Comms chips

Intel Still Seeking Startups

Even as doom and gloom prevail over the venture capital industry, Intel Capital says it's still ready to fund startups in the optical networking and storage networking markets.

That's the word from Les Vadasz, Intel Corp. (Nasdaq: INTC) executive vice president and president of Intel's investing arm, who spoke with Light Reading after a panel discussion sponsored by Silicon Valley's Churchill Club Thursday night.

"We're going to make a major thrust in storage networking -- if not in storage companies, then in the electronics that make storage work," says Vadasz, whose division is a leading investor in optical and communications startups (see Intel Capital Still Looking for Deals). As for optical networking, Vadasz says there's still plenty of investment opportunity ahead, since Intel thinks optical "is still where the semiconductor business was in the 1970s."

Vadasz's optimism was a departure from the mood of the rest of the panel, which seemed hell-bent on scaring everyone away from wanting to work at a high-tech startup. Setting the tone for the evening was Bill Meehan, a managing partner with consultancy McKinsey & Co., who opened the discussion with some haunting tidbits from a VC research project McKinsey recently completed.

According to Meehan, there are still "thousands of overvalued" startups in VC portfolios, whose valuations "need to come down by 70 percent or more" to match similar public-company valuations.

Jos Henkens, a general partner with Advanced Technology Ventures, agrees with Meehan's analysis, saying that "most [VC] firms are still in the process of taking some lumps in their portfolios." He also dashed some cold water on anyone hoping for a return to the dotcom bubble years, when companies went from inception to public offerings before they even had revenues.

"The days of the quick buck are over, and they're not coming back," Henkens says. "Also, the days of the billion-dollar exits are over. Successful exit values now are going to be in the range of $200 million or $300 million or, if you're lucky, $500 million."

Several panelists said that VCs are hoarding their funds' cash so that their portfolio companies are assured funding for later rounds, which aren't easy to fill in these days. Martin Gagen, CEO of the U.S.-based arm of U.K. investing firm 3i Group PLC, says the result is that "it can feel to the entrepreneurs like the [venture] checkbooks have gone away."

To an almost desperate plea from one startup executive, who asked the panel "what might lead us out of this malaise," Vadasz had the most concrete response:

"The performance of the Internet, especially in the last mile, is way below what is in our PCs," he said, pointing out that there could still be an entire PC-type industry explosion in Internet technologies.

"But unless significant changes occur in the last mile -- and I don't mean DSL, I mean multi-megabit changes -- you won't see the [economic] landscape change."

- Paul Kapustka, Editor at Large, Light Reading

HarveyMudd 12/4/2012 | 7:45:46 PM
re: Intel Still Seeking Startups Intel has acquired seven optical networking companies but has nothing to show far.

Intel has spent billions of dollars to make inroads into nertworking business, but it has failed misrably.This failure does not come for free to the consumers as these failures cause the cost of doing business. We end up paying for Intel failure in the market place.

I am equally surprised by Intel's entry into the storage business. There are fifty storage companies so it is not clear what will Intel bring to the Industry.

It appears to me that Intel has run out of Ideas in its main line of business and is asking for more failures.
77thlightguy 12/4/2012 | 7:45:46 PM
re: Intel Still Seeking Startups What is so surprizing about Intel is that they "invest" their money in high risk start-ups in the first place. Clearly, a much better strategy would be to simply buy established companies, and set up a mutually beneficial inside relationships. Like most corporations looking to diversify. BOD should be taken to task. High risk belongs in Palo Alto hills, not in Santa Clara.
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