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By | Iain Thomson 4th November 2015 07:06

You're right to fear a second dot-com crash, says Intel VC boss

Chip giant's investment wing looks abroad as tech bubble grows

ICGS Fears of another technology startup bubble bursting are "legitimate," says the outgoing head of Intel's venture capital arm.

As a result, the chip biz is playing it safe in "overheated sectors" of the market, and looking overseas for the next big thing.

It's not widely known but Intel Capital is one of the largest venture capitalists operating in the technology sector. In the late 1980s, Intel treasurer Arvind Sodhani convinced then-Intel CEO Andy Grove to start the fund, and now it's spending hundreds of millions of dollars a year on startups.

Sodhani has been president of Intel Capital since 2005, and will retire from his post in January. After that, he'll start life as a private VC while tending a vineyard in California's Napa Valley producing a vintage that bears his name.

He said there is a "legitimate concern" that an unstable tech bubble is forming, but some investors – like, say, Intel Capital – are wary of another dot-com crash.

"We've been very sensitive over the last two years," he told The Register at the Intel Capital Global Summit this week.

"It is a legitimate concern that valuations have become stressed and there's a lot of talk of an adjustment or a correction – not necessarily across the board but in certain sectors. We have been very careful to make sure we only invest at the correct valuation and not get carried away in overheated sectors."

Certainly Intel Capital isn't reducing its spending at the moment. Last year the biz invested $359m, and so far this year Intel's in for $490m. By the time he retires, Sodhani said that would rise to more than $500m a year.

His successor as president of Intel Capital is Wendell Brooks, who joined the company 18 months ago after spending 23 years as an investment banker in the US and Europe. Brooks was less circumspect, acknowledging that there is an issue, but said Intel should be able to avoid getting burned.

"In private market valuations today there is a disconnect with the public markets," he explained.

"There are more $1bn-plus unicorn valuations in the private market than we've ever had in history and the lowest, tightest IPO market. The public market is not valuing things the same way that the private market is. But the beauty of Intel capital is that we can invest in up cycles and down cycles."

Brooks may be right, but the stunning, and some would say, ludicrous amounts of money being spent these days on companies with very little in the way of a business plan suggests that there are rough times ahead for some startups – and those who invest in them.

The banker added that the Intel fund should diversify further outside of Silicon Valley. There were large opportunities in China and other overseas markets outside of California, and Intel will be investing millions in those areas, we're told. ®

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