Arvind Sodhani (pictured with DLA Piper’s Terence O’Malley, chairman emeritus, and Mark Radcliffe, senior partner), the former president of Intel Capital, has set up a venture capital firm, Silver Trail Ventures, and warned corporate venturers to stick to venture investing rather than be functionaries for business development units.
His new firm is understood to be raising $500m for its first fund, although Sodhani declined to comment on fundraising due to regulatory issues.
However, ahead of a keynote at the Global Corporate Venturing/DLA Piper Corporate Venture Capital Strategy Seminar in Tokyo, Japan, Sodhani said Silver Trail would invest globally, particularly in the US, Israel and Asia, and across sectors and had lined up some former colleagues to join him.
In his keynote, Sodhani laid out the opportunities coming from the “interconnected ecosystem” arising from a “plethora of devices, such as drones, generating data” stored in data centres and the cloud that was “disrupting virtually every industry”.
He added: “No industry is immune. Three years ago everyone laughed at the concept of autonomous driving. Now there has been the first massive acquisition [Cruise Automation by General Motors for reportedly more than $1bn].
“Thirty-five years ago, it took 10 to 12 years to disrupt an industry. Now it is three to five years and the advantage is with the new guys.”
He warned the audience of corporate venturing and other executives at some of Japan’s largest organisations that corporations found it “hard to see” that innovation was not as deadly as disruption because they were process-driven. He said innovation happened at the margin, to improve price or cost, but “disruption is a different ball of wax”; there is no chief disruption officer” – referring to the increasing trend for companies to set up a position of chief innovation officer.
After 34 years as a key figure at US-listed chip maker Intel, Sodhani said: “The job of corporate venturing is most qualified to look for innovation and, most important, disruption. The long term survival of a corporate depends on corporate venture capital figuring out and tapping the corporate into that disruption.
“But most CVC tends to be business development, which does not find innovation or disruption but just looks for help meeting their next quarter or two’s targets, rather than venture investing. Business development precludes CVC if business units have approval or deal veto.
“Sure, corporate venturing is not easy. The big issue is deal flow. The top one or two in an industry make 110% of its profits, with numbers three to five often losing money. Getting the best deal flow requires scale and broad relationship skills and compensation is an ongoing concern when competing against traditional VCs. Compensation is a critical element but very difficult for a corporation. At Intel Capital we had a period without carry [performance fees based on profits of the investments done], with and without and seen different results [of staff retention].
People need to be in Silicon Valley, [California,] to see both innovation and disruption. You have to have a presence there rather than drop in and out because of the three great ideas you will hear, one or two will be three years ahead and the other playing catch-up.
His speech came shortly after the death of Andy Grove, former CEO of Intel who had approved the creation of Intel Capital, the largest corporate venture in the world having invested more than $11bn over its lifetime. Sodhani paid tribute to Grove as “the inventor of CVC; without him there would be no corporate venturing”.
Building on his reflections shared during his retirement appearance at Intel Capital’s annual Global Summit last autumn, Sodhani in Japan said: “In 1988 I was a treasurer at Intel and we were seeing all these people leave and start up companies and I considered it worth investing for a small equity stake in them, based on the kereitsu model seen in Japan.
“Andy took this initial idea and developed a whole concept of ecosystem, building on your products with others’ services. Intel’s product needed an entire ecosystem as back then the PC [personal computer] was just coming out. That is why Intel Capital was successful because it moved the whole forward.”