former Vice President Marketing, ONStor

PROGRAM FOCUSES ON WOMEN'S STRENGTHS AND HELPING THEM SUCCEED

By Theresa Maloney - Nov. 4, 2003

Some 250 venture capital industry leaders convened in San Francisco October 14th and 15th to discuss the state of early stage venture capital investing - trends, technologies and opportunities. After what seemed like an eternity - nearly three years to be precise - the industry finally seems to be singing a happier tune, reverberated during each of the panels. One point of agreement: Now is the time to invest in early stage companies.

"If you think about how long it takes to introduce new technology and products to market, the longer you wait the later you will be to the party," said John Miner, Intel Capital President and Intel Corp. Vice President, in a private interview following his keynote. "We are coming out of a long recession, entering a long period of growth, and now is the time to invest. It's never been better."

The venture capital community rallied around investments across a variety of technologies ranging from storage, security and enterprise integration (e.g., grid computing and web services) to business process outsourcing, wireless and mobility applications (e.g., RFID and sensors), utility computing and even renewable energy technologies. One clever panelist raised a good laugh from the audience by proclaiming that when we discuss a new technology today, chances are it is beyond early stage. In all seriousness, the forums brought to the forefront a number of discussions surrounding technologies to watch, criteria for investing (and conversely for a young company, how to attract funding), and the power of syndication.

Not afraid of marching to its own beat, Intel is setting a tone for the industry by focusing on six areas of investment: four usage models that drive demand for Intel's core technology - semiconductors - and two foundations that encourage greater distribution and more efficient production of Intel's chips through proliferation into new and emerging worldwide markets. The usage models include Mobile Internet Clients, Digital Home, Enterprise / Digital Office, and Telecommunications Infrastructure. Intel's foundational investments include Next-Generation Semiconductor Technology and International / Emerging Markets.

One of Mr. Miner's most passionate opportunity spaces is the Digital Home - a new frontier of technology built on the convergence and interaction of Consumer Electronics, PCs, home networking, and broadband - areas in which many underlying technologies have been developed by Intel. Intel expects the Digital Home to undergo a transformation similar to that of the computer industry in the eighties.

Examples of Mobile Internet Clients include wireless devices and notebook computers. To that end, Intel is driving what it calls the Mobility Initiative - facilitating connectivity and access to any content, anytime, anywhere, across any device - all day long. This initiative is leading Intel Capital to invest in companies that can help develop alternative energy sources such as fuel cells.

"The motivation behind our energy investment strategy is the all-day usage model," Mr. Miner explained. "Fuel cells provide a very good supplemental energy source, and we are investing in technologies that can be produced in high volume and will provide viable supplements and alternatives for batteries. We are not looking at full replacement for at least 10 years. Interestingly, most applications of fuel cells have historically been larger in scale - for example, automobiles. Today we are looking at portable applications to support wireless handheld devices and notebook computers. People on the go shouldn't be constrained by outlets, and fuel cells will take us there."

Respected venture capital firms are also looking at new renewable energy sources and technology such as fuel cells. Redpoint Ventures says it will continue to investigate opportunities in the area, and Mayfield General Partner Robin Vasan echoed this interest. "Energy is a world problem - right up there with world hunger. I'm still not sure where fuel cells will end up, but we see value in the technology and have already made an investment in one company." Mr. Vasan noted that while some early stage technologies feels more like science experiments, citing Nanotechnology as an example, there certainly are plenty of relevant technologies that support growth markets, such as RFID for the retail and Consumer Packaged Goods markets. "We are casting our net broadly right now, so to identify only one or two areas of focus is limiting. Mayfield is reluctant to fund markets where there are too many competitors. We do think there are some interesting companies in RFID, where some very large companies have started to force industry adoption. Still, how and why they will adopt the technology is up in the air."

Mayfield is a strong proponent of "frictionless" technology. The firm invests in companies that are solving a key pain for the markets they serve - "must have" solutions rather than "nice to have" technology. In particular Mayfield is biased toward companies that can demonstrate unique technology differentiation that provides a competitive barrier to entry - they don't just follow suit on the company first to market. And it is key that those companies can demonstrate proof of concept by adding value to their customers, so third party validation from customers is key to securing their investment.

Redpoint Ventures Founding Partner John Walecka agrees that customers are paramount even in the early stages of a company. "We are looking beyond the viability of the business model, doing our diligence around qualified customer prospects. Customer references - especially those from target markets who will validate that products are unique and different and important - are key even early on. It is also important for companies to think about distribution channels and getting the product out into the marketplace. A viable business plan alone will not cut it these days."

According to Mr. Walecka, the firm is looking at the gamut of data center opportunities, primarily in storage, security and next generation enterprise software applications. Redpoint is investigating other technologies du jour such as RFID and Nanotechnology, although in the case of the latter the firm is more likely to look at interesting applications than the technology itself. Redpoint, who will continue to invest in Internet service and infrastructure companies, is also interested in the implications of outsourcing to the technology industry. They are looking at a global marketplace where design, production and distribution can be handled across continents for increased efficiency and, ultimately, better returns.

Intel Capital, which supports Intel's enablement of wireless technologies, has investments that span more than 25 countries, and last year invested approximately 40 percent of the organization's investment capital in companies outside the U.S. The company has publicly committed $150 million on Wi-Fi related investments, believing that sector is one with significant growth potential, presenting a strong opportunity for Intel to positively impact the market and strategically advance its own business objectives. Some of Intel's overall investment dollars will land in early stage portfolio companies, demonstrating its commitment to the expansion of external innovation. These are all impressive numbers that should please the venture community and the entrepreneurs it supports.

Intel has two high level criteria for approaching all investments. The first is a strategic requirement, which considers if and how an investment will help Intel meet its business goals, such as driving chip demand. The second is fiscal and considers whether the investment is financially viable.  Since Intel Capital seeks to co-lead or participate in syndicates, this latter requirement is important for them and for their co-investors.

"We build ecosystems," said Mr. Miner. "We want to participate in deals, and complement the work of our co-investors. Making and managing financially attractive investments in support of Intel's strategic objectives - including both internal and external investments in early stage initiatives - is what drives us forward. We work with a number of VCs who share our vision. A savvy early stage entrepreneur will play both sides of the game - approaching Intel and the VCs. We'll set up the syndicates, or work with those who approach us. At the end of the day, our main concern is to sustain and advance innovation."