How can Intel International sit on the sidelines while all the information technology giants are sniffing around in Israel, planting undercover agents here under the guise of joining venture capital funds? It can't, and it isn't. Intel, in its traditional manner, sat quietly until recently.
Not that Intel is now volunteering any information beyond its daily communiques. "Our approach is, whatever is good for Israel and whatever is good for Intel," say general manager Dov Fruman and his staff at every opportunity. Regarding reports of investments, "We are dependent on the other party too. When both parties see fit, we will advise the public," they say.
It is difficult to imagine a start-up building a protective wall against Intel's announcing an investment, but the nature of corporate considerations goes beyond logic. Intel explains that the discretion stems from a desire to display good, non-monopolistic behaviour.
Alongside the millions of dollars Intel has invested in cultivating its suppliers since it set up its business in minority investments in start-ups. $25 million in ten start-ups, according to the figures Intel itself provides, is no small amount in local market terms. The investments start with the seed stage (two companies so far), at approximately $500,000, and include up to $5 million in later stages. In some of the companies, Intel invested more than once. In the first quarter of 1999, Intel has already invested 50% of the amount it invested in 1998 for this purpose.
Despite the fact that the investments were mainly made due to long term, market-wide Intel motives, they have proven to be an extremely wise and worthwhile game also on the venture capital front. In the meantime, in local Intel terms as well, it is small change, but venture capital funds would willingly have signed the rapid exit Intel took from Butterfly, which was sold for $50 million to Texas Instruments in January 1999.
However, the investments are not being made for purely financial reasons, according to Intel Israel business development department manager Zahava Simon. "Otherwise, we could have invested in the stock exchange. It is true we do not wish to lose, but in contrast to venture capital funds, we don't have to show our investors profits and provide 'exits'. We need to prove the investment is strategic."
In contrast to other venture capital concerns, Intel can not only accelerate a company's development and open it up to incredible marketing channels and a wide range of strategic agreements with its golden rubber stamp. Intel can also raise the company's standing, merely by being involved in it, thereby bettering its investments and reducing the risk it is taking. If that isn't a strategic investor, what is?
Investing in communications
What is particularly interesting about Intel's Israeli investment basket is the broad range of it, which is likely to hint at the giant company's future directions. Intel's portfolio here proves the company is concerned not only with it PC business. Through broadband communications technologies, it is surging forward to a good front line position in communications of which even Cisco or Lucent would not be ashamed.
Against expectations, only one company of the nine we traced engages in Intel's traditional areas of endeavor. The company is Nova, which develops and manufactures control systems for the semiconductor industry's manufacturing process, and perhaps another company, Surf, which is developing a "soft modem", already integrated in Intel Pentium processors. There are no multitudes of companies engaged in this area of semiconductors, and the founders of those that do, are generally Intel graduates, who didn't leave the parental home in order to return through the back door (Dr. Boaz Eitan of Saifun, Avigdor Willenz of Galileo, to mention just two of them).
Intel Israel's business development unit was the first of its kind to be set up outside of the US, and only later were similar units established in Europe and East Asia.
Intel Israel harnessed both the plant and the development laboratories that represent beta sites for start-ups, suppliers and incubator companies of the Har Hotzvim high tech initiatives center serving Intel and Teva, ECI, Motorola Telecommunications, Rapa and others as patrons.
Which investments has Intel made here? Almost anything remotely connected to PCs has a chance of attracting an investment. And also almost anything remotely connected to communications. To date, in Israel, the investments are in minority positions. Simon says the percentages of ownership Intel acquires depends on "what is appropriate for us and the company". Simon says Intel is not looking for "positions of control for the sake of control, but if it appears appropriate for both parties, we will do it."
What is interesting here
Intel is likely to acquire companies in Israel as well, and certainly examines this possibility when considering "good companies", Simon says, "Although this is not an aim in itself." In the meantime, the Israeli unit is negotiating with eighty companies on investments and contractual supply agreements and for technological cooperation.
Simon says, however, that Intel's main interest here is in the field of communications, including infrastructure, Internet and e-commerce, manufacture-supporting equipment, design and development of semiconductors, products which enlarge bandwidth, digital products for the Internet, voice compression, wireless communications technologies (butterfly), and anything else likely to augment PC usage. Simon says Intel differentiates between its core business investments and investments in other fields. "However, it's possible that something is not coapatible with our main business at the moment, but will become so in the future."
Intel is also reviewing here investments in fields such as distance learning (it has already invested in such a company - Tegrity), and telemedicine. In addition to the technology, good management of the company is important, and the ability to successfully compete in the global arena.
Investments in start-ups come from the coffers of Intel Corporation, of which the Israeli business development unit is part. Simon says her unit has no budget ceiling for investing in Israel, and there are no minimum quotes. "It all depends on the business at hand," she says. Sometimes, the initiative for an investment comes from the Santa Clara headquarters, whose staff travels to all the best exhibitions. At the Demo99 exhibition a month ago, for example, Israeli companies were seriously courted by Intel Corporation.
To track companies, the business development unit in Intel Israel uses its connections in industry, and its staff attends various conferences. In addition, it arranges meetings between the parent company and Israeli companies here. It also arranges meetings between Intel's Israeli suppliers and other companies in Silicon Valley in the US, such as Hitachi and Applied Materials.
To support all these activities, the business development unit at Intel Israel set up an entire infrastructure which includes professional, legal, business and financial support, and a contact base with the local capital market. Simon reports on "strong connections" with venture capital funds. She says Intel prefers to enter into investments supported by funds.
The funds, however, report that despite the tremendous added value Intel can confer, they generally choose not to approach the company with an offer to invest. This is due to the incredibly slow pace of the company's decision making process. The funds hope this will shortly change, and that working with Intel will be more efficient and include closer cooperation.
Simon says she will feel satisfaction, "when we have a hundred companies." But - you guessed correctly - "it's not a target in itself," she adds. "We want to have here a Check Point and Nokia, companies that turned into international giants, about which we will be able to say that Intel supported them right from the start."
Published by Israel's Business Arena March 29, 1999