Q&A: Intel Capital's Keith Larson

Q: Manufacturing supply chains are continually evolving. How does this impact Intel Capital's investments?

A: Our investment ecosystem has become broader. We don't just think in terms of the first ring of our manufacturing supply chain; we may go to where the sub-suppliers are becavuse a lot of technology has moved downstream to those sub-suppliers. For example, we're investors in a company called Crossing Automation, which makes a piece of equipment that helps load and unload wafers that go into another piece of semiconductor equipment. They are a sub-supplier to many larger equipment manufacturers.

Q: How else has the ecosystem changed?

A: It has become more concentrated as the semiconductor equipment suppliers consolidate. The PC industry is consolidating as well. We have to look harder and harder at how we can impact that supply chain. The lowest hanging fruit tends to disappear and you have to move to the next area, strategically and financially.

Q: How often do portfolio companies end up as Intel clients?

A: It depends a lot on the domain. In my area it's more frequent. It doesn't happen so much in consumer internet because the target is the consumer. We are adept at matchmaking between companies and internally within Intel. We recently held a poster session - commonly used in the technology domain as a way to explain what you are doing - and opened it up to the general population in Intel's manufacturing group. A number of people said, "We didn't know a company was doing this and we might be able to use it in a problem we're trying to solve." It's a great way to expose our portfolio companies to new things.

Q: And how often does Intel buy Intel Capital portfolio companies?

A: Only 8-12 out of about 1,200 portfolio companies, although recently we have started to do it a little bit more.

Q: Where in Asia is the next generation of products going to come from?

A: Different geographies have great specializations. In Taiwan, the whole ecosystem is device-oriented, whether it's a PC, smart phone or tablet. It includes everything from the mechanicals that go into the chassis to touch screens and batteries. Japan is also very strong in batteries. Korea excels in mobility and form factor designs as well as software. China has a large base of knowledge in terms of people numbers. They are normally seen as manufacturers but they are up and coming in design areas.

Q: What role can local venture capital play in this?

A: We like co-investors because having more smart people around the table is a better solution than trying to do it all yourself. Having said that, we aren't afraid to finance a single round ourselves if we think it's a good investment opportunity. In Korea there is a bit of a different dynamic as they are mostly one-time investors. We are different in that we do multiple rounds. When we suspect that people will only do one round, we might still invest in that company but we go in with a heads-up - we are taking 20% of this round but we might have to take 100% of the next round.

Q: How quickly can Asia go from being a manufacturer to a source of indigenous technology brands?

A: In the PC space you've seen some of the original equipment manufacturers (OEMs) taking market share as brands. It's unclear where innovation is going to come from but people place a high value on these new devices, whether it's an ultrabook, a smart phone or a tablet. When I was a kid my life revolved around cars. Now my son values his smart phone more highly than he values his transportation. I don't think it's an accident that the four ultrabook systems that hit the market all came from Asian vendors - Asus, Acer, Lenovo and Toshiba. That speaks of their ability to embrace innovation as well as their ability to develop new products rapidly.

Q: Asus, Acer, Lenovo and Toshiba are big companies. As a VC firm, where would you invest to take advantage of what they are doing?

A: A lot of it is the ecosystem players that enable the larger firms. For the ultrabook, battery technology is interesting because it impacts size and form factor. But there are going to be many other devices to do with input and output that we don't necessarily think about today.

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