Intel Capital the Top Venture Capitalist
Intel Capital was named the number one venture capital “firm” for 2012 by PrivCo.
I feel proud of this accomplishment because I consider myself a co-founder of Intel Capital along with Les Vadasz. But then again, it is a bit difficult to accept that Intel Capital could be so successful without me😃.
So this seems to be an appropriate moment to document the early years of Intel Capital. Clearly this will be my perspective. I am sure that I will remember something incorrectly so let me apologize up front.
Avram Joins Intel
I joined Intel in August 1984 after being pushed out of Franklin Computer Company where I served as President and Chief Operating Officer (but in reality, I was pretty much the CEO). Franklin sold an Apple II clone and was growing faster than Compaq which offered an IBM PC Clone. We did about eighty million dollars in sales in our first year of operation but then Apple was able to successfully crush us via litigation. I won’t go into the details of what happened at Franklin. I have written about it else where in this blog. However, it is interesting to note that the key backer of the company, Jim Simon, graciously suggested to me at a dinner the two of us were having, that Franklin and I might both be better off if I resigned. We both recognized that while I might have done a great job growing the company, I was not equipped to deal with the major capital crunch that resulted from the Apple Litigation (our IPO was pulled and our bank line of credit cancelled). Jim went on to be one of the top Hedge Fund managers and is worth many billions these days. One of the other board members, Howard Morgan, a former Professor, who played a major role in recruiting me from Digital Equipment to Franklin, is the General Partner of First Round Capital.
A few months after leaving Frankin, I was contacted by Intel and asked if I might be interested in joining the company. An Intel employee named Mike Richmond (I owe him a great deal) had read about me and for reasons I still do not understand, thought I was the kind of person that Intel needed. He discussed me with Les Vadasz, (badge number three) who at that time was the head of what was called the Corporate Strategic Staff. Les was a change agent at Intel. His role in the success of Intel is terribly under appreciated. It was Les for instance that got Intel into the Micro Processor business.
I spent three days interviewing at Intel including an interview with Gordon Moore who was CEO, Andy Grove who was COO and many of the very top executives. My position was “strategic hire”. That mean that there was no specific job in mind but they wanted me to join Intel.
Avram’s Early Years at Intel
Since I came from the computer industry and not from the semi conductor industry, there was a major gap between my knowledge and capabilities and that of the other senior people. I decided to work out of the Intel facilities in Oregon because it had a small group that actually did computer systems of various sorts called “The System Group”. I reported solid line to Les Vadasz and dotted line to the Vice President that headed the System Group, Bill Latttin Interestingly, the CFO of the Group was Andy Bryant, the current Chair of the Intel Board of Directors.
I spent the next 3 1/2 years working on a number of projects that were systems related. The most important one was BiiN, a joint venture with the Sieman’s Corporation. Frankly, none of my accomplishments during those three years were very significant. I was not very happy with my choice to have gone to work at Intel. The company itself was not doing so well. It was primarily a memory component company and the Japanese were putting a lot of pricing pressure on the company. Having put my family through a lot of pain by leaving Digital Equipment Corporation and moving them to Pennsylvania so I could work at Franklin, I was was committed to making my Intel job a success.
Somehow, my work was appreciated. Once the joint venture was put together, I was was offered an opportunity to relocate to Silicon Valley and work out of the same building as Les, Gordon and Andy. Andy was now CEO. Paul Otellini, the current CEO was actually his technical assistant (the guy who made the powerpoint presentations). This was actually one of the key “executive training” positions.
Pre CBD Days
It was agreed that I would work primarily on Corporate Development which initially meant M&A, joint ventures, strategic partnerships and minority investments. By then, Les had taken over the System Group from Bill Lattin who left the company. The System Group was focused on becoming a major OEM supplier of PC’s to companies such as AT&T. In addition to being the head of the System Group, Les continued to have me report to him. Initially I focused on on M&A opportunities.
The primary area I wanted to focus on was networking technologies. This was was a field I loved and still love. I was convinced that the growth of computing would depend on the development of network technology. I started developing relationships with a number of the Intel board members and had an opportunity to meet with the board on several occasions which was a bit unusual at Intel. I remember giving a presentation about networking in which I used the automobile industry as an analogy. I explained how the gas companies were the ones that really pushed the development of the highway systems by building small demonstration “highways” and providing free maps, etc. The highway system was like networks and the cars were like the computers in my model. I explained that once the highways were built and laws were created to limit the driving speed, the auto industry found itself competing with racing stripes, car seat fabric and bumpers. A number of the board members at that time actually understood more about computer systems than did the management of Intel. This included Max Palesvsky (an amazing man) who was the founder of Scientific Data Systems.
I wanted to buy Cisco or 3Com but they were too expense for Intel so I ended up buying a small networking company called Jupiter Technologies who was lead by Jim Flash, now a partner at Accel. Later, we acquired a company called Lan Systems which was lead by Tyron Pike. It was very hard to acquire companies. The companies we wanted, we could not afford (or at least our board did not think so) and the companies we could afford, we did not want. I thought that by acquiring some smaller companies, we could both get some critical technical skills as well as entrepreneurial management which would help Intel create its own networking business. That did not work out at all. The Intel anti-bodies attacked the foreign objects and the reaction systems took over. The management of the companies did not really want to be part of Intel and they took off having accomplished little to help Intel develop a Networking Business.
I was slowly learning that M&A would not work at Intel. It was also clear to me that Joint Ventures were like running in a three legged raced with lots of coordination and little speed. Strategic partnerships could be useful but they were typically short lived with the exceptions of the symbiotic relationship represented by Intel and Microsoft. That pretty much left me with exploring minority investments.
David Yoffie, a well known professor at the Harvard Business School, was an advisor to Intel and then joined the Intel Board in 1989. David and I would discuss these issues a great deal. My thinking evolved and I realized that minority investments could both provide Intel with strategic insight and market impact without the issues of integration. So I started proposing minority investments. Later when we understood what we were doing better, we called them venture investments. I am not sure what the first investment was. It might have been Digital F/X, which was lead by my friend, Steve Mayer (the co founder of Atari). The very successful venture firm of Kleiner Perkins also invested. Vinod Khosla was that firms board member. I had a small staff. At the same time, Harold Hughes, the treasurer of Intel, was also interested in making minority investments. Tom Galvin worked for him and did some investments in semi conductor technology, I believe, but that activity kind of died out after a while.
In the meantime, I continued to make small investments. Les was able to get Andy to allocate $5,000,000 for minority investments. Andy himself would attend the meetings where the investments were approved. Frankly, he was not that constructive and after awhile, Les was able to convince him that he probably had better things to do with his time.
Les Goes on Sabbatical
Things were not going so well for Les as head of the System Group. Les went off to take a sabbatical where he taught at Harvard. Frank Gill took over. While Frank and I had a good personal relationship, he had no use for my little venture activity. In fact, he kind of thought it was not ok to earn money via minority investments. He was thinking of letting me go. Thank God there was another senior member of Andy’s staff, Dick Boucher, who was willing to take me and my group on while Les was away.
When Les came back about a year later, he and Andy decided that Les should focus primarily on venture investments. So Les created a group called Corporate Business Development or CBD. For a while, I was the only one reporting to Les and I continued to grow my group. Les and I had a great relationship (although there had been one rocky moment). Les was a Senior Vice President and I was a Vice President. I felt that we were partners and we were indeed as well as friends. We are still friends.
As our activities increased, I wanted to focus primarily consumer computing and networking. In 1992, I had come to the realization that the combination of home computers and high speed residential networks would become a new medium. I had funded the Intel Architectural Labs to develop what became today’s cable modem and DSL technologies. I wanted to invest in every aspect of what it would take to make that happen. Meanwhile, Les began to hire people who reported directly to him to deal with enterprise computing, semi conductors technology and even health.
My group continued to expand. As the internet took off, the value of our investments increased significantly. My group alone was sitting on many billions of dollars of unrealized gains.
We invested very early in companies like Broadcast.com (Mark Cuban), Verisign, Broadcom, Launch Media, Geocities, Cnet, and Covad. Later, we invested in CMGI and PCCW. We also invested in a lot of failures such as American Cybercast and 911 Music. The losers did not cost us much and the winners made up for the losses more than a thousand times. We passed on a number of companies that became very successful. Probably the most notable was Netscape. We had an opportunity to invest when that company soon after it was formed in 1994 had pre-money valuation of eighteen million dollars. Both Les and I thought it was too expensive. About a year later, it went public with a valuation of $2.9 billion dollars. We also had a chance to invest in Akamai in 1998 which had a valuation of $80 million dollars and went public a year later with a sixteen billion dollar valuation.
Strategy and Structure
As the number of deals increased, Les realized we needed to put some structure in place. He set up a formal process for deals with a number of well defined phases. As part of the process both the treasury dept. at Intel, which was being run by Arvind Sodhani (the President of Intel Capital wince 2005) and the legal dept., had to approve the deal. The job of the treasury dept. was to make sure that we would at least get our money back. The job of the legal dept. was to make sure Intel did not get sued. It was not always a fun process but it worked very well.
In the beginning we thought the primary benefit to Intel was strategic. We would have been happy if we just made a bit of money on our investments. But later, we realized that for a company to have strategic impact (help grow our market), it would have to be very successful and than mean we would receive a substantial return on our investment. That turned out to be much truer than we could have imagined.
The Liberty Media of Technology
As part of the effort to create residential broadband, I had a lot of contact with the cable industry. John Malone the CEO of TCI (later acquired by AT&T and then acquired by Comcast) was the major player in the cable industry. John cleverly created another company called Liberty Media which was spun off from TCI in 1991. Peter Barton was the CEO of the company and John Malone was the Chairman. Peter and I became good friends partly due to our interest in playing jazz piano.
Barton created billions of dollars in value with a staff of less than 20 people. They invested in early stage cable network companies such as BET, Starz, The Discovery channel, etc. They could then make sure these companies were successful by getting TCI to carry their programing. It was really brilliant.
For about seven years, I would attend the Allen& Company Sun Valley Conference where some of the most important CEOs of entertainment and consumer companies would be. Andy Grove also went on several occasions. Peter Barton gets it in to his head to try to convince Andy that he should give me a billion dollars or so to invest and create public company that would do for technology companies what Liberty did for cable networks. The conversation was pretty funny to observe. I don’t think Andy really got it. He also probably thought that I had put Peter up to it. Sadly, Peter died in 2002 at the age of 51 from cancer.
Avram Exits Intel
In 1996, I was diagnosed with Prostate Cancer and treated in the beginning of 1997. I had been thinking of leaving Intel and exploring the possibility of starting a leverage buyout company with Dave Roux, a good friend, who was responsible for Business Development at Oracle. There was a good chance I would have gone for it but once I had been treated for Prostate Cancer, I decided that I would not want to make a long term commitment to anything. From that point on I would live my life as if I only had ten years more to live. Ten years is enough time to accomplish something new like learn a language but it is not so long that one would postpone doing things that were really important. Dave went on to found Silverlake Partners, which was an out growth of the ideas he and I explored. Silverlake was a fantastic success and I would guess I would have been a very rich man had I joined him in this effort. Fortunately, I have been a limited partner in a number of their funds.
I did not see myself staying at Intel. It violated my newly created ten year rule. Les was nine years older than me and would be wanting to retire in the near future. He retired in 2003. I would have either have gotten his job or they would have put someone else over me. Both would have been awful. The head of CBD really had to be an inside Intel guy and I was someone that wanted to spend my time outside of the company. But then my health made the choice for me. My PSA did not go down after my radiation which is the expected result. Instead, it stayed the same for almost a year. My doctor was saying “at least it is not going up”. Then it started going up slowly. He would say “well at least it is not going up fast”. Then it started going up fast. You get the picture. It was looking like my Prostate Cancer had metastasized which was pretty much a death sentence. I took a three month sabbatical and then a medical leave of absence. My group was broken up and the people reporting to me went to work for other managers. I spent my last three months at Intel developing a presentation on how to grow CDB even more and how it could play an even more significant role in the development of Intel. On my last day at Intel, I presented this at a meeting of top management. I am sure that no one was really interested and probably did not care that I was leaving because “real men have a P&L and don’t make money by investing”.
We started CBD which later became Intel Capital to have strategic impact on Intel’s future. At first we invested in companies that could help our business units grow. Later, we realized that since Intel had about 85% of the PC microprocessor sales, we could help the company just by growing the over all market.
My focus was on the consumer market, which when I started, Andy Grove, said did not even exist. I knew that consumers would need high speed communication just like business. It was clear to me that combining high speed communications with powerful home computer, would lead to the creating of a new medium for information, education, entertainment and commerce.
Les totally agreed with this vision. He allowed me to take some money out of our investment funds to fund the Intel Architecture Labs to develop the technology now used by the cable and phone industries to provide residential broadband. We licensed some of that technology for stock options in various profolio companies and got a good return. But most important, we were able to be the drivers of residential broadband. That provided a prospect which allowed us to invest in key areas of this new and explosive market which resulted in amazing financial returns. More importantly, the growth of the consumer market fueled Intel’s growth turning it into one of the most profitable companies in the world by 1999.
But sadly, Intel did not take the opportunity to expanded it scope of business. It stayed primarily a microprocessor semi conductor company. It failed to develop the networking technologies of Broadcom (which we could have acquired). It failed to develop the communication technologies of Qualcomm (which we could have acquired).
I often wonder what, if anything, I might have done that might have changed this outcome. Intel was good to me. I owe the company a great deal. I wish I had left it with more.
The Bubble Bursts
One of the hardest things to do was to sell the stock of the companies we invested in even if they were public. The managers that were responsible for the investments believed in their portfolio companies and wanted to hang on for higher prices. They were also afraid that Intel selling their stock could undermine the companies and the trust they had with the management of those companies. I had a regular quarterly meeting with my staff where I forced decisions to sell stock. We took billions off the table that way.
I was no longer at Intel when the Internet bubble burst in the Q1 of 2000. I don’t know what happened to the the billions of dollars of unrealized investment gain that Intel had. I am sure billions were wiped out. Luckily for me, I sold all my tech stocks in the first quarter of 2000 including all my Intel stock at $72 a share. It has been trading in the$20s ever since.
CBD become Intel Capital and Continues
I don’t really remember when the name CBD was changed to Intel Capital. Les was made president of Intel Capital. Les and I are still close. He is an amazing man and I owe him much. He was my teacher in so many ways. I stayed close to those that worked for me at Intel both while they were at Intel and then after they left. My wife calls them my “Intel Babies”.
I left Intel fourteen years ago. It amazes me that Intel Capital has been about to continue and is clearly a great success. Much of this must be the result of the strong foundation that Les Vadasz created maybe I deserve a bit of credit too.
Great piece, Avram. Thanks for writing it.
Fascinating story of a fascinating friend. Thanks for sharing it, Avram. You definitely deserve a bit of credit for this amazing accomplishment. Love you, Laurent
From: Two Thirds Done Reply-To: Two Thirds Done Date: Thursday, February 21, 2013 4:44 PM To: LAURENT TARTOUR Subject: [New post] The birth of Intel Capital
WordPress.com avram miller posted: ” Intel Capital the Top Venture Capitalist Intel Capital was named the number one venture capital “firm” for 2012 by PrivCo. I feel proud of this accomplishment because I consider myself a co-founder of Intel Capital along with Les Vada”
Another sharing of history Avram, thanks! I count myself lucky to have benefited from Intel Capital through your investment in Unicast. I continue to benefit indirectly as the company I work for currently also has investments from Intel Capital Partners 😉 Hope it is alright that I shared this posting and encouraged some I know to register for your blog. The movie that comes to mind when I read these is “Big Fish”, which is about a person that was bigger than life, and when he passed away all the amazing people he told stories about (which most did not believe) came to pay their respects and at that point his family realized the stories were true 🙂
Yes Avram, you have been a great partner! Your out of the box thinking, your creativity, personality, and drive was phenomenal. And I appreciate our continued friendship. Les
While you do mention some frustration and some big bits INTC could of made (Broadcom Qualcom), i remember you haveing a much higher level of frustration. I think I remember you saying “what an I doing here” a lot. I also clearly remember that you felt that you were the only guy who was not home grown and that many of the home grown execs were completely out of tough with what the outside world wanted. I remember that the guy who filled Andy Grove as CEO would mainly talk about faster and Faster microprocessor and shorting the design cycle (which appeared to me that the design cycle was getting longer). I remember asking him at a meeting wether microprocessor speed was the main gating factor for computers or was in communications speed. He said that one of the best ways to increase communication speed was with faster Microprocessors. I think this CEO was on another olannet.
Avram, let me add three thoughts to your great post.
I was quite tickled to read that in 2012 Intel Capital had put 58% of its money to work outside the US. When I joined Intel Capital in early 2001, Les told me to take over the international investment activities. I inherited a hodgepodge team of demoralized folks who were not exactly sure what was expected of them. One critical problem was that the US were supposed to approve all the investments, but lo and behold, there was always an Intel future plan or a US start-up that was doing something better than what the foreign company was proposing. The notion that there were smart people and different market conditions all around the world was somehow hard to grok for some. We often had to stretch the definition of “strategic value” to get things done. I remember putting money in BCD Semiconductor in Shanghai under the pretext that it would help us understand the development of the Chinese semiconductor industry. I don’t believe Les was ever fooled, but that was the price of progress. And when BCD went public we made a bunch of money. In 2001 we did 20% of the investments internationally, and by the time I left in mid-2005 we were up to 50%. Evidently the growth of the international footprint has continued.
This leads me to my second thought, and it is a regret that I do not think we ever got the core business groups to truly leverage the strategic opportunity created by all these investments. The same anti-bodies that prevented accepting acquisitions prevented the vast knowledge gathered from outside companies to be incorporated in the product strategies. I still remember the endless mind-numbing discussions about the “digital home” which, according to the microprocessor boys, was going to have a PC at its core to route and store all media coming into a home. It was annoying then to ignore all the market knowledge we had, it seems funny now. Otellini understood the power of what we had, but he was too busy to push his staff to pay attention. I don’t know what happened after 2005. To this day I still struggle with the process to get big entrenched bureaucracies to change their ways.
The last thought is that while Real Intel Men do indeed have a P&L, the true Masters of the Universe have fabs.
Claude, thanks for you comments. International investing was a major aspect of CBD but we were certainly struggling with it in my time. And yes, it is very regrettable that we could not have impacted the strategic direction of Intel. It would have taken very different leadership. I am fond of say that “Andy wanted old ideas from the same old people while Barrett wanted new ideas from the same old people”. I am trying to think about Otellini. Need to come up with something for him.
Old ideas from new people? You could build a nice 2×2 matrix and plug in the CEOs’ names. It would then be obvious what the next choice should be since 3 of the boxes would be filled already.
I had the same idea but was waiting to see what you would suggest. But maybe we will have to add a new column for the next CEO, No ideas.
You mentioned that I was the guy who ‘found’ you for Intel, and today, that would take about 60 seconds… click on the link in an article reporting your departure from Franklin Computer, go to LinkedIn and send you an InMail, then forward the info to Les Vadasz. Back then, I picked up a paper copy of EE Times, clipped out the article, handed it to my admin and asked her to track you down. I think it took a month or more. Then we talked on the phone and then I am pretty sure I called Les on the phone and recommended that you two talk. Back then, “systems” experience was something Intel wanted, and you had it in abundance.
I think I was surprised when the first project you worked on was something I was working on (I don’t even remember what it was), but I do remember that you drove me nuts :).
Any history of iCAP from CBD would also include Ed Slaughter, also ex-DEC, who was one of the first people at Intel to go outside the cloistered walls.
I think you and Claude appreciate how long it takes to change a company like Intel, but you would be gratified to see how thoroughly it has changed in its international orientation and the company’s ability to let an acquisition change Intel rather than just the reverse.
Finally, Avram, I want to recognize that you were the only person to tell me that you were selling Intel when it was at those lofty levels. Claude, there was a guy who worked for you in Chandler who said he wasn’t worried about Intel stock because he was diversified… Cisco, Microsoft, Netscape :).
Mike, you are right to mention Ed Slaughter. I wonder what happened to him? What was the name of the video company he acquired for Intel (in Princeton)?
The Princeton video company was DVI Technology at SRI, which was my first post at Intel in 1990 and I met Gordon “the law” for the first time! The Intel DVI division was shut down in around 1992, by then I settled down in Folsom already, in a small team under Mike Aymar’s group. What a great piece of LIVING HISTORY, thanks Avram!
Really great article Avram. It’s a real shame that you didn’t stick around at ICAP. Unfortunately as the organisation grew internationally, your entrepreneurial skill and vision was replaced with Intel managers who in some instances had failed elsewhere at Intel and who lack lacked your inspiration and vision 😉 .