Investing in Global Innovation Tammi Smorynski Director, Intel Capital May, 2011 *Other marks and brands are property of their respective owners
Agenda Intel Capital Overview Traditional Venture Funding Current Venture Environment Pitfalls to Get to Commercialization 2
Intel Capital Mission Enhance Intel s Strategic Objectives By Making and Managing Financially Attractive Investments STRATEGIC FINANCIAL A Stage Agnostic and Long-Term Investor 3
Intel Capital Invests In a World of Possibilities Enterprise and Cloud Servers, Networking & Storage Manageability & Virtualization Security & Data Management Data Centers & Cloud Services Embedded & Communications Digital Signage Connected Car & IVI Home Energy Management Communications Infrastructure Software and Services Meego & AppUp Center Cloud Computing Open Source Security / Big Data Visual Computing Mobile Internet Mobility Tablets Smart Phones Notebooks 4 *Other marks and brands are property of their respective owners
Intel Capital Invests In a World of Possibilities Digital Home Smart TV Home Networking Silicon Platform Software Connected Devices & Services Consumer Internet e-commerce Social Media Consumer Services Mobile Web Tools & Infrastructure Cleantech Greentech Grid Infrastructure Home Energy Management Smart Commercial Buildings Microgrids & Communities Manufacturing Memory Semiconductor Process Materials & Equipment EDA Tools & IP Non-Volatile Memory 5 *Other marks and brands are property of their respective owners
Intel Capital Investments 2010 119 Deals US$327M 44% of Dollars Outside N. America 40 International Investments 12 IPOs 17 Acquisitions Historical 1,100+ Companies US$9.8+Billion 36% of Dollars Outside N. America 48 Countries 189 IPOs 258 Acquisitions 6
Intel Capital Global Presence Invested $9.8+ Billion in 48 Countries 26 Intel Capital Offices Investments in 48 Countries 7 Intel Capital Invested Intel Offices
2010 Intel Capital Exits Working to Help Companies Exit Successfully USA USA USA USA USA China Germany S. Korea USA USA China USA India China USA China USA USA USA Canada USA USA S. Korea India USA ATIVI - Telecomnet, Inc. Brazil Japan India USA 8 *Other marks and brands are property of their respective owners
Intel Capital Technology Days Customized engagements 10-20 portfolio companies per ITD 60 ITDs per year 90+% follow-up rate Win-win-win for portfolio companies, customers & Intel 9 Delivering Win-Win Introductions 325+ Technology Days Since 2005 *Other marks and brands are property of their respective owners
Intel Capital CEO Summit 2010 Informative Speakers Sir John Major Former Prime Minister, UK Brian J. Dunn CEO, Best Buy Arvind Sodhani President, Intel Capital Intel EVP Paul Otellini CEO, Intel Corporation Les Moonves CEO, CBS Corporation Duncan L. Niederauer CEO, NYSE Euronext CEO Elevator Pitches, Networking, Networking Networking 10
Intel Capital s Unique Advantages Leading technology investment organization Invests at all stages in private and public companies Leads investment rounds, takes larger stakes, actively participates on boards Speed and agility to make quick decisions Global brand recognition Committed to portfolio company success 11
Intel Capital Overview Traditional Venture Funding Current Venture Environment Pitfalls to Get to Commercialization 12
Venture Capital Investing LIMITED PARTNERS Pension Funds Foundations Wealthy individuals CALL funds VENTURE FUNDS Kleiner Perkins Sequoia. INVEST, with new Lead START UPS ALLOCATE: ~5% FUND = Committed Cash 10 YEAR LIFE EXITS: IPO (BEST) M&A (GOOD) Shut down 13
Limited Partners Monthly $5M Contributions Pre 2009 $1 BILLION Monthly $1M Contribution s 2009 $510M $100M PE & VC $100M Real Estate $100M Intl Equity r r r 10% $70M PE/VC $10M Real Estate $30M Intl Equity r 13.7% 14 $100M Commodities $100M Hedge Funds $100M US Equity $100M Intl Bonds $100M Bonds $100M Money Market $100M Cash r r r r r r r Monthly $7M Payout to retirees $50M Commodities $10M Hedge Funds $50M US Equity $30M Intl Bonds $70M Bonds $90M Money Market $100M Cash r r r r Liquidation Issues Monthly $4M Payout to retirees r = return
Limited Partners Told VCs to not ask for money (liquidity issues) Then reduced EXISTING commitments (allocation issues) Reduce amount you will send in future Reduce amount you already sent = require VC firms to sell shares in secondary market Not making NEW commitments (both liquidity & allocation) NET-NET: Reduction in $ available for Venture Investing 15
Venture Firms VCs unable to time when LPs will send funds in 2009, so focused on existing portfolio. Now looking for new deals. Since LPs reducing commitment levels VC firms shrunk or wound down. For now, VCs have moved away from early stage, high capex deals in certain sectors (e.g. hardware) 16
Venture Firms Impact from start ups: No liquidity events so no cash coming back in to VC to help them w/ LPs or other start ups Revenues pushed out requiring once profitable and near breakeven companies to now need cash No IPO or debt markets available for funding, requiring higher VC cash requirements then planned Impact from other VCs: No new investors to price/invest large $ in companies Once strong VC syndicates unable to support companies 17
Number of Venture-capital firms and Capital managed 2000-2008 # of firms declined in 09; not over yet 18 Source: Wall Street Journal June 5, 2009 from National Venture Capital Association Note: Active venture-capital firms that have raised funds in the last eight years
Investor Pool: Information Technology Number of IT-focused VC Firms 1990-2008 YTD 2500 # of firms declined in 09; not over yet 2000 755 1500 1000 424 496 323 560 479 376 312 => 4 deals 2-3 deals 1 deal 500 0 195 246 156 184 127 214 139 117 107 105 102 96 119 94 97 116 101 104 171 149 145 164 203 241 306 377 384 332 314 283 303 315 263 280 295 271 152 235 616 778 771 163 735 647 526 484 482 441 367 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 682 19 Source: DowJones Venture Capital Industry Report, VentureSource Note: 2008 data through 10/2/08
Start Ups Turbulent economic environment slowing down revenue ramp, time to breakeven Delayed EXITS (IPOs, M&A) requires more funding to get company to breakeven or liquidity event Lots of Insider rounds slow painful process Cutting work force, pay cuts shutting down 20
Life Cycle of a Start UP Idea Business Plan/Investor Deck Angel Funding Series A Series? Liquidity Event = Investors able to get cash back IPO or M&A or shut down VCs have < 10 year time horizon due to Fund Rules So start ups get < 10 years to get to liquidity event 21
Intel Capital Overview Traditional Venture Funding Current Venture Environment Pitfalls to Get to Commercialization 22
Impact of Market Decline on Venture Investing Oct 2008 : Sequoia presentation 23
2009 vs. Tech Bubble 2009 economic situation was worse as impacts all sectors across everyone around the globe Sequoia s 2008 presentation was a good wake up call to everyone start ups moved faster than during tech bubble to cut costs Prices came down on VC deals given less VC competition Revenue opptys for start ups increased as competition went out of business 24
Start ups 25 2011 Dichotomy Hot sectors: mostly in software funding, high valuations Consumer internet or fads e.g. gesture Competitive, biz models/revenues still be to proven out Out-of-favor sectors: mostly in hardware difficult funding environment, low valuations VCs Must be frugal, look for alternative funding (SBIR, DARPA, etc.), often required to show working device for Series A (unheard of back in the 90s), expect operational experience on mgmt team Less competitive, able to make revenue progress Thriving: good brands, able to raise $, manage portfolios Striving: not clear if can raise next fund; portfolios flaming out
Intel Capital Overview Traditional Venture Funding Current Venture Environment Pitfalls to Get to Commercialization 26
27 Novel technology is not itself sufficient to get something to commercialization and a successful liquidity event.
Research vs. Commercialization Research Commercialization Team Constraints Cost Volume High Volume Manufacturing 28 *Other marks and brands are property of their respective owners
Research vs. Commercialization Research Commercialization Durability, Power, Size 29 *Other marks and brands are property of their respective owners
Research vs. Commercialization Certifications, warranties Research Commercialization Competition Channel 30 *Other marks and brands are property of their respective owners
In Conclusion Understand funding environment Novel useful innovation will get funded but may take time prepare accordingly 31
Investing in Global Innovation