Patience is a virtue in many areas, including venture investing. US semiconductor company Intel’s $1m initial investment in education equipment company Smart Technologies has helped fund the growth of a business worth more than $1bn in less than two decades.
Intel’s decision to back Smart, and see the investment through to last month’s flotation in Canada, came after a serendipitous meeting between Leslie Vadez, the founder of Intel’s corporate venturing division, Intel Capital, and the company at a trade show.
Nancy Knowlton, co-founder of Smart, said: "Les Vadez found us prior to the formation of Intel Capital and we were Intel’s sixth or seventh investment. Intel invested $1m in 1992 as Les saw us at a Comdex booth after Andy Grove [Intel chief executive] had been talking in a plenary session about our technology being possible in the future.
"We had had no luck attracting any venture capital and had been rejected by 43 firms."
Although the investment was significant for a portfolio company with about $3m of revenues, Intel’s initial involvement was relatively light, Knowlton said.
She said: "It was tough getting Smart off the ground with sweat equity and even now my husband [and co-founder, David Martin,] and I continue to work 70 to 90-hour weeks as there are opportunities ahead. But Intel only had a light level of involvement until 2000, with board observers between 1997 and 2000. Intel Capital never at any time had a point of disagreement with us. It was our strategy and tactics with strong board oversight.
"Intel Capital is different from a VC in that it never wishes to harm an investee company by its action. Their [staff’s] word is [Intel’s] bond."
Amy Kircos, a spokeswoman at Intel Capital, said: "As a corporate investor, Intel Capital is not constrained by limitations on a certain fund and does not have a set investment timeline, which has enabled us to tailor our investment approach to each individual portfolio company.
"In the case of Smart, this allowed us to remain a longterm, committed investor. This proved to be a big advantage for Smart, since Intel Capital drew on its position as a global technology leader to nurture the company through several growth phases and helped connect the company with potential new customers through programmes such as Intel Capital Technology Days and our CEO summit."
Knowlton added: "Intel has opened doors and given a nice insight into technology but we, the managers, have walked through them."
Smart increased its turnover nearly 20-fold between 1992 and 2000, then from $57m in 2000 to $300m in 2005, when the company started its transition towards becoming a large, listed company.
The company, which has 48% of the global market for interactive whiteboards, had $648m in revenue for the 12 months to March 30, up 38.4% from the previous financial year, and net income of $142m.
Part of the transition since 2005 was changing some senior managers beyond the initial team and helping Intel start to sell down its holding, Knowlton said.
This sell-down involved bringing in private equity firm Apax Partners. Apax’s spokesman said it had identified the area of education technology and invested in UK-based Promethean World and Smart as the leading firms in the space.
Apax Partners acquired 49.9% of Smart Technologies in 2007 for an enterprise value of $889m, leaving Intel Capital with 25.05% and the remainder with the co-founders.
Knowlton said: "It took a few years for us to get to know Apax as a concern for us was its investment in Promethean as a prime competitor."
Both Promethean and Smart have had their initial public offerings in the past six months. These IPOs gave the companies market capitalisations of £400m ($621.4m) and $2.1bn respectively.
After fees, Intel sold 10 million shares at $16.11 each as the company began trading on both the Nasdaq and Toronto stock exchanges, while Smart received $141.8m.
Knowlton said: "The IPO gives us currency but there are no acquisition targets in mind, although we are always looking."