Intel's chief VC: Why he's bullish on the tech economy, yet welcomes an 'adjustment'

Arvind Sodhani is the president of Intel Capital, the venture investing arm of the semiconductor giant Intel.

As such, he presides over one of the biggest — albeit under-hyped — investors in the technology landscape. This year, Intel Capital has already invested $355 million in over 50 startups. It announced 16 new investments last week, and will probably close the year having plunked down somewhere around $365 million in all.

[aditude-amp id="flyingcarpet" targeting='{"env":"staging","page_type":"article","post_id":1597546,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

It’s also one of the most successful VC firms in terms of sheer numbers of exits, with three IPOs and 19 exits via acquisition so far in 2014. Historically, it has invested $11 billion in more than 1,400 companies over the past two decades, with 209 of those companies going on to IPOs and 313 being acquired.

I sat down with Sodhani for a brief conversation at last week’s Intel Capital Global Summit in Huntington Beach, California. The audience of 1,000 people included about 350 executives (mostly CEOs) from Intel portfolio companies, 200 execs from Intel partners and customers, 75 VCs, a handful of press, and a whole bunch of Intel employees.

VentureBeat: How did Intel Capital get so huge? And with so much scope, how do you focus?

Sodhani: We’re investing in a very broad spectrum. We have 166 people on my team. We’ve been doing this forever. And we’re investing roughly $300 to 400 million every year, and 55 to 60 new deals a year, with about 70-80 follow-on investments.

I’ve been running Intel Capital since 2005. I originally started Intel Capital back in the mid 1980s. At that time it wasn’t called Intel Capital, it was part of [Intel’s] treasury investment efforts, to invest in startups.

A few years later it got sufficiently big that Les Vadasz took it over, and then he ran it for a very long time. After Les left, John Miner ran it for two years, and then I took over in 2005.

VentureBeat: How has it changed in the nine years since 2005?

Sodhani: We’ve become very focused, we’ve become very disciplined. We are delivering strategic value. We are focused on financial return. So we have a two-pronged approach: Strategic value for Intel, combined with financial return.

[aditude-amp id="medium1" targeting='{"env":"staging","page_type":"article","post_id":1597546,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

We’ve been cash-flow positive for half a decade, the past 5-6 years.

VentureBeat: You invest in so many different areas, it would almost be easier to state which areas you are not covering.

Sodhani: We’re currently not as active in media. We’re not as active in health care. We’re not as active in cleantech and greentech.

We did do investments in cleantech/greentech, but we’re no longer investing in that. It turns out that our manufacturing process is not relevant to solar cells. We learned that very quickly and very early in the process — thank God.

[aditude-amp id="medium2" targeting='{"env":"staging","page_type":"article","post_id":1597546,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

The other thought process was the application of compute in the energy field, as in greentech. That has not quite panned out the way we thought.

Health care, another area that we were active in — it’s a very difficult area. Slow to no progress. It’s regulatory (issues) combined with the process and the environment. Today, you still can’t send an email to your doctor. Things just don’t move at the same speed as we are used to.

There is room for disruption and innovation in the health care sector, big time. It’s just that we’re not finding it. We tried.

VentureBeat: Are you bullish on the overall economic climate?

[aditude-amp id="medium3" targeting='{"env":"staging","page_type":"article","post_id":1597546,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

Sodhani: Very very bullish. I think the combination of silicon advancement, leading to computing price/performance improvements, combined with software development, combined with wireless, combined with mobility, combined with the risk-taking and the successful role models that exist out there today — all that is combining into a willingness on the part of people to take that step to innovation.

Remember, before you can innovate anything, you’re going to have to take some risk. It just doesn’t happen in a vacuum. Most people, they have a great idea, but they have to decide, “Do I pursue this idea? If I pursue this idea it means I give up my secure job, I’m going to be taking a risk.” In most parts of the world, that doesn’t happen. In Silicon Valley, it’s happening left and right. And the role models are huge — very successful role models. It’s not onesy, twosy — it’s like hundreds and hundreds, thousands of role models of success.

What that says is two things: One is, people will do that. And, they can find people. Remember, you don’t build a company all on your own. You need other people to come work for you. So what that means is that not only will people take that risk, but you can persuade other people to come join you as employees, and you can motivate them with stock options and future rewards.

That’s an ecosystem.

[aditude-amp id="medium4" targeting='{"env":"staging","page_type":"article","post_id":1597546,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

It exists in some other parts of the world. It’s not as profound, it’s not as deep, it’s not as prevalent as it is here in Silicon Valley.

VentureBeat: Yet many observers would look at things like increasing salaries for engineers, rents going through the roof, high valuations for companies like Slack, and they might say this looks a little bit like, if not a bubble, at least an inflationary period.

Sodhani: More than likely we’ll see some adjustment. It’s inevitable.

VentureBeat: The possibility of an economic retrenchment doesn’t concern you?

[aditude-amp id="medium5" targeting='{"env":"staging","page_type":"article","post_id":1597546,"post_type":"story","post_chan":"none","tags":null,"ai":false,"category":"none","all_categories":"business,entrepreneur,","session":"C"}']

Sodhani: I view that as an opportunity. An adjustment like that would be very welcome — and we’d probably get very aggressive.

VentureBeat: Because you have deep enough pockets to weather it out, and you’d get better valuations?

Sodhani: All of the above. And, we have belief that innovation is not going to stop just because we’ve got an adjustment.

VentureBeat: Is the VC industry fundamentally changing in any way?

Sodhani: The venture model is evolving to value-add. There’s plenty of capital chasing too few deals. Every company should ask [potential investors], “What is your value proposition?”

And don’t be greedy in taking the highest valuation with no value proposition. That’s a big mistake. You’ve got to look at what the investor brings, and there better be a very good and deep value proposition.

Capital: That’s a basic requirement, obviously. But it’s not enough. It’s necessary, but not sufficient.

I think that’s where we excel. Our value proposition is pretty deep, profound, and broad. We help our portfolio companies in lots of different ways.

We get entrepreneurs come to us and say, “We’ve heard about your programs, can we join?” And we say, you’re not a portfolio company, you can’t join.

Sometimes, if it makes sense for us, we’d invest. But we get incoming deal flow like that.

Our deal flow is super. We’re seeing virtually every deal that’s out there.