Intel Plans "Major Thrust" in SANs

Even as doom and gloom prevail over the venture capital industry, Intel Capital says it's still ready to fund startups in the storage networking and optical networking markets.

That's the word from Les Vadasz, Intel Corp. (Nasdaq: INTC) executive vice president and president of Intel's investing arm, who spoke with Light Reading after a panel discussion sponsored by Silicon Valley's Churchill Club Thursday night.

"We're going to make a major thrust in storage networking -- if not in storage companies, then in the electronics that make storage work," says Vadasz, whose division is a leading investor in optical and communications startups (see Intel Capital Still Looking for Deals). As for optical networking, Vadasz says there's still plenty of investment opportunity ahead, since Intel thinks optical "is still where the semiconductor business was in the 1970s."

Vadasz's optimism was a departure from the mood of the rest of the panel, which seemed hell-bent on scaring everyone away from wanting to work at a high-tech startup. Setting the tone for the evening was Bill Meehan, a managing partner with consultancy McKinsey & Co., who opened the discussion with some haunting tidbits from a VC research project McKinsey recently completed.

According to Meehan, there are still "thousands of overvalued" startups in VC portfolios, whose valuations "need to come down by 70 percent or more" to match similar public-company valuations.Jos Henkens, a general partner with Advanced Technology Ventures, agrees with Meehan's analysis, saying that "most [VC] firms are still in the process of taking some lumps in their portfolios." He also dashed some cold water on anyone hoping for a return to the dotcom bubble years, when companies went from inception to public offerings before they even had revenues.

"The days of the quick buck are over, and they're not coming back," Henkens says. "Also, the days of the billion-dollar exits are over. Successful exit values now are going to be in the range of $200 million or $300 million or, if you're lucky, $500 million."

Several panelists said that VCs are hoarding their funds' cash so that their portfolio companies are assured funding for later rounds, which aren't easy to fill in these days. Martin Gagen, CEO of the U.S.-based arm of U.K. investing firm 3i Group PLC, says the result is that "it can feel to the entrepreneurs like the [venture] checkbooks have gone away."

To an almost desperate plea from one startup executive, who asked the panel "what might lead us out of this malaise," Vadasz had the most concrete response:

"The performance of the Internet, especially in the last mile, is way below what is in our PCs," he said, pointing out that there could still be an entire PC-type industry explosion in Internet technologies."But unless significant changes occur in the last mile -- and I don't mean DSL, I mean multi-megabit changes -- you won't see the [economic] landscape change."

Paul Kapustka, Editor at Large, Byte and Switch http://www.byteandswitch.com