November 27, 2004
Intel Unit Lends Its Muscle to Seattle Startups
THE BIGGEST corporate backer of Seattle-area startup companies is not Microsoft, Boeing or Amazon.com.
It is a Silicon Valley titan that makes its money on semiconductors - an industry with very little presence here.So why is Intel Capital, the venture capital arm of Santa Clara, Calif.-based Intel, spending so much time and money in Seattle?
John Miner, president of Intel Capital, believes Seattle has the ingredients of a strong technology community and the entrepreneurs to develop world-class technologies.
"Here you have the rootstock in Microsoft and McCaw and that deep expertise in software and wireless technologies," Miner said. "We are building on these two domains of expertise that you have."
Intel sees plenty of opportunity in Seattle, investing at a pace of more than one deal every other month this year. Its seven investments in Seattle area companies - Clearwire, Dexterra, Melodeo, Neah Power Systems, Pure Networks, Speakeasy and Wireless Services - make this region the second-most active for Intel. Only the company's home base of California, where 21 new deals have been announced, surpasses Seattle.
Four years ago, Intel Capital established a small branch office here under the direction of Matt Gordon. One of about six U.S. cities where Intel Capital has a physical presence, Gordon said the office helped the company create ties to Seattle area venture capital firms and entrepreneurs.
"The thinking at the time, which has been validated, is that Seattle is an important venture region," Gordon said. "We looked at the things that are strong in Seattle that line up well with Intel, whether it is streaming media, wireless or software, and those are all very important areas of investment for Intel Capital."
Seattle's wireless industry has been of particular interest. Of the seven companies to receive money from Intel Capital this year, five are developing software applications or services for the wireless industry.
With about 100 investment professionals looking at deals all over the world, Intel Capital has the pick of the litter. But Gordon said the McCaw Cellular legacy makes Seattle "one of the most active areas in the world for us." In fact, one of Intel's recent bets is on mobile phone pioneer and Clearwire founder Craig McCaw, who received an undisclosed investment from Intel last month. The companies have agreed to work together on new WiMax networks that can cover entire cities or counties with high-speed wireless Internet connectivity.
Entrepreneurs say having Intel on their team is a huge boost, opening doors to potential customers, helping define strategy and, in some cases, working together on new products.
Melodeo, which announced an equity investment from Intel last week, is looking to receive some horsepower from its new partner as it rolls out a new music service for cellular phones.
"Since the great majority of our business over the next few years will be in Europe and Asia, Intel's sterling reputation in those markets is of considerable value to Melodeo," said Chief Executive Bill Valenti. "It's a good mutual benefit."
Bellevue-based TeleSym, which is developing technology to send voice calls over wireless networks, has received added benefits from its involvement with Intel. The company has partnered with Intel on a mobile phone that allows users to move between Wi-Fi and GSM cellular networks. It participated in the Intel Technology Days, an event in which about a dozen portfolio companies travel to Asia to pitch Intel partners and customers.
"They have been very helpful at opening doors," said Ken Myer, senior vice president of sales and marketing at TeleSym.
Intel Capital invested about $700 million in 120 startup companies throughout the world last year, more than triple the amount it put to work in 2002. With that sort of financial muscle, it has the power to jumpstart entire industries.
And that's exactly what it is doing in the areas of Wi-Fi and WiMax - technologies that allow computer users to access the Internet wirelessly wherever they travel. Intel committed $500 million to a Communications Fund in 1999, with a chunk of that money flowing into Seattle area companies such as TeleSym and Clearwire.
It is also investing $200 million in startups that help bring technology into the home - making it easier for people to access movies, music and other digital content. Seattle-based Pure Networks, whose software simplifies home networks, is a recent beneficiary.
Building entirely new industries is an ambitious goal, but it is one that fits the company's strategy of advancing computer and communication platforms. As certain technologies are introduced into the mainstream, Intel believes it can capitalize.
"All we do is build chips and in order for those chips to be useful to you, a lot of other things need to get invented: software, systems and services," Miner said. "We want to make sure those ingredients exist when we launch a new product."
Intel Capital has been the most active investor in startup technology companies for the past three years, according to VentureWire. But on occasion it places bets on competing technologies within its portfolio - a practice that many venture capital firms avoid.
For example, Intel has invested in Bothell-based Neah Power Systems and Mountain View, Calif.-based PolyFuel, two makers of micro fuel cells. It also is an investor in Clearwire and Speakeasy, both of which are planning to develop WiMax networks.
In the cases where that occurs, Miner said Intel takes steps to protect the interests of the competing companies. Because Intel is operating globally, Miner said, some technologies that might be adopted in North America might not catch on in Japan or Europe.
"Sometimes it is not clear what is the best technology or the best solution," Miner said.
Speaking of new industries, Intel Capital is now looking at ways to make inroads into biotechnology and nanotechnology.
"It is easy to visualize a convergence of semiconductor technology and biotechnology because we already do things today at the atomic and molecular level when we design chips," Miner said.
"It is a technology that we would put on our eyes and ears radar screen. There is nothing on our product roadmap inside the company, but we can see that these are areas that may impact our future. We want to be able to participate in how it evolves and observe and learn and sees where it goes."
P-I reporter John Cook can be reached at 206-448-8075 or [email protected] For more information on Seattle-area startups or venture capital firms, visit www.seattlepi.com/venture.