Wendell Brooks believes that bigger is not always better, and he has already set out to prove it.
Brooks, president of corporate venturing unit Intel Capital, outlined his “small is beautiful” strategy for the organisation at the 17th annual Intel Capital Global Summit held from October 24 to 27 in San Diego, California.
The invite-only gathering featured more than 1,100 guests, including the CEOs of more than 300 portfolio companies.
In opening remarks to launch the Summit on October 24, Brooks said he had decided to shrink Intel Capital’s portfolio from 400-plus companies to a range of 250 to 300 over the next five to six years in a bid to reduce quantity and increase quality, especially in regard to the total amounts invested in each company.
Brooks said he would reach the new, reduced portfolio count through a process of natural attrition as portfolio companies go public or are acquired. Last year, for example, 22 startups went public or were sold in M&A deals.
By the end of the rebalancing process, Intel Capital should have more money under management distributed across fewer companies, and Brooks stressed that the emphasis would be on the quality of the investments, not the number.
The unit will continue to invest in the range of $300m to $500m annually, Brooks said, adding that the average investment range has already doubled to $6m to $10m, from the previous $3m to $5m bracket.
Brooks explained that the 60-plus professional investors in his group would increase their participation in portfolio companies by taking more board seats instead of sending observers to monitor board meetings without participating in discussions themselves.
Brooks, who jointly led Intel Capital with Arvind Sodhani from July 2015 before taking over fully when the latter retired in January, said he developed his strategy after a “comprehensive review of everything that we did … every investment we made” during his first months on the job.
The title of his remarks, “The Good, the Bad and the Ugly,” was based on the famous 1960s spaghetti Western, and he admitted that he had faced some good, some bad and a bit of ugly in his first months on the job.
Indeed, he admitted that he got a bit of a surprise, if not outright shock, after he wrote in a routine memo to employees stating that he was re-evaluating the size of the Intel Capital portfolio as well as its investment philosophy.
The memo revealed Brooks was looking at dropping at least a quarter of the portfolio companies from the roster, in part because of the slowing landscape for venture-funded companies. He went so far as to hire investment bank UBS to handle the sale, which could have netted as much as $1bn, per several estimates.
Brooks wrote that wanted to take a fresh look at how the organisation could leverage Intel’s many business lines, and the contents of the memo were quickly picked up by the national business media. The review came as surprise to many observers of the corporate venture capital scene.
“Unfortunately, I managed to get Intel Capital into the headlines in a way I really did not want to,” Brooks said. “My portfolio reviews were played out in the public domain and press, and I got far more coverage than I wanted.
“I think my objectives were very good,” he added. “I wanted to have a smaller portfolio where we focus on adding value over time, putting more dollars to work in fewer investments.
“I want to be perfectly clear, there is not going to be a sale of the portfolio,” he told the summit.
With the negative headlines now behind him, Brooks said that Intel Capital is already starting to shift toward his goal of investing more dollars into fewer portfolio companies.
Intel Capital invested $446m across 90 companies during the first six months of 2016, which included 19 new deals plus an additional $61m placed into three dozen follow-on financings. The unit also reported 10 exits in the six-month period, nine of them M&A deals.
Brooks said 40% of the deals so far represent new investments and 60% follow-on deals, the split reflecting the fact that his organisation is investing more cash in more rounds as the companies grow into successful entities. The number included $38m invested in 12 new companies announced at the summit.
Brooks is also changing how Intel Capital relates with other investors.
“We could do a better job of being connected to corporate venture capital and traditional venture capital firms,” he said, adding that he would work more closely with other investors to find and participate in new deals. The organisation would also lead more deals than in the past.
Intel does not disclose specific financial results from its investments, but a spokesman noted that the profits from the exits represent “a tiny sliver” of the $55.9bn in revenue and $11.7bn in net profit the company recorded in fiscal 2015.
Brooks is no stranger to risk. He spent 23 years in investment banking on Wall Street before joining Intel in May 2014 as president of mergers and acquisitions. His role was officially expanded to include the president position at Intel Capital upon Arvind Sodhani’s retirement.
Intel Capital is often ranked as the most active investor in corporate venturing and targets investments in computing and smart devices, cloud, data centre, security, internet of things (IoT), wearables and robotics technologies, not to mention semiconductor manufacturing.
However, Brooks noted in his address that his group was putting added emphasis on “the drone economy” as well as artificial intelligence and immersive sports experiences. He said a number of the new investments announced at the summit are involved in IoT, advanced audio systems and enhanced visual guidance systems for autonomous and connected cars.
The number of IoT connected devices would jump from 5 billion to 50 billion over the next five years, he said, which would open up all sorts of business opportunities for Intel and other technology companies, as well as new business startup opportunities, especially in the areas of monitoring, measuring and metering.
While onstage Brooks announced the advent of the Intel Sports Group, a new focus area that will look at developing partnerships with professional sports leagues to leverage Intel technologies in order to create new immersive experiences for fans.
Brooks expects it will work closely with Intel Capital’s overall efforts in pushing out new technologies involving sports and health. Finally, he gave added details on Intel Capital’s five-year, $125m Diversity Fund, which targets startups launched by women and minorities.
The goal, Brooks said, is to reach out to entrepreneurs often overlooked by mainstream corporate venturing and venture capital investors. Intel Capital will invest $25m a year over five years, and work with portfolio startups to increase representation of both women and minorities.
The summit attracted more than 1,100 entrepreneurs, sponsors and other guests, and will be held in Huntington Beach, California in 2017 before moving to Arizona, where the company has a semiconductor fabrication facility and other assets, in 2018.
Besides Brooks, speakers at the 17th annual Intel Capital Global Summit included Brian Krzanich, CEO of Intel; Marc Benioff, chairman and CEO of Salesforce.com; Aneel Bhusri, co-founder and CEO of Workday; John Donahoe, chairman of the board at PayPal; Lowell McAdam, chairman and CEO of Verizon; and Bill Bradley, a former US senator and professional basketball player who discussed the potential impact of the November 8 US presidential election on business and technology.
– Photo courtesy of Intel Corporation