An interview with Samsung Catalyst SVP Shankar Chandran. The vencap business has been crazy, but Catalyst is keeping a strategic focus...
It is inevitable that many of the startups that venture capital funds invest in will go belly-up. Of course corporate venture funds face that same risk, but they’re uniquely subject to another potential problem: the startups they invest in can become so successful that partnering with someone else is a better option. There are worse problems than being spurned by a company you’ve given money to, explained Shankar Chandran, senior vice president and managing director of the Samsung Catalyst Fund, but still.
The business of venture capital is booming. The number of investment funds is growing, and the total pool of money these funds control is eye-popping.
There are signs that things are getting out of hand. For some funds, it’s no longer enough to find good investments; they have to find unicorns — companies that might be worth $1 billion. In the competition to identify unicorns, it seems some investors are investing vast sums hoping the size of the investments will, in and of themselves, be enough to create a self-fulfilling prophecy. Perhaps having a reputation for being able to find a unicorn is almost as valuable as the return on investment.
Shortly before we interviewed Chandran, The New York Times ran a column on venture investing titled ‘This Is Insanity’: Start-Ups End Year in a Deal Frenzy [subscription required], which documented how some venture capital spending is beginning to look indiscriminate, if not downright desperate. The article quotes several startup founders marveling about how investors have begged them to take money they don’t necessarily need and aren’t even sure they want.
This line from the NYTimes article stands out:
Rahul Vohra, an entrepreneur who also backs young start-ups, frequently hears a company’s pitch, conducts diligence, signs a deal and wires the money all in the same day, he said.
Does the word “diligence” have any meaning in either English or in finance if the process is completed in minutes?
Samsung Catalyst’s behavior makes it seem far more deliberative than that. The team at Catalyst might talk to as many as 2,000 companies every year, and it might invest in only two dozen of those — roughly two a month, Chandran said.
Samsung Catalyst currently has about 60 companies in its portfolio, Chandran said.
A partial list includes AImotive (AI for autonomous driving), Apton Biosystems (low-cost gene-sequencing), Avicena (optoelectronic chiplet interconnect), Blaize (more AI), Fungible (an unspecified IC for data centers, with accompanying software), and Sensifree (sensors for the medical market). The full list reveals a general interest in AI, as well as a concentration on a few specific target markets such as automotive, data centers, and medical.
One metric of success of a venture fund is the fate of its investments. Some of the exits that Catalyst recently engineered include Habana (bought by Intel), Datrium (VMWare), BabbleLabs (Cisco), and Ring (Amazon). Another success that Catalyst boasts about is Solarisbank, which has created what the startup is calling a banking-as-a-service platform. In September, Solarisbank and Samsung Electronics announced a deal with Visa to roll out Samsung Pay in Germany.
Chandran has been at Samsung Catalyst for seven years. He has degrees in metallurgy, materials science, and business. He originally worked at Applied Materials, but about 18 years ago he moved into venture investing. He was at Panorama Capital and then at JP Morgan Partners before joining Samsung.
Here’s our discussion with Chandran about the nature of the venture capital game, how Samsung plays it, and what winning and losing means in context.
EE Times: So is it fun getting to throw loads of money around?
Chandran: Ha! I don’t know anybody who really does that. We invest risk capital. For us risk capital is thinking about where some big disruptions are, and how those big disruptions may end up creating new categories, or new companies, maybe even new markets. And then how those ideas, when they become successful might create value for investors, but for us, most importantly, we try to see if it can have a creative impact on Samsung. Ideally, we create a win-win situation; it’s strategic for us.
EE Times: What are the different strategies for a corporate investment fund?
Chandran: If you look across the board — corporate venture capital is probably in its heyday right now. Go back 10, 20 years – you had things like the crisis in 2007, or the tech bubble of 2000 — in situations like that, corporate venture capital tends to back off. Then, there were relatively few players. Those days gone. Now, corporate capital might be 35% of the total. I’m sure you know Intel Capital — it was a pioneer. There might be probably 2,000 corporate capital funds today.
They tend to fall into three categories. You can tell what the strategy is when you look at the org chart. Take a fund like Sapphire — it used to be SAP — they fall under CFO. The purpose is to get returns.
There are a lot of other examples — Applied Materials is another — that comes out of the CTO.
We belong to our chief strategy officer — Young Sohn. For us, corporate venture capital is a strategic tool. We think we’re among the largest-scale funds in this category. We’re one of largest companies in electronics by revenue — $200 billion. Only a few companies are that big. Every category we’re in, whether it’s memories, or smartphones, or TVs— we’re sizable in market share. Our challenge is how do you continue grow at this scale?
When you’re already number one or number two in each market you participate in, you really need to climb new mountains. You have to think about new markets opening up. We need to build expertise, and build up street credence to bulldoze into new areas. And that’s where we come in. We’re the eyes and ears of Samsung’s strategy team.
The greatest disruptions come from startups. We think the best way to help Samsung, when it comes to looking at disruptions in trillion-dollar markets, is to go after the best and brightest startups, invest in them, find a way that these startups can work with Samsung so that there’s a 1+1=3. So when they win, we win.
EE Times: Tell us about a recent win, and a recent loss, and what a good success rate might be.
Chandran: For us, success comes in three flavors.
The first type of success is when the entrepreneurial teams succeeds. That could mean the company is successful as an independent, or as a public company, or they get acquired – they become a value that shareholders are happy with.
The second is — as company grows, the collaboration with Samsung works really well. That’s the 1+1=3.
There’s a third success that’s around the value Samsung gets in IQ, that allows us to do something much bigger than we could have if we hadn’t invested. That’s a fundamental strategic value. That’s a home run.
There’s a semiconductor company that got acquired earlier this year: Habana. We’re proud we’ve backed them. We’d been thinking about the disruption in data centers in terms of AI workloads – we’ve been talking about that internally for four or five years now. We’ve invested in Graphcore, Samba Nova, and Habana. Habana was acquired by Intel for a pretty sizeable amount — nearly $2 billion. Intel just announced a very sizeable customer. That was a success in the first definition.
[In early December, AWS said it would adopt Habana processors. – ed. ]
Habana also a success of the second flavor. From the early days when we invested, we began collaborating — especially with our memory and SoC teams. After the acquisition from Intel, that collaboration has continued. That’s a really important thing. Even though they were acquired by someone else, that 1+1=3 has been important.
That third type of success is the “home run.” Our biggest challenge is: how do we get smart about trillion-dollar markets where we have no street cred? The financial market is a trillion-dollar market. The automotive market is a trillion-dollar market. Medical is a trillion-dollar market. We have to go after those markets.
One of the home runs we had was in the automotive space. About six years ago, my team began thinking about that – automotive. We built up a global portfolio of about 16 companies. Some were small – half a million dollars. One in Europe was $100 million. Those 16 companies – it was like drinking from a firehose. It resulted in us buying Harman a few years ago. It’s a $10 billion company today; it’s our automotive business now. You can think of Harman Kardan and JBL [consumer audio products — ed.], but they’re mostly an automotive supplier. Some cars, the entire cockpit is Harman.
Why is that a home run for us? Under our CSO is an M&A team — they used the IQ that we developed over time, the thesis we developed — to move the needle in a way that was significant for a company as big as us.
EE Times: Has the pandemic had an effect?
Chandran: When Covid hit, and everyone started working at home, and there was a bit of a panic moment. People like me thought “gosh, we need to focus on our portfolio — how can we help them? We don’t know how long the pandemic will last. They need to think about how they can raise money, how they can make it for a couple of years. Customer won’t be buying, you can’t get a sales guy on the plane. It’ll be hard to hire.”
That was first reaction. After a couple of months, we began to realize a few interesting things — and we built our investment thesis based on this, and it’s panned out relatively well — some of the trends began to go into step-function adoptions.
For example, in digital services, the largest enterprises understood only way to survive is to go digital. It spans across health care, and many other traditional industries. Our investments have focused on three major themes:
We’ll focus on those for new investments.
EE Times: What’s the nexus between geo-politics and global venture capital.
We live in extraordinary time with regard to geopolitics, in last 18 months or so, as it relates to global venture capital flows and capital flows. This is not one single monolith when it comes to venture capital investments anymore.
For several years, Chinese venture capital firms, particularly some specific enterprises – were significant players globally. Today, perhaps due to a stronger sense of nationalism in some countries, many startups globally are finding it very hard to do business both in China as well as the U.S. – they feel they have to choose. That leads them to specific sources of capital. Should they be going to Sandhill Road, or should they visit Chinese investors?
What does that mean for VC ecosystem? There are handful of geographics – technology hot spots – that have the confluence of what’s needed, where you have the entrepreneurial mindset, you have great universities, you have venture capital and the talent – Silicon Valley is the poster child for this.
But now, with the cloud, with access to information so much easier, Silicon Valley no longer has monopoly on startups. Now it’s across the globe, in Israel, or Europe. We have offices in Paris and Berlin, Menlo Park, New York City, and Tel Aviv – we think of these five areas as technology hot spots.
Samsung, as much as we’re South Korean by origin, we’re a global company. We have to understand where disruptions are happening, and to go where the disruptions are. Next it might be Singapore, perhaps India.
EE Times: What are the other challenges and opportunities for corporate venture capital?
The job as it relates to making an investment – which is almost the same as any venture capitalist on Sandhill Road or elsewhere – is to think about the risk/reward, find the greatest opportunity, and convince the company they should take our money, because we’re value-added investors.
Building a company is a lot of effort. On top of that, if it’s a really hot company, they have a lot of choices — everyone wants to work with them. And I have to be a cheerleader, and do that in a corporate set-up when priorities change all the time. The effort to actually make the synergy work is so much more difficult than making the investment. The hard work starts after you make the investment.
The best way to make that work is having an organization that is dedicated to internal business development. We have a tiger team in Korea – they mirror everything we do. They figure it out. Sometimes the mortality rate is as high as an investment mortality rate. In early stage, sometimes you have up to 80% mortality. We work hard to make that work, and it evolves every day, as the organizations change.
If we just invested in companies to make money — we have business units that make money. We have to make investments synergistic with Samsung.
The opportunity? This is an incredible time to be in investment – talked about 3 waves – digitization, and health care, and the notion of safety and security being different. The underlying trend for all of these waves is that data and AI is transformative to all these verticals. That’s really where the opportunities are for venture capital and for Samsung to build new businesses.