The joint interview with both the outgoing and incoming manager of Intel Capital is rather unusual. When a new manager comes in, most of the attention centers on them, as everyone wants to get to know them and the roadmap they envision. But for this interview, two people turned up: Roi Bar-Kat, the new Head of Intel Capital Israel, together with his predecessor Yair Shoham. Shoham, a veteran of Israeli high-tech, retired at the beginning of the year after about eight years in the position, for personal family reasons.
Meanwhile, the retirement that occasioned this interview has somewhat lapsed. Because of the market situation, Shoham is continuing to monitor some of the fund's portfolio companies. "I'm in the process of retiring, and I planned to speed up my departure," he says, "but it's hard because of what's going on in the markets. All of the companies are raising money, there are lots of merger and acquisition deals, and the companies I stayed to help are all in the fund raising recruitment or post-fund raising stage. I just hope it’s not a bubble as the doomsayers say, even if things don’t continue this way and just level off - as long as it doesn’t take a dive."
30 years of outstanding high-tech deals
There is no way to talk about the Israeli tech ecosystem without mentioning Intel. The American chip giant is not only the largest employer and exporter in Israeli high-tech, but also its largest acquirer. Although Intel Capital was not behind Intel’s biggest and most famous Israeli acquisition - Mobileye - Intel's corporate venture capital fund has invested in other well-known companies that have made impressive exits or successful offerings. Israeli companies Moovit and Habana Labs, in which Intel Capital invested, were sold to Intel for billions of dollars, and the fund also invested in companies that were successfully floated, such as Nova Measuring Instruments and Mellanox (later acquired by Intel's competitor, Nvidia).
Alongside these, the fund, which has been operating for about 30 years, has also made investments in lesser-known companies that are still considered some of Israeli high-tech’s most prominent deals, such as in Anobit Technologies, which was sold to Apple.
Today, Intel Capital's portfolio comprises about 30 companies. Companies in which Intel Capital has invested, and are still held in its portfolio, include companies like TriEye, which has developed a sensor capable of seeing in difficult light and weather conditions, such as fog or heavy dust storms. Among its investors is the investment arm of luxury car manufacturers Porsche.
Other notable companies are AI chip developer NeuroBlade; Duality, a company that develops encryption technologies that enable companies to share confidential information; Centrical (formerly GamEffective), which is developing a platform for intra-enterprise cooperation using 'gameplay' elements (gameification); and Kaltura, which has developed a video management platform for business organizations and media companies. Kaltura recently submitted a new prospectus for an IPO, after the last-minute cancellation of an IPO planned for late March 2021; storage chip company Pliops; recruitment technologies company Gloat; and datacenter communications chip startup Xsight Labs, founded by ex-Mellanox staffers, which was first unveiled in December 2020.
Israel: A significant presence at Intel Capital
Of the 30 companies, Shoham continues to supervise about four to six in one form or another. Shoham says he hopes that a replacement can be found for him by the end of this year, so that he can complete his tasks and retire. The fund employs three investment directors, and is now seeking to fill the position of director which was vacated with the appointment of Bar-Kat to his current position. The third investment director is Noam Kaiser. "When I was at Incentive, the Peregrine Ventures incubator, Kaiser was at Ofer Brothers. When I was at Liberty Media, (the US-based publicly traded controlling shareholder in TripAdvisor), Kaiser was at Amazon AWS. Then, when I was at Genesis Partners, he was at Gemini Israel Ventures, and then about two years ago, we both joined Intel Capital," says Bar-Kat.
In addition to them is the fund's investment manager, Adi Caspi, who Shoham and Bar-Kat say has been working at Intel Capital since she was a student, and analyst Shira Vissoker. Israel also has a presence in the fund outside of Israel, with two Israelis - Avishai Shkalim and Lital Shiryan - reporting to the fund's Director of Technology. Another investment manager located in Israel is responsible for scouting artificial intelligence (AI) and machine learning (ML) technologies from around the world.
Trying not to invest in Intel’s competition
"My big successes are in hardware. Exits like Rocketick Technologies and Habana Labs - and even before that, at VC fund Genesis Partners, with the M-Systems exit," Shoham says of himself. His focus, he says, is on deep-tech more than software. As examples, he mentions two companies he continues to work with, Xsight Labs and Pliops.
Aside from Israel,Intel Israel focuses primarily on the US and China. Although, we have investors in Europe and also make investments in other countries On the scale between financial fund, that works on criteria of return on capital, and a strategic corporate venture capital fund that is meant to provide for the corporation's needs, Intel Capital is "more like a classic financial fund on the lookout for startups with a big market, potential for success, deep technology and a strong team - rather than a fund that serves as an arm of the corporation, intended to supply what the various business units may lack," Bar-Kat explains. "That’s not us, because we believe a good venture capital investment will bring strategic value to the organization," he says.
The fund will not, however,invest in startups that compete with Intel itself, such as embedded AI applications-on-edge developer, Hailo. "We looked at them in depth, but Intel already has a similar activity and we try not to invest in things that compete with what Intel does. We don’t think that’s healthy, unlike the sort of financial venture capitalists who actually build a portfolio of companies in the same field, for example, storage or cloud," explains Shoham.
Targeting sectors close to the parent company
While Intel Capital prefers not to invest in competing companies, it does looks for investments in companies that are, as Bar-Kat describes it, "in the Intel mainstream." One outstanding example they note is NeuroBlade. Other areas that, Bar-Kat says, Intel Capital will not invest in are consumer applications, or areas he defines as "out-of-range" such as agriculture. Despite this, he emphasizes that "our scope is broader than Intel’s because Intel Capital also seeks to find the company's future development channels".
And what if a company is not in the Intel mainstream, but you want it anyway?
Shoham: "When we met Rocketick in 2013, a company that Roi had accompanied in his previous position, it had developed a software product in the field of Electronic Design Automation (EDA) that was compatible with Nvidia’s graphic processing units (GPU) solutions. I was excited about them, but unfortunately, that wasn’t something that Intel did, because at that time weren’t working on GPUs. So, we went to the company, and told them that if they agreed to adapt their process to central processing units (CPU), we would finance the adaption, as well as invest in the company. So we brought them into a new market they might not have reached without Intel. It was a five-minute sale for the CEO and their previous investors. Within two years, the company had added the CPU market and then benefited from a nice exit, which otherwise wouldn’t have happened. "
The increase in data consumption, which was intensified by the Covid-19 crisis, led to a sharp rise for the semiconductor market. The beneficiaries are public companies, on the one hand, that saw their market caps rise, and next-generation chip developer startup companies, like NeuroBlade, on the other. But AI accelerator developers like NeuroBlade or Habana Labs are just one part of the story. In this context, Shoham again mentions Xsight Systems and Pliops, "who are handling the global data consumption boom."
"It's a giant food chain where each component needs to be optimized," he explains, "and we try to invest in every link in the chain. So Xsight, for example, deals with data retrieval from the storage component to the processing component. Pliops handles the storage itself. Our investment philosophy is to find the best companies that serve the analysis, acceleration, and accessibility of information."
"Without good communication, things don’t happen"
Shoham describes the current situation in the chip market as ne in which everyone is looking at all strata: cloud, fog, and edge, public cloud, private cloud, and integrated (hybrid) cloud. "Everyone’s trying to arm themselves with everything," he says, "and the technologies in which we invest support and strengthen everyone at every level - in computing, communication, storage, and of course, the application level above that. That was also Nvidia's motivation for acquiring Mellanox - the need to bring more new solutions into its customer offering. We also make a lot of investments in communications infrastructure, both as Intel and as Intel Capital, because clearly, without good communication, other things that need to happen won’t happen."
"Investors are influenced by FOMO and the herd effect"
Do you find it’s harder to find good companies to invest in today?
Bar-Kat: "It may not be harder to find good companies, but it is definitely harder to close deals that make economic sense. And it’s not just the prices, but also the process on the way to investment. For a professional investor to analyze an opportunity in-depth before making a decision, they need time for due diligence. But that’s not how it is today, whether it's because of the herd effect or the fear of missing out (FOMO). Sometimes, it's also a tactic used by some investors. We see cases where investors give companies a term sheet fast, before the due diligence stage, and at high prices."
Shoham: "I agree with Roi that valuations are often too high, and I don’t necessarily have an explanation . I don’t want to believe that we’re the only ones in the market who understands this. I think everyone understands. But there is a phenomenon here where people are enthusiastic about technologies, such as in the datacenter sector, about the unlimited possibilities and the potential need. It turns out that people really believe that the multipliers for the companies they invest in today are lower than the multipliers they think they will have in two or three years. Is there over-enthusiasm here? Yes, absolutely.
"On the other hand, we must remember that we are, first and foremost, financial investors. If people are willing to pay $3 billion for a cyber company that doesn't yet have a dollar in sales, then I probably want to get into that space, too. Are there too many companies in certain areas? Without a doubt."
"I tell my kids that it's worth staying in this country"
From a historical point of view, where is Israeli high-tech today compared with the 1990s, and are you optimistic?
Shoham: "I see the maturity of the Israeli market and how we have coped well with significant crises. The local high-tech market was very aware of not investing too much in things just because of the hype around them. It may seem frightening to see companies raising $50-100 million, and you might ask what they will do with the money, but past experience with very large funding rounds shows that the money was burned not because of wastefulness but because of a lack of focus. Today, I have high confidence that startups will use their funding properly - the result of good management, a much better defined direction and market, and because investors are much more sophisticated, both in Israel and around the world. I tell my children kids it’s worth their while living in this country because we’re headed towards a good place, and it’s only going to get better."
Yair Shoham
- Personal: Lives in Reut.
- Professional: Over 30 years in Israeli high-tech, established his first technology incubator in 1995, was a partner at venture capital fund Genesis Partners.
- One more thing: Began his career as a lawyer in Chicago and later in Tel Aviv.
Roi Bar-Kat
- Personal: Lives in Tel Aviv.
- Professional: Working in the venture capital industry since 2009, was a manager at the Peregrine, Genesis and Liberty funds before being appointed a director at Intel Capital.
- One more thing: Ran a cooking blog called "On the Back Burner" until 2015.
Published by Globes, Israel business news - en.globes.co.il - on June 21, 2021
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