Preview
Intel Corp.’s investment arm, Intel Capital, has long been a major player on the corporate venture stage in the U.S. and Europe, even taking the lead when promising companies can’t find other backers. But Intel has also been busy invigorating Latin America’s flagging venture scene, investing $50 million in 22 companies. So far this year Intel Capital has closed six deals in the region and plans to announce four more, according to Carlos Kokron, its Latin America director.

Article
Buenos Aires, Argentina 11/07/2003 — Intel Corp.’s investment arm, Intel Capital, has long been a major player on the corporate venture stage in the U.S. and Europe, even taking the lead when promising companies can’t find other backers.
But Intel has also been busy invigorating Latin America’s flagging venture scene, investing $50 million in 22 companies. So far this year Intel Capital has closed six deals in the region and plans to announce four more, according to Carlos Kokron, its Latin America director.

“We’ve had some successes and some who didn’t make it. That’s the name of the game,” Kokron said in a phone interview from a tech market show in southern Brazil where he was scouting for prospects. “You just need one or two home runs out of 10 to make up for all the money invested in the other ventures.”

Intel generally takes minority stakes worth $500,000 to $3 million. Bigger deals — say, in the $20 million range — are “possible but not likely,” he says.

On three of the deals, Intel has teamed with Darby Technology Ventures Group LLC, which has contributed about $5 million as a co-investor, according to Darby principal Jonathan Whittle. Darby is raising several country funds with partners, including IBM Corp., ComCast Interactive Capital, Bechtel Enterprises Holdings Inc., Franklin Templeton Investments and Mexican-owned Cemex SA de CV tech subsidiary CxNetworks.

Intel Capital invests in hardware and software companies whose products can spur demand for Intel’s semiconductors.

In October, it announced deals with Gemelo Storage Solutions and systems integrator Sonda SA, both based in Santiago, Chile. No amounts were disclosed.

Chile is especially appealing because “entrepreneurs and businesses understand how to export,” says Michael Aleles, Intel Capital’s general manager in Santiago. “They embrace free trade and have a lot of the pieces in place.”

Latin America has lagged far behind the U.S., Israel and some Asian countries at software and hardware design and innovation. But that is starting to change, Aleles says. Aleles and Kokron point to the software firm Automatos Inc., which Intel has backed, as one such pioneer. The Rio de Janeiro firm has developed tools for monitoring and managing critical servers remotely. “If they’re successful, they’ll help grow the market for our products,” Kokron says.

Companies with multinational reach are the most attractive to the foreign investors. “We’re looking to those with the potential to sell regionally and internationally to mitigate country risk,” says Darby’s Whittle. Software for handheld devices such as inventory scanners that boost productivity will be winners, Whittle predicts.

Between 1997 and 2001, about $15.8 billion in venture and private equity capital flowed into the region, according to the trade group Latin American Venture Capital Association. But a lot of that was lost as the technology boom sputtered and the region sank into economic crisis.

“The good news from the bubble is that the mechanism to find companies is there,” Kokron says. “The bad news is the early years were bubble years and a lot of people got burned.”

As Intel and Darby’s deal show, investors are slowly returning.

“The overall approach is more cautious and the atmosphere is less heady than in the 1990s,” Latin American Venture Capital Association’s Ramona DeNies said in a statement, which “may lead to better and eventually higher-yielding investments, fueling the growth of a more resilient, sustainable VC industry in Latin America.”

But there are still obstacles. Many expansion-stage companies with stellar engineering or design talent don’t have a well-defined business model, says Kokron. And there is little seed or angel funding for hot early-stage companies.

“There are good projects and good ideas,” he says, “but just too young for typical venture investors.”

And exits remain a problem. Given slowdowns in Mexico and Brazil and Argentina’s 2002 flame-out, the region’s capital markets have hardly been receptive to IPOs. — Leslie M. Mira