John Hull, Director of Intel Communications Fund

On Tuesday this week at the ITU Telecom Asia 2000 conference in Hong Kong, Intel CEO Craig Barrett announced that the charter of the Intel Communications Fund had been expanded to include a focus on wireless applications and infrastructure, and that the fund had been increased from $200 million to $500 million. Director of the fund, John Hull, gave FinanceAsia.com the details.

Q: You’ve got a new product - the Personal Client Architecture (PCA) - that has prompted the inclusion of a wireless focus in the Intel Communications Fund. But has Intel invested in wireless-oriented companies previously?

A: Intel Capital has done some investment in the wireless space. The reason it hasn’t really been made part of the Commnunications Fund is that at the time they were mainly self-serving investments for internal needs. But what we’re talking about now as we rolled out PCA and made a public announcement about the X-Scale microarchitecture, the focus changed to building a marketplace with lots of companies to push forth the technology. That’s where the Communications Fund comes in.

The word ecosystem is probably way overused, but that’s basically what we do. We look at the whole stack of value from components to tools and middleware, applications and device development, and make investments – sometimes more than one in each space – to build a community of companies. Once you get it going it picks up its own momentum.

Q: How do you balance the focus on return on investment (ROI) with that of pushing forward the usefullness of your own products?

A: There is a balance. We’re not strictly a financial venture capitalist (VC). Strategic linkage is the first thing we look at, and then we look at business models that can provide a financial return as the next step. But I don’t think we make too many investments where both aren’t present. The thing here is that companies strategically well-aligned with Intel are usually targeting what will become fast-growing, large markets. I like to think of Intel having a pretty big wake in which these companies can compete.

Q: The Communications Fund was set up in September 1999 with $200 million. Has that all been invested?

A: It’s almost all gone. So it would have been time to make the fund larger anyway, without the new area of focus. But we have made the increase larger for that purpose. There’s no allocation of money between the different focuses so it’s first come, first served within Intel. My expectation is that as it continues to prove succesful there will be more money once we’ve gone through this lot.

Q: How long do you expect this new money will last?

A: We set an objective with the original fund where we said 18 months to two years, and it ended up taking us just slightly over a year. We haven’t set up anything like that for this fund, it’s going to be fairly opportunistic. Obviously the market is pretty volatile at the moment. It’s a nice thing for us, and investing here in Asia, to not have any pressure.

Q: What do you hold up as the showcase investments you’ve made in the last 12 months?

A: One of the best ones we made is a company called Trivium. I hold that one up as being successful because we actually got our money back. Intel bought it. If strategic alignment is your first criteria I can’t think of a better investment than one that ends up being acquired by Intel. But not all of them should be acquired, some of them are more ecosystem investments.

The fund is still pretty young, so we’ve only had two companies cash out. Trivium was acquired and Wherever.net here in Asia went public. The other ones are still in their development cycle and we haven’t yet had any companies that have failed.

From a strategic perspective we think we’ve been succesful in that some of our companies have been generating a lot of press and visibility in the US and elsewhere. We’ve also had a lot of success in companies doing business with other companies in the portfolio.

Q: Do you encourage, or make it mandatory, that portfolio companies deal with other portfolio companies?

A: I think encourage is the right word. We do introduce companies. Often we find companies that really should be doing busines together, but for geographic reasons or whatever differences, they just haven’t heard of each other. These companies also have access to the relationship work we do with the rest of Intel Capital, so there’s 500 companies. There are 40 in the Communication Fund.

Q: Statistically have your investments to date been in early stage or more mature companies?

A: In the Communications Fund most of our investments have been round A or round B. We have done a couple of seeds. Intel Capital doesn’t generally like to lead an investment, but we will. There are areas of technology that are very interesting to us, or very important to us, that may not be a traditional VC targets. So sometimes we do lead, or if we can find a VC with the right kind of fit to introduce the company to, we would do that. We don’t usually sit on the board of directors of a company either, but it’s kind of on a “what do we need to do?” basis.

Q: Are there any particular areas where you see Asia being particularly strong in the communications and wireless space?

A: There’s some wonderful talent in management software and creating hardware systems to move traffic in a data network intelligently. But then who’s building the real-time operating systems and the middleware, development tools that allow people to develop on those platforms and create the applications that do something. I see a lot of this talent coming out of the Indian marketplace.

We’ve run into some very advanced thinking systems and service provider companies in Asia. Wherever.net would be a good example of a networking company. Part of the reason we’re here at ITU is to find more. We know they’re here.

Some of the Korean and Taiwanese companies have very good human-machine interface design. Some of the handsets coming out of Taiwan are quite cool.

Q: What about in the area of applications? This is often pointed to as the main driver of whether there will be mass adoption of all this hardware and networks that are being developed.

A: That’s absolutely one of the focuses. If you look at what we’ve done with CT Media [software platform] and IXA [internet exchange architecture], that’s probably where we’ve made the most of our investments – people doing innovative applications. And that’s what ultimately makes the market. One of the things that Intel really likes is when an application takes advantage if the particular hardware strategies that we have.

Q: Where do you see the future direction of the fund?

A: While it’s covering networking, silicon, telephony and wireless today, it doesn’t mean additional initiatives won’t be added over time. We certainly have our plate full right now, having added a pretty big piece with wireless. But you can expect the Communications Fund to grow and evolve as Intel’s strategic direction grows and evolves.