
Mexico 3
Malaysia 3
New Zealand 2
Austria 2
Turkey 1
Bermuda 1
Dubai 1
United Arab Emirates 1
Poland 1
Qatar 1
Brazil 1
Hong Kong 1
Luxembourg 1
Total 845
Source: Global Corporate Venturing