Financing the Future with Intel Capital

00:09

JOHN: Welcome to Circuit Talk: Funders and Founders. I'm John Cole, Senior Manager on the semiconductor team at MITRE Engenuity. We are a nonprofit dedicated to solving problems for a safer world. Our semiconductor team is hard at work meeting the nation's challenges around semiconductor breakthrough technologies and the CHIPS Act. Circuit Talk: Funders and Founders is part of MITRE's Circuit Talk podcast and video series. And it elevates the revolutionary disruptive work being done by semiconductor entrepreneurs and investors. This is an exciting time to be working with semiconductor startups. The nation is waking up to just how critical they are to our national and economic security. Today on circuit talk funders and founders, we're joined by Sean Doyle. Sean is managing director for Intel Capital in the Bay Area, spends his time at Intel investing in semiconductor startups. Mr. Doyle joined Intel Capital in 2001. And since then, he has led deals on investments in silicon design, semiconductor manufacturing, and supply chain. Sean sits on the boards of a number of investments. He's lead for Intel Capital. And originally he earned his BA from UC Berkeley and an MBA from UCLA. Welcome the funders of founders today, Sean, we're excited to have you here to talk about semiconductor investing.

 

01:23

SEAN: Yeah, thanks for inviting me.

 

01:26

JOHN: Maybe just as a start up, you can give us a little background on Intel Capital and sort of where it sits in the semiconductor ecosystem. Intel was one of those founding fathers of the semiconductor industry and even of Silicon Valley. How did Intel Capital come about, and what does it do?

 

01:42

SEAN: So Intel Capital had its origins back in the early 1990s, as a corporate business development group of Intel. And I think that group eventually transformed into Intel Capital with a true investment focus. I think there were several reasons why Intel decided to become a corporate venture capitalist. I think the first one was, you know, sources of innovation. I think there was a view that a lot of innovation happened outside of Intel, and Intel wanted to be able to access and understand and be aware of that innovation. I think the second thing really is growth, right? So, it's using our balance sheet and investing. Engaging with companies is a great way to experiment. Look for growth opportunities outside of Intel, and look for opportunities for competitive advantage. Something that's interesting about Intel is, you know, historically, Intel has sold through OEMs, or ODMs, to end customers. So using investment was a way to influence Intel's ecosystem, to meet our customer needs, and indirect needs and to meet Intel's needs (more of a direct need to get our product out into the ecosystem in the form and function), so our customers could use...financial reasons too, right, if you have cash on the balance sheet, using your talent and your expertise and insight to generate a return on your asset, your utilization of cash is also something that Intel was able to take advantage of, and hopefully continue to take advantage of today. And I think, if I put a wrapper around that some of the keys to success, and the longevity of Intel Capital is really the consistency starting back in the early 1990s. And continuing to invest and engage with startups and even later stage companies, through downturns, through technology cycles and trends. And having the patience to drive results over a longer period of times really been important to our, our success.

 

03:50

JOHN: That’s interesting, so 1990s, that's pretty early for CVC. And you joined Intel Capital 2001 I think, after you spent a few years in finance at Intel and elsewhere, right? How did you find your way there?

 

04:01

SEAN: Back in the pre-internet bubble days, you know, there was a lot of money flowing into startups, Intel Capital was very active. And I was working more on the finance side and working on numerous transactions per year. I developed a strong interest in manufacturing technologies and supply chain, which became very important to Intel and, you know, had an aptitude I guess as well for executing investments and working with founders. And that really led to transition to the Intel Capital organization directly. And over 20 years of working as an investor in the group.

 

04:39

JOHN: And your investment focus is really on device technology and the manufacturing space. Is that right? Do you look at process or software at all?

 

04:46

SEAN: Yeah, it starts with design technology, tools, intellectual property. So the very beginning of putting together a chip, it covers the fab construction, including construction technologies, actually building the facilities. It's everything that goes into a fab, equipment, materials, automation process technology. It also includes the back end, assembly, test, packaging technologies. You know, Intel has very large operations on the backend as well. Something that's newer for us is manufacturing, supporting the Intel foundry services, right, working and looking at potential investments to not only enable our capabilities as a foundry, but to perhaps enable potential customers of our foundry on a case-by-case basis. And then the last thing is obviously, the overall supply chain looking outside of Intel, anything that it takes for us to manufacture or whatever it takes, you know, for our customers productize Intel's product in their own products. And that includes looking at opportunities that might influence the availability of inputs, capacity, and cost, or even adjacent technologies.

 

06:03

JOHN: That's a very wide mandate there. If you started out talking just about construction, right? So construction of a fab, what kind of a company would you look at that might hypothetically, or in reality that you would look at it would help you with Fab construction?

 

06:17

SEAN: Sure, well look at a lot of things that Intel does. It's a question of complexity, and scale, and cost, right. So when you look at how complex a fab is, you can look out into the marketplace for new tools or capabilities that help you design those, those facilities, manage them, build them, eliminate errors, and keep costs down. So it's an, you know, a lot of commonality between that space and some of the other things that we look forward the other spaces.

 

06:51

JOHN: Intel Capital invest in a startup. I mentioned the CVC, you have a lot of resources you can bring to bear and you're looking for more than just an investment, you're looking for a collaboration, right? What happens on day one? Do you provide value add to the company aside from sort of, you know, capital and validation? Or how does that work?

 

07:11

SEAN: Yeah, so I would say there's, there's not a one size fits all or a template deal, right? I mean, every investment has its own unique characteristics, right? That's the first thing. I think the second thing is when we look at an investment opportunity, we start out by asking why Intel? Why are we an appropriate investor or a good investor? And then I think like other investors, we asked the question, What can we bring beyond money? And we even look, personally, I look throughout the investor syndicate, right? Is there something differentiated that we can bring to the company that perhaps other investors can't or will not bring in that case. So oftentimes, we are looking, you know, at potential technical collaborations, they're not required. But in some cases, it makes sense for both parties to work together in a formal structured manner tactically. In the spaces that I work in, sometimes in tilts as a potential customer for the company. So we might bring a customer relationship, which can add value to a startup. From a pure technology standpoint, sometimes we can bring technical expertise to a company, again, it depends on the situation, depends on what the company needs. And it depends on how Intel can help. We do have, for example, even formal programs where Intel Capital occasionally can second, engineering resources to accompany to work on a specific project. We look at PR, right? Can we amplify business development? Can we bring some introductions, even governance, now we can be very active at the board level and take board seats, we have a lot of experience. And then I guess the last thing when you look at a company like Intel, it has, you know, a huge global presence. Can we help smaller companies access resources business around the globe.

 

09:08

JOHN: That's gonna be a huge thing to tap into that platform and go global, especially if you're just starting out. But speaking of deals, I saw you recently, your team made an investment in 3D glass. I saw you mentioned collaboration, I saw Applied Materials was also on the cap table there and sort of mentioned in the press release. Pretty competitive field. What's your objective when you collaborate with the CVC like that? How are you thinking about it, and how does that work?

 

09:37

SEAN: Sure. So kind of what are the advantages? And, you know, what are the considerations when we work with another corporate venture capitalist? I think some there's clearly some benefits, right? From an investment perspective, we can get a broader technical and market opinion at the time of investment by bringing in somebody that might have a different problem set or a different business model than Intel, right? So there can be strength and value in looking at that viewpoint. Also, from a capability standpoint, I think every corporate company can have its own strengths, right and capabilities. So oftentimes you can have a broader set of technical capability and investor expertise when it comes to commercialization. We get a broader view on applications, right? Clearly, Intel might have applications of interest, but another CVC might bring other perspectives on a wider set of applications. Something that I've seen happen a few times in the past, that's, I think, interesting, when you bring CVCs together is, sometimes you can build a customer base around a company. Because unlike maybe a traditional financial VC, CVCs could become customers of the company, and you can start to build a customer syndicate or customer base around a new technology, which can influence a marketplace, or help bring a new technology to market. And then of course, you know, larger CVCs will hopefully have access to significant funding. And since most of them invest off the balance sheet, sometimes you can have a very patient view without an end-of-life fund issue.

 

11:21

JOHN: I can see how the collaboration works out quite well on that. Do you think that's one of those hard deals, right? So 3d glass, deep technology, and your team is out there sort of investing in these boundary process and materials, all sorts of hard tech and innovation? I'd imagine you have quite the diligence team and resources to kind of go back into Intel to help think through some of these deals. Is that right?

 

11:47

SEAN: I think that's an advantage we have. And, you know, maybe not a unique advantage when you talk about CVCs. But, yeah, oftentimes, we can draw on some of the technical expertise within the company, which is extremely valuable. You know, when you start talking about leading process technology notes, it's very hard to do the due diligence. Even for us, by the very nature of venture capital, or growth equity, we're still taking technology risks, we don't know if something will work, we're not sure if it will be adopted. But we can form a very small team internally to assist with that, or even just a single individual sometimes to get a technical perspective. So yes, it's helpful.

 

12:30

JOHN: Lowering that technology risk, I think is key on these kinds of things. I know one of the key aims of the CHIPS Act is to sort of make more investments, like 3D glass, kind of leapfrog manufacturing technologies that just sort of changed the manufacturing game. Intel Capital is out there doing these deals, but what needs to happen to sort of get more capital in this space, when you think about, you know, bringing more investment into more technologies like that?

 

12:58

SEAN: Very broadly speaking, you know, first thing to get more capital into a space is capital, right? So capital attracts capital, capital begets capital. I think CHIPS funding can really help, right, chips funding can be part of a financing strategy, you know, for a company. So I think that's the first thing that helps. The second thing I look at when we make investments is not just what is the upside of an investment financially? And, you know, how does it fit strategically, but what can you do to mitigate risk? So we proactively asked that question, and, you know, I think kind of aligned with the CHIPS Act are discussions about technical centers of excellence, more centralized labs, things of that nature that can help companies reduce that risk. So I think that will help a lot. I think the other thing that's maybe a, you know, probably a broader discussion over time is, if you look at the capital flow into companies, and you think about a venture investing cycle. I think, personally, you really have to look at the entire cycle, right. So you look very heavily at how you incubate companies and technologies and create startups. Piece number one, how do you provide funding to those startups? Piece number two, how do you reduce the risks, scale them cross the chasm, you know, maybe stage three, and then venture investors and capital wants to be recycled and want liquidity. It needs exits so it could reinvest. And I think that's a piece that also needs to be considered, you know, how do we have an active market so the capital can be realized the gains can be realized and channeled back into this new funding?

 

14:50

JOH: The long technical development cycle and the technical risks that go along there. I think we all kind of acknowledge that those are there, but we do seethe US sort of leads in basic materials and semiconductor research, but I think that the thinking is that right now a lot of that research, if it makes it into a startup and eventually goes overseas. I think we're all looking for solutions for how to keep that closer to the US, but you sort of referenced maybe a gap in the ecosystem that's not supporting them there. You have the valley of death that folks talk about. What are we missing right now from the startup ecosystem? Is it just you mentioned labs, right. So access to facilities? Is that where you see a bottleneck to shorten development times or expertise or access to manufacturing? Where do you see this? The valleys of death?

 

15:42

SEAN: The valleys of death? Yes. Well I kind of look at it holistically. I think let's take a step back from getting to the labs first, I think question number one now is going to be raw material sourcing. And I'll call it local sourcing and manufacturing too, right, as the manufacturing bases, perhaps expand geographically. I think the first thing is to look at that, the question is, what can we do to improve supply? And are we doing enough? So that then leads us into the research and the lab world, and, yeah, again, I hope that maybe CHIPS funding and complementary capital to that will help more on the research front. And then also improving access to labs. For example, our material startups, they need access to leading edge metrology equipment or characterization equipment. It's too expensive for a tiny startup. Having access to those types of facilities and equipment is important. So again, I hope there will be some progress there with the current initiatives. And then scaling seems a place where there still is active investing, asking companies from the lab. And then if they've demonstrated they can synthesize the material and produce it. Scaling is a place where there's still a lot of capital and investment opportunity.

 

17:11

JOHN: When you say scaling, you mean, as you're taking a chip to The Foundry to do your increasingly larger runs of the chip, is that something

 

17:19

SEAN: Basically taking a molecule, right, and being able to manufacture, manufacture it safely, manufacture it in a cost-effective manner, manufacture it where you need it, and then being able to,

 

17:33

JOHN: So scaling the process, is that what you mean?

 

17:36

SEAN: Scaling the process and scaling the supply chain.

 

17:39

JOHN: Well, when you go all the way back to the beginning of the supply chain, one of the things not really in anybody's control is where the minerals, and where the raw materials kind of lie. Is there a particular approach you could take or we could take to solving that?

 

17:57

SEAN: I don't I don't have an answer to that one. Other than sometimes, it's the location of the materials. Where can you get raw materials? Sometimes it's the economics. Sometimes it's the processing technologies. And I think, you know, because it's a bigger issue. Now, it's taking a step back and looking at each of those pieces of that particular issue, analyzing them and seeing, you know, what are the options and the solutions? Is it just a capital problem? Or are there other issues that can be addressed?

 

18:32

JOHN: Still thinking about the US semi startup ecosystem, if you had a magic wand right now as an investor and could wave that at any problem in the ecosystem right now...what would you try to solve?

 

18:44

SEAN: Yeah, so I guess when you wave a wand, you usually wave it forward and back. So I'll talk about the forward wave of the wand. I think the first wave of the wand is really capital availability and incubation for startups. So I'll say that first wave, I think is starting to be addressed. And it's encouraging through the CHIPS Act, through the natural evolution of the supply chain. So I think that's starting to happen and starting to address, you know, the technical challenges and the early commercialization. I think we're good there. The second wave of the wand that I would say, I'd probably go back to the point that I mentioned earlier, personally, I think you have to look at the entire lifecycle of venture investments or, you know, capital, right. And that's where I would put some focus as well as now thinking through this if you get the first part of the funnel working very well, and you have a lot more startups, okay. Where does the next wave of capital come from? How do you scale them? How do you recycle the capital?

 

19:55

JOHN: Yeah, success begets success in this kind of field. I think. As you see, maybe as more wins come out of semiconductors, you'll see more money start to come in off the sidelines or from other areas.

 

20:07

SEAN: I think that's a great observation. I think you're absolutely right. I know, years ago, there were a lot of angel investors, right. And I would see them in our space. And, you know, angel investors, in my opinion, often they invest in what they know. Right. And so you need the success from those founders to go out and seek new businesses in similar spaces. Right.

 

20:29

JOHN: Right, so hopefully, all the entrepreneurs that you're funding right now, go out have big homeruns and they take their earnings and go invest in the next wave, right.

 

20:39

SEAN: Their earnings and their talent and know how. They really bring the whole package, and that definitely helps an ecosystem for sure.

 

20:47

JOHN: So Intel is in this unique position. They're a large manufacturer, so you have unique needs. And that's a very hard space for startups to sort of make it. Have you had a particular success story, maybe Intel capital invested in that it worked out really well. And it sort of helped the startup come up and help the Intel.

 

21:06

SEAN: Yeah, absolutely. In fact, one that's timely, as it's been mentioned, in the news recently, several years ago, about 10 to 12 years ago, Intel saw a need for a higher throughput mask writer technology as we moved into extreme ultraviolet lithography, etc. And wanted to be very proactive of helping bring a technology to market that would meet our needs and the needs of the industry. So we made a small investment on our own in a company called IMS nanofabrication in Vienna, Austria. We did a technical collaboration to validate some of the technology.

 

21:42

JOHN: What stage are they in when you first invested?

 

21:45

SEAN: It was a small company. They've been around for a while, but very early revenue. And this was a new technical concept. It was early-stage venture capital. And then we proved out the technology, the prototype. And then, you know, we over the next five or six years, we led five to six funding rounds for the company, in conjunction with technical collaborations that grew as we brought in more corporate venture capital groups, as well as corporations who engaged technically, Intel's role was as a lead investor, technology collaborator and pulling together, I’ll call it a technical Consortium. To deliver this multibeam mask writer, Intel actually decided to acquire the company in 2015. With the idea of continuing to serve the broader industry. That business grew dramatically over the last eight years. And then just a few weeks ago, Intel announced that it was going to have the intent to sell 20% of that entity to Bain Capital. So it gets to the point of validating technology, bringing in partner companies, or companies that could collaborate. Growing the business serving industry and then starting to broaden the capital base.

 

23:04

JOHN: I can see how that's a homerun on a bunch of different axes from the sort of nice capital returns at the end. But also, I can imagine that a startup like that would have real trouble working its way into this sort of manufacturing supply chain or even beginning to sort of get access to what it needed to run. EV process. Right. So that's, that's something that they just couldn't do on their own, probably without the lift of an Intel help.

 

23:31

SEAN: It gets back to availability of capital, some joint work, some technical expertise and some validation of the market opportunity. The mass market is, we’ll call it a portion of the overall lithography market, but different and smaller in general. So it was the validation that help, you know, create the forces to make the company successful.

 

23:54

JOHN: Fantastic. And it sort of gets them over that valley of death. They're in the manufacturing of bringing it bringing it to market. Right.

 

24:01

SEAN: So now we try to apply some of those learnings case by case where appropriate to other companies, of course where we go.

 

24:09

JOHN: Well, Sean, thank you so much for coming on and talking to us at Funders and Founders. It’s been great to learn more about what Intel is working on and how you view the ecosystem. Thank you.

 

24:18

SEAN: Yeah, thank you for having me.