By now you must think that Intel Capital is the best VC in the world. Almost everyone VCJ spoke with institutional VCs, entrepreneurs, analysts had nothing but positive things to say. But, as with every story, there is another side.
The chief complaint that people have about Intel Capital, and Intel Corp. itself, is that it’s a control freak. When Andy Grove penned “Only the Paranoid Survive,” he must have been writing from experience.
VCJ called more than a dozen entrepreneurs to find out what it’s like to work with Intel Capital. Most declined to be interviewed. There is an unwritten rule that you are not to talk about your relationship with Intel unless you get approval from above. That goes for institutional VCs as well as entrepreneurs.
The only way you’ll hear something negative about Intel Capital is if you promise not to use someone’s name. Even then, some folks won’t talk.
One Silicon Valley VC who asked not to be named told us about a startup (which also shall go unnamed) that found Intel Capital to be heavy handed. The company was about to close a financing deal with the venture group when a representative from an Intel business unit demanded that it buy a $750,000 software license, according to the VC, who was involved in the deal.
When the startup balked, saying that it didn’t need the software, the Intel representative threatened to kill the deal, the VC says. Undeterred, the startup went out and got commitments from new investors, including an Intel competitor. Intel finally relented on the software license and came into the deal on new terms, the VC says.
Another concern entrepreneurs have about Intel, as they do about all large corporations, is trade secrets.
The CEO of an Intel portfolio company says that he and his management team have had concerns about their company’s confidential information flowing back and forth between Intel Capital and Intel’s business units. “So maybe we don’t tell them every single trade secret about everything we do,” says the CEO, who asked not to be named. “We do worry about proprietary information so we take appropriate steps to protect it.”
Sometimes a startup can fall into purgatory because Intel Capital doesn’t always know what its parent corporation is doing. That’s what happened to Network Elements, an optical networking equipment maker. Intel Capital jumped into its $77 million Series B Round in October 2000. Six months later, Intel Corp. acquired Network Elements’ direct competitor, LightLogic Inc. for $400 million. Intel Capital hadn’t invested in LightLogic and had no relationship with it before Intel Corp. made its move.
Network Elements and Intel Capital remain partners, albeit on a “casual basis,” as a source at Network Elements says. Intel Capital’s Drew Smith remains on the company’s investment committee, but the company will only share information with him “on a limited basis because of the conflict of interest,” the source says.
There may be no better illustration of Intel’s influence than VCJ’s experience with Inktomi. A reporter had asked Intel Capital for some examples of situations where an investment didn’t work out as planned, and the venture group pointed her to Inktomi, which it invested in five years ago.
The reporter left a message at Inktomi, but there was no reply. Instead, Inktomi called Dan Johnson, its “relationship manager” at Intel. He promptly called to ask what sort of story VCJ was writing and who told the magazine to call Inktomi in the first place?
As odd as it sounds, Inktomi, a public company with a market cap close to $700 million, is still behaving as if it were part of Intel Capital’s portfolio. Maybe once you drink the water, the effect never wears off.
Additional reporting by Senior Editor Alistair Christopher.