Google Ventures Beats Intel Capital

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Bill Maris, Former Head of GV

After the recent earnings season, it’s time to measure the corporate venture capital (CVC) units of two of the largest – Intel and Alphabet. In terms of deals, some say that Alphabet already has beaten Intel this year. But in terms of amounts invested, Alphabet passed Intel long ago.

GV and Google Capital make up Alphabet’s corporate venture capital units. Together, GV and Google Capital have invested close to $3 billion as of June 30, 2016. And so far this year, both together have invested $400 million.

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Source: Alphabet’s Form 10-Q

So far this year, Intel has only invested approximately $160 million. Overall, Intel Capital has invested $1.6 billion in its portfolio companies. But besides size, Intel lags behind Alphabet in terms of performance.

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Source: Intel Form 10-Q (Excludes Intel’s investments in Cloudera and Unispread)

In SEC filings, both Alphabet and Intel report the fair value of their portfolios. Alphabet values its CVC portfolio at $8 billion and Intel values its CVC portfolio at $2.5 billion. More importantly, Alphabet portfolio has built-in gains of $5 billion while Intel’s has only $820 million as show in the charts.

And here is where Alphabet really beats Intel. Built-gains are the hypothetical profit which could be realized if the entire portfolio was sold. Measured solely on rates of return, Alphabet has done a better job of investing.  And since both companies are using other people’s money, that probably matters more than number of deals.

 

Alphabet Bets Really Big on Startups in 2016

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Alphabet invested an estimated $100 million in new ventures during the first quarter of 2016. That and other information about Alphabet’s corporate venture capital activities were disclosed in its recently filed Form 10-Q.

Blackout. Google Capital and GV funnel Alphabet’s cash into new ventures. The two units are part of Alphabet’s other bets. After the reorg last year, Alphabet has provided investors with more disclosure about the non-Google activities. But mostly, the other bets are lumped together as one line number on the financial, so the transparency is well, not so clear.

From the 10-Q, filed near the end of April, we know that Alphabet invested an average of $5 million on startups during the quarter. Based upon information from Crunchbase, Google Capital invested in three companies – Pindrop, Girnar, and Cardekho. GV was busier by investing in 16 companies (see table below).

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Red. Read more closely, the 10-Q tells even more about GV and Google Capital.  Total investments in private companies went from $2.6 billion to $2.7 billion, or an increase of $100 million for the quarter ended March 31, 2016. Alphabet is accounting for these investments under the cost method, which means it generally owns less than 20% of the company and/or does not exert any significant control.

Alphabet also values GV and Google Capital investments at $7.8 billion for the recent quarter. That value increased by $300 million from the beginning of 2016 when the fair market value was $7.5 billion. Alphabet estimates the fair market value using private market transactions, since public market transactions are not available.

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More Green. After some adjustments, Google Capital and GV holdings’ appreciated 3% during the quarter. Here is how. The fair value increased $300 million during the quarter, from $7.5 to $7.8 billion. The fair market value can increase due to additional investments and by appreciation.

So from the $300 million, we must subtract the known additional investments of $100 million. Thus we arrived at the assumed appreciation of $200 million or 3%.

But the $100 million is an really important amount, especially at this time. In the past five years, non-venture capital money has followed into Silicon Valley from hedge funds, sovereign wealth funds, family offices, and mutual funds. It seems these players are now pulling back.

So it may be good know that, money is still following into the sector.

Thanks for reading.

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