Despite the slowdown, Arvind Sodhani, president of Intel Capital, the venture arm of chip-maker Intel, has been busy closing deals. Last year, Intel Cap made 62 new and 107 follow-on investments in portfolio companies worldwide. In all, it invested $1.59 billion in 2008 ($1 billion was invested in Clearwire). Since 1991, Intel Capital has invested more than $9 billion in over 1,000 companies in 46 countries. In an interview with Shivani Shinde, Sodhani speaks at length about the venture capital (VC) market and explains how other VC firms’ going slow on investments is working in favour of Intel Cap. Excerpts:
Slowdown doesn’t seem to have affected Intel Cap’s investment capability. How it is so?
Clearly, the slowdown has worked to our advantage. While we will continue to look at investing in new firms this year, the focus will be on follow-on investments. In the first half of the year (2009), we have made 25 investments, of which 18 have been follow-on and seven new. This is a bit unusual as we have always invested in new portfolio funds. Close to 63 per cent of our investment is outside the US.
How do you see valuations of firms moving?
If you are asking me if valuations have come to a level that is realistic to the current supply of capital, then I would say, no, they’re still on the higher side. But then, in late 90s and the phase after that, a lot of capital was chasing a few companies and hence (there was) a spike in valuations. At any given time, the supply of investable companies does not really change much. And, the same is true for India.
How do you see the VC environment this year?
When compared with other years, we have seen a bit of a slowdown in the first quarter of 2009. A lot of companies are unwilling to come and raise money, especially if they can get (through) by conserving cash. Besides, they are worried that they will not get decent valuations. Many of the VCs have also pulled back. Many more have not been able to do follow-on investments in portfolio firms. We have invested in several firms where the investor has not done a follow-on.
How has India worked for Intel Cap?
We started the venture capital business in India in 1998. Over a year ago, valuations in the country went up drastically, something which was not justifiable. But things are now moving down.
But you have invested just about 40 per cent of the $250 million India Fund raised in 2005. Why so?
We have invested wisely. We launched an India-dedicated fund and have so far invested 40 per cent of it. Remember, we were funding start-ups. At that level, you do not invest a lot of cash as these companies cannot absorb it. Besides, we are not investing in capital intensive firms. So, the kind of capital required is different. On the other hand, we could do a Wimax deal and exhaust our entire fund on it. We are anxiously waiting for the government to auction spectrum for Wimax.
Is it not strange given the fact that Intel Cap had to write off $1 billion on Clearwire (providing Wimax services) investment?
We have invested $1.6 billion in the firm. The write-off has happened as the stock price of the company has gone down. We had to do this as part of impairment under the accounting rules in the US. But the company is fundamentally sound.
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With the primary market still not moving up, will your exits be delayed?
Traditionally, IPO is the only way of exit in India. Very few companies in India, which are in our portfolio, have come out with IPOs. But we have a lot of firms in our portfolio that are ready to hit the market. But I would not like to take a guess on when that will happen. That’s what sets us apart from others as we stay for a long time.
Cleantech is the next big sector for investment. Do you think it is being hyped?
I don’t think this sector is hyped up, especially for a country like India. Technology applications for energy saving are huge and so is the opportunity to save energy. Besides, whenever you have a new sector, you will have hits and misses. Therefore, it’s difficult to predictable a workable approach.
A recent study said VCs were looking to invest in Asia and emerging markets. Do you agree?
No, I don’t. Because we are seeing just the opposite. Many of the VCs are leaving emerging markets. We saw a huge number of VCs coming to India and China, but now we are seeing many of them leaving. For instance, VCs in central-eastern Europe have just disappeared. Probably, they had excess capital then and wanted to deploy it. But what they did not have was enough understanding of these regions. But we are bullish as we have that understanding in at least 24 countries where Intel Cap has made its presence felt.