Intel’s ecosystem investment strategy is housed in Intel Capital, the company’s venture capital arm, which acts as a technology scout, seeking smaller firms that could help the chip maker achieve clear goals, such as upgrading its manufacturing systems every two years. Often, the beneficiaries are companies in technology clusters in California, Oregon, New Mexico, or Arizona, where Intel’s fabrication plants are located. “That’s the real locus of people doing innovation,” says Intel Capital Managing Director Keith Larson.
At least one of Intel’s ecosystem investments played a critical role in safeguarding its network of suppliers. In 2005, it took a stake in Crossing Automation Inc., a small firm in Fremont, Calif., that makes specialized tools for the semiconductor industry, among others. When Intel supplier Asyst Technologies Inc. ran into financial difficulties and faced bankruptcy in 2009, Intel Capital guided Crossing Automation into buying Asyst, ensuring that Intel’s domestic supply chain would not be disrupted.
Intel was able to dramatically increase the clout of its ecosystem investment strategy recently when it teamed up with 24 other venture capital (VC) firms as part of the company’s “Invest in America” alliance, Intel’s commitment to promote U.S. competitiveness by supporting technology development and creating jobs for college graduates. Intel put up a mere $200 million of its own money, but the VC firms pledged to match that investment, for a total of $3.5 billion over several years.
GE is a relative latecomer to large-scale ecosystem investing, but it is now dedicating significant resources to the effort. An apt example is GE’s investments in A123 Systems of Watertown, Mass., a promising lithium ion battery researcher born out of an MIT engineering lab. As of April 2009, GE Energy Financial Services and GE Capital’s Equity unit (two separate investment arms of GE) had poured $70 million into A123, taking a 10 percent stake in the company and setting the stage for its IPO in September 2009. (Since the IPO, GE’s stake has been diluted.) With GE’s backing, A123 is working to expand the use of its batteries in powering hybrid and electric vehicles and also in stabilizing utility power grids, an industry in which GE is extremely active. As part of the arrangement, Mark Little, GE’s director of global research, serves on A123’s board, affording GE a hotline into the future of lithium ion batteries and lending A123’s management a much larger company’s expertise on how to expand sales.
What appears to be motivating GE in this deal and dozens of other recent ecosystem investments is the desire of CEO Jeffrey Immelt to bring the 133-year-old company back to what made it great in the first place. Since succeeding former GE chairman and CEO Jack Welch (who retired in 2001), Immelt has refocused GE on innovation, even more so since the financial crisis. Moreover, Immelt is hungry for new green technologies in support of his Ecomagination agenda, which was implemented to meet environmental challenges such as wind, solar, and geothermal power generation. In December 2010, the GE Energy Financial Services unit said its portfolio of renewable energy investments had reached $6 billion.
For U.S. multinationals that are feeling the pressure from increasingly sophisticated global competitors, partnering with up-and-coming startups at home enables them to increase their competitive edge with targeted investments, rather than undertaking costly in-house R&D efforts. For small U.S. companies, it provides a means to bring innovations to market, and to escape or even bypass the valley of death. Which means that in today’s post-recession, hyper-globalized world, it’s an increasingly rare win-win.
- William J. Holstein is the author of The Next American Economy: Blueprint for a Real Recovery (Walker & Company, 2011).