Intel Spins Out Intel Capital

The spin-out of Intel Capital will be interesting to see. Usually, investment groups in companies are funded to identify new technologies that could be beneficial or detrimental to the firm. As for new technologies, they allow them to compete with internal efforts. If the technologies are better, the investment group will try to acquire or control them, placing them above internal efforts. On the other hand, the group may determine that they would rather their internal technology succeed and will use their investment and control to better assure their internal technology succeeds, and the external technology won’t emerge as a competitor.

This is very different from what an independent venture capital group does. That kind of group is simply focused on assuring the investment is profitable. What Intel appears to be doing is taking its internal effort and turning it into an external independent organization.

Intel Capital

I spent a lot of time with Intel Capital a few years back but not so much in recent years. They have had some issues after going through a period of behaving more like an external investment firm by putting money into interesting companies with substantial upside but little strategic value to Intel. More recently, Intel shifted back into the more common support role, which only focused on companies and technologies tied more closely to Intel’s progress.

Intel Capital has always been well-staffed with financial types who were unusually competent for an internal group. You can generally make more money with this skill set working for a traditional venture capital firm, but the stress is significantly higher, which may be why Intel was able to retain top talent. Intel’s board tended to have varying levels of interest in this group. At times, the board seemed uninterested in their efforts. At others, it was like Intel Capital was largely directed by the board. This depended more on who was on the board (Intel’s ex-CFO, for instance) than on those in the Intel Capital group.

Managing the Transition

As I noted above, Intel’s ability to retain top talent in an internal group is relatively unique, suggesting there was some value these employees took from being inside Intel that they couldn’t get from an external VC. Since Intel Capital is going to be external, these unique benefits will likely be replaced by a higher level of income for many of the principles in the firm, which makes me wonder if this will hurt retention given the likely reason these folks gravitated to and stayed with Intel Capital in the first place were these benefits.

Certainly, benefits on top of the increased potential for higher income will include more freedom with regard to investment types, more investment sources outside of Intel, and likely a higher level of consistency with regard to goals. Detriments will include a loss of some job security tied to Intel’s size, however Intel has been struggling of late and just lost its CEO, Pat Gelsinger, which hasn’t been well received by Intel employees. So those leaving with the new firm may not be as concerned about what they will lose as they might be otherwise.

Wrapping Up: Why This Makes Sense

Intel is under massive financial and competitive pressure, thus an internal investment group would undoubtedly be underfunded and lack the direction it would need to be successful while Intel struggles to recover. However, an external group can focus more on profits and better return short-term financial value to Intel, and while this move is clearly tactical and not strategic, what Intel needs is more positive news. At the very least, this move should provide that.

Should Intel recover, which is likely given its size, brand value, and intellectual property portfolio, the company can always either bring the Intel Capital group back inside or, more likely, set up a new internal group if needed when it regains the bandwidth to properly fund and manage it.

So, overall, this is a positive move for Intel over the short term, and Intel has other things it can do long-term when it is more appropriate to gain back any benefits lost in the move.

This will be interesting to watch.