Remaking Intel Capital

When Arvind Sodhani took over as president of Intel Capital early last year, he said that he wanted to take a look at the group’s returns. The result of the evaluation included staff reductions, a greater international focus and a change in how the investment arm of Intel Corp. doles out compensation to its investors. “Overall, there was a need for us to go through a structural efficiency effort,” he said. VCJ caught up with Sodhani recently—one of the few times he not on an airplane—to talk about the changes he has wanted to make and the changes that were forced upon him from the group’s parent. Sodhani had just finished laying off about 20% of his team—a move he called a “re-deployment”—and was trying to find a better way to compensate those who remained.

Q: You’re 18 months into the job. Has it been harder than you thought?

A: It takes time to move an organization this big and changing direction is always hard. But you can never underestimate the capability of Intel to respond to challenges. I am surprised with the changes we have wrought on the organization and how well the people have responded. Yes, it’s been better than I expected. I’m happy with what we’ve achieved so far.

Q: What changes have you made?

A: We streamlined the way we interacted with the portfolio companies and VCs. We used to have two groups—strategic investors and treasury investment managers. We combined those and did a whole lot of training. Each party knew only about half the job. We had a lot of people who were capable of doing the whole job themselves who were getting into turf wars with the other side. That was one of the first changes we made.

Q: Then what?

A: The second change we made is that we didn’t want to do just the minimum investment. We wanted to become an active participant. We started trying to take co-lead roles in all the deals we do. It’s not always possible, but, currently, 50% of our deals are as the lead or co-lead. Overseas the figure is 70 percent. Overseas we have a much stronger franchise because we got in early.

Q: How else have you changed the organization?

A: We told everybody last year that they were going to get measured on their IRR. So we put metrics in place to figure out what their IRRs were and to measure performance over time. That impacts behavior enormously. We’re seeing better deals, better financial analysis, and a lot more rigor in the cap tables and financial analysis.

Q: IRR is a measure that notoriously favors smaller deals. It’s a lot easier to get a good IRR on a $6 million dollar investment than on a $600 million investment, which is what you invested in Clearwire. Does that metric run contrary to your desire to lead and do bigger deals?

It takes time to move an organization this big and changing direction is always hard.”

Arvind Sodhani, President, Intel Capital

A: A big deal like a Clearwire will have a huge impact on anyone’s IRR. The Clearwire deals we do every couple of years, it’s not business as usual. The Clearwires and the Microns [Intel Capital invested $450 million in Micron Technologies during 2003] of the world were unusual, special deals. Those were exceptions and we’re going to treat them as such. The bread and butter are $3 million to $10 million deals. Those fit perfectly for measuring IRR over time.

Q: Are you going to tie investor compensation to performance?

A: I would rather not talk about compensation. We’re making changes. I don’t want people to read about it first. We are sensitive to that fact and we’re working on it.

Q: What other changes have you brought to the lives of Intel Capital’s investors?

A: We told our investment managers that they have to do company building. We asked ourselves what we bring to a portfolio company that is unique or different. We’re asking ourselves what are we bringing that’s unique.

Q: Give us an example. What makes Intel Capital unique?

A: We have a unique ability to provide access to portfolio to over 2000 global enterprises all over the world. We’ve started Intel Capital Technology days, which is a daylong event where we would go to a company and introduce them to our portfolio companies. Very recently, we did an ITD at Comcast, where 30 people, including Brian Roberts, showed up. During that day, nine or 10 of portfolio companies got a golden opportunity to present to the decision makers at Comcast. A VC can put four or five of these together a year. We can do 50.

Q: What about your emphasis on global investing?

A: We had been in various parts of the world for years, but not fully utilizing that capability. We were not going after it with the speed and gusto that we’ve gone after those markets lately.

Q: You’ve got a handful of global funds: $250 million for India, $50 million for Brazil, $50 million for the Middle East and Turkey and $200 million for China. How much of those funds have you invested?

We had been in various parts of the world for years, but not fully utilizing that capability. We were not going after it with the speed and gusto that we’ve gone after those markets lately.

Arvind Sodhani, President, Intel Capital

A: We’ll announce milestones when we make those investments out of those funds. China and India are the most active of the funds.

Q: How do those funds operate?

A: We have eight people on the ground in China. We are probably one of the largest investors in China. We have seven people in Israel focusing on Israel. We have another team focusing on the rest of the Middle Easter and Turkey. We have people on the ground in Brazil, Latin America, the eastern part of central Europe, Russia—we have three people on the ground there. We’re also in Korea, Taiwan and Japan, where we’re a reasonably sizeable.

Q: In Russia, are you planning to take advantage of the government’s programs to stimulate venture investing there? [See VCJ October 2006, Perestroika 2.0]

A: We did explore that but have nothing to announce.

Q: You’ve made a lot of changes at Intel Capital, but you’ve had some changes pushed down on you, too, from Intel Corp. Can you talk about those?

A: Overall there was a need for Intel to go through a structural and efficiency effort. We’ve done our part and we’re almost done with our piece of that. Life goes on.

Q: How many people did you have to layoff?

A: I’d rather not spell that out. It wasn’t a layoff, it was a re-deployment program.

Q: How will you help boost Intel’s flat stock price? How does Intel Capital fit into Intel’s over-all efforts?

Our overall goal is to help Intel achieve its goals faster, bigger and better.”

Arvind Sodhani, President, Intel Capital

A: I’m not going to answer your first question about the stock price, as we’re in a quiet period. But we are a strategic investor in Intel. Our overall goal is to help Intel achieve its goals faster, bigger and better. WiMax is a very major push for Intel. WiMax and Intel are synonymous in the world out there. We are in a large measure in the process of getting it there. We’re investing in building the infrastructure for that.

Q: You mentioned a new initiative called “Digital Health” at the Intel Developer’s Forum in September. Can you talk about that?

A: That’s an area where we’re developing our strategies in still and we’ve hired a couple of people and are trying to look at where that fits into the rest of the program. We’ll talk a little bit more about that when we’re ready to talk about that.

Q: You said “digital health” could encompass bioinformatics, biotechnology and nanotechnology. What would that look like?

A: I’m not saying we’re going to do all of them. We’ll talk about it when we’re ready.

Q: Have there been any changes to the way Intel Corp. looks at the companies of Intel Capital as potential acquisition targets since you joined?

A: Of the over 1,000 companies that we’ve invested in we’ve acquired just about a dozen. That should tell you that the purpose of Intel Capital isn’t to develop acquisition targets. That hasn’t changed.

Q: What about your investment pace?

A: In terms of dollars it’s increased, but in terms of the number of deals it was about the same. The WiMax deals are generally more capital intensive, for example. We’re also trying to take more of a leadership position in deals.

BIO: Arvind Sodhani

Age: 52
Education: Masters degree in Business Administration from the University of Michigan
Work history: Various positions within Intel Corp. since 1981.
Board seats: Clearwire Corp., Nasdaq Stock Market Inc.
How many miles flown this year: International and domestic, probably about 250,000 miles.