In his first 10 months at the helm of what is arguably the world’s most potent corporate VC arm, Intel Capital’s Wendell Brooks has weathered wrack after wrack. First there was the sharp decline in venture activity at the outset of 2016, then a rather public tumult about potentially divesting a 400-company portfolio. And through it all, the public markets were all but closed to technology IPOs. Oh, and if that’s not enough, there’ s also been the 35-year shadow cast by Arvind Sodhani, whose retirement made room for Brooks’ ascension to president of Intel Capital. But none of this turmoil was evident yesterday.
The Wendell Brooks who took the stage at the Intel Capital Global Summit yesterday was battle-tested, smiling, and confident. He welcomed an audience of more than 1,100 — made up of portfolio companies, partners, and customers — to announce the investment of $38 million in 12 startups. He presented a vision that builds upon Intel Capital’s 25-year history, which includes $11.7 billion invested in 1,458 companies and more than 600 successful exits. The vision he outlined will be focused on helping entrepreneurs drive value for their companies, as his team of 60 investment professionals looks for new technologies that will give rise to new business models.
The theme of Brooks’ presentation was “The Good, the Bad, and the Ugly,” and he didn’t shy away from confronting the controversy that erupted last spring over the rumored sale of Intel Capital’s portfolio. “I wanted — and I want — to have a smaller portfolio,” he said, defending his belief that Intel Capital could be more effective by investing in fewer companies, perhaps 200 or 250.
He took pains, however, to state that he would not pursue that strategy: “I want to be 100 percent clear to the audience that there will not be a sale of the portfolio.” And in his closing statement, in reference to the spring kerfuffle, Brooks struck a note of humility: “I apologize for the couple of hiccups this year,” he said, before extending a hearty welcome to everyone attending the Summit.
In an exclusive interview, Brooks spoke to editor in chief Blaise Zerega during the Intel Capital Global Summit.
This interview has been edited for clarity and length.
VentureBeat: Let’s go back to about a year ago. There are more than 400 companies in your portfolio. Earlier today, you said you still want to get down to between 250 and 200 —
Wendell Brooks: 250 and 300, yes.
VB: Ok. Why is that? Why reduce the size of the Intel Capital portfolio?
Brooks: I feel, passionately, that my job is to drive value to these portfolio companies. That’s what’s different about a true, good, corporate venture capital firm, as opposed to a pure financial venture capital firm. We can bring unbelievable technology experts to help the portfolio company drive its own technology. We can endorse that technology to the marketplace. We can help take our portfolio companies to our end customers and promote and accelerate their route to market. And we can add just the general company-building that a traditional VC would do.
I feel like, in order to do that properly, we need to have a manageable number of portfolio companies, and we need to be leaders in the capital structure when we make those investments. Historically, Intel Capital, to me, was really trying to get the venture weighted-average return by investing across many, many, many verticals in the $3-5 million-type investment range. That’s how we ended up with a portfolio north of 400 companies, which is the largest portfolio in all of Silicon Valley. I have no reason to have the largest portfolio in Silicon Valley.
VB: Are there metrics you’ll be looking at in terms of average deal size or number of board seats you want each of your partners to take?
Brooks: Every one of these things is very custom-tailored to the company we’re working with. We’ll continue to invest in early angel rounds, and in A, B, C, and D rounds. Obviously, the later you go in the capital structure, the bigger the check you’re writing, but I want to be there and sustain the investment and see my investments all the way through.
VB: And so then, looking at the amount invested — $514 million in 2015, $446 million year to date – that’s going down. Is deal size going to go up?
Brooks: If you annualize that, actually, it’s going up year-on-year. If you go back two years, it was $360 million. It’s been a pretty sustained $400-500 million level at this point.
VB: Do you see it staying that way in 2017?
Brooks: I am blessed to have a great relationship with Intel corporation. I think they see the benefit of Intel Capital and what we can do in the ecosystem, what pathfinding role we have to play, and the learnings we create by following where the money goes and driving value with these portfolio companies. So absolutely. We’re going to sustain.
VB: You’ve talked about being a strategic investor, but in the VC world, you’re measured by exits and return to investors. Is there a contradiction here?
Brooks: Again, I think my definition of “strategic” is different than what the financial VCs would like to paint as a strategic investor. I don’t want to be doing exactly what my business units are doing. I want to be going off on vectors that are generally aligned with where the business unit is going, but I want the natural hedge of investments that are disrupting that very technology, or that very route we’re chasing. That is the role of Intel Capital within Intel. We’re going to get more learnings, success or failure, on where technology is headed and what the end market is going to look like if we keep making those investments. I kind of look at the world as — we’re getting paid to learn and to pathfind. We happen to have high second-quartile returns over the last decade, executing to a different strategy. I think if we stay more tightly focused on places we’re adding value, those returns will only get better.
The IPO drought
VB: Staying on that, something else that will help fuel startup growth would be the IPO market. Where do you think we’ll end up in 2016? You mentioned a number of companies that are registering quietly. Are we going to see a return in 2017?
Brooks: Look. I’ll confess. I’m frustrated by the IPO market. I think the changes brought on by Sarbanes-Oxley fundamentally changed the access for smaller tech companies in the public markets. You look at the number of IPOs that were happening in ’98, ’99, 2000. They’re triple the level of tech IPOs that we’re having today. Today, you have people much more reticent to go into that market until they have more scale, more controls, and a bigger organization. You also have had venture as an asset class outperforming any other asset class from an investment perspective. Institutions have come in and made later-stage investments in the private market. That has driven later and later IPOs and higher and higher values in all of these so-called unicorns.
VB: So the idea is if you go unicorn, you don’t have to go public?
Brooks: Until you finally want personal liquidity, I don’t think you have to go public. I think, increasingly, your employees, who haven’t necessarily created as much wealth as some of the founders out there, are going to need more than the small private market access they have today, which doesn’t have liquidity and true transparency in their share sales. I think that will drive many of these companies to go public. I think it’s time that some of these really big unicorns did come to the public market and let their employees have some degree of flexibility and reward for all the work they’ve created.
VB: Are there any names, any consumer internet companies —
Brooks: It’s the standard list out there. I expect many of the $10 billion-plus consumer internet companies are putting feelers and understanding what the public market is going to look like. I have all my ex-investment-banker friends — all of the investment bankers who are now my best friends are calling me and giving me updates about the market generally. It feels like there is finally real activity in trying to drive some public market outcomes. That makes me feel optimistic that—we don’t have a lot of those big unicorns in our portfolio. We do have a few unicorns sitting there. I’d like to see them have access to the market. I’d like to see, more important, the market open back up to that $500 million to $1 billion size company that really is the strength of the Intel Capital portfolio.
VB: Are you describing a 2017 window?
Brooks: Post-election, I think it’ll be a more stable market. There’s still a bit of noise about the U.S. election cycle right now. That’s slowed a lot of people down.
The future of sports
VB: You’ve said new technologies will spur new business models and presented a demo involving AR/VR and sports. What’s new about watching sports?
Brooks: If you look at linear television over the last 30 years, you’ve gone from — when I was a kid, where my parents watched everything in its time slot. They got home at 5:30. They watched the local news. They watched the national news at 6:00. At 7:00 was game show hour; 8:00 was comedies; 9:00 to 11:00 was drama or a first-run movie brought to television. 11:00 was the news again. 11:30 was the Johnny Carson Show. What’s happened with personal video recorders, with binge-watching in the form of buying whole series without advertising, with the proliferation of channels across all the different platforms, with the internet there for news, all the time slots have been broken up. The only thing anyone watches today in its natural, normal time slot is sports. Once a sports event has passed and you know the result, sitting through three hours of a football game generally isn’t what the average person wants to do.
Whereas, during the time it’s on, the passion that goes on, the stress you feel as a fan, it drives your viewership. There’s a reason that the NFL’s reaping $6 billion a year in annual revenue from the networks that broadcast it. The networks are making a nice profit on top of that. What I’ve seen in the last…if you look back five years, there was less than $100 million of venture spending around disruptive sports technologies. That’s broadly defined, from sensors to broadcast technologies to cameras to overlays on what you’re watching on TV. Last year, that number was more than $1 billion.
I sit back and I think about aggregating all that data in the cloud. You can fundamentally change the user experience. It’s going to be customizable. If I want to watch, like I could in a stadium, a wide receiver running routes against the secondary and not watch what CBS or NBC is showing me, I’m going to have that capability. I’ll have the video feed of the announcer’s storytelling, which is incredibly valuable. But it’ll be like I’m in the stadium and I can customize what I watch. I can also go back and replay what I want to replay. When I see a blatant offsides in soccer, I can go back and see it before the action stops and the network takes me back to see it. I think it’s going to fundamentally change, from both a subscription-driven model and an advertising-driven model, the way sports get consumed.
From our perspective, it’ll all be technology-driven. Whether it’s putting sensors on the athletes, cameras in the stadiums, or adding the analytics and big data crunching that goes around stitching a bunch of cameras together to give you that in-stadium feel of virtual reality, we’re going to be there. It’s a huge market opportunity for Intel. It’s a huge market opportunity for Intel Capital, because, literally, I saw 50 companies last year that wanted to touch some various part of sports technology. They wanted us to provide technology so they could create business models to go partner with anything from the World Surf League to cricket in India. There’s just a ton of opportunity that hasn’t been exploited.
VB: Do you have a personal passion around this?
Brooks: I grew up in the Midwest. I love my University of Michigan football. So yeah, I love football. I spent 12 years in London and I love Arsenal football. I’m a sports fan.
VB: Are you going to be running a business vertical around sports? Can you tell me about that?
Brooks: We are working with all of the major sports leagues here in the U.S. and in Europe to try and understand their technology needs and bring to bear our evolving camera technology, our partnership with our portfolio companies, like Voke, to give them a new video experience that they can take and exploit the digital rights in a way they haven’t been able to before. Historically, they’ve sold the linear broadcast and digital rights together. Going forward, I think there will be significant tests about selling the linear feed to the broadcasters and keeping the digital rights by the leagues, or by the teams themselves. Steve Ballmer and the Clippers just separated their digital rights from their broadcast rights. They’re the first team that’s tried to do it. I think it’s going to be a very good testbed to see how the broadcasters react. But the leagues themselves, and the teams, if they can exploit the digital feed — it’s an incremental order of magnitude, 50 percent revenue opportunity based on the work we’ve done.
VB: Do you envision an Intel-bundled product offering?
Brooks: I would like to have a model where we’re providing the technology in support of the league. The league is generating new subscription and advertising revenue. We’re participating as a technology partner with the enabling — getting a share of the revenue in return for enabling a giant new revenue stream for them.
VB: Are you hiring for this team?
Brooks: We’re building this team very aggressively. To date, I think we have 175 employees focused on sports. I expect that number to be north of 300 within a year.
VB: Are there other things besides AR/VR we’re going to be seeing with sports?
Brooks: Every major sports league is excited by the opportunity this technology creates at the moment. I think we have incremental development of that technology to bring it not to a single-frame pivot, but to real time. We’re working through that R&D and product development as we speak.
VB: This represents a real disruption, as leagues and teams separate out their digital rights.
Brooks: Yes. But look…the leagues have been starting to lay the groundwork for this. I’m ex-media banker, you’ll remember. For the past decade you’ve seen the NFL channel, MLB, all of them trying to have their own direct outlets to the consumer. They’ve slowly but surely been siphoning content to provide to the consumer without the intermediary of a broadcast network.
VB: So that’s what’s next. Looking back, what are you most proud of so far?
Brooks: I tend to focus on what we can do better, repeatedly. I’m most proud, I guess, in the first year that I’ve got the full backing and support of Intel. I’ve got a terrific team on the ground that has been developed over the last 20 years. It was easy to hit the ground running. Our focus in delivering the strategic vision I promised last year, of investing more in fewer companies and narrowing the focus of the portfolio, and really working to deliver value to the portfolio companies in the long run. We’re executing on it. I feel like we’re going to take our returns to Intel Corporation — both from a learning perspective and a financial perspective — to new levels.
VB: Thank you.