Lip-bu has been ahead of the pack for nearly 40 years. He's always believed silicon is the foundation and everything else runs on top of it. For the past 20 years, software got the valuations and the capital. He kept writing checks into chip companies anyway. And for long stretches, he was doing it nearly alone. He never changed his mind. It's the rest of the industry that has finally changed theirs. American chip companies took 53% of the global market last year, the highest US share since 1984. The man who spent years explaining to skeptical rooms why semiconductors mattered is now running the most consequential semiconductor company in America with Washington, Nvidia, and SoftBank all on the cap sheet. Being right early is lonely work. It's a lot less lonely now.
Hi everyone, this is the Tech Surge Deep Tech podcast presented by Celestea Capital. Each episode we spotlight issues and voices at the intersection of emerging technologies, company building, and venture investment. [music]
I'm Michael Marx, founding managing partner at Celestea. If you enjoy Tech Surge, subscribe and leave us a review on your favorite podcast platform. Visit techsurgodcast.com to sign up for our newsletter and find our video episodes on YouTube.
Hi everyone, thanks for joining us. This episode of Tech Surge was recorded during the Deep Tech Week conference in San Francisco. Last year, the world purchased more than $790 billion worth of semiconductors. That is up more than 25% in a single year. The industry had set itself a goal of reaching a trillion dollars in annual sales by 2030. It is going to get there about four years early. For most of the time my guest has been doing this. Nobody saw that coming. Lip-bu Tan has been investing in silicon since 1987.
Long before this became the consensus it is today. From the outside he funded the companies that disrupted computing. Now he is leading the one that originally defined it and that same company might be carrying the most weight in the American technology industry. Intel is the only firm on US soil able to compete in making leading edge semiconductors at scale and Washington, Nvidia and SoftBank are all now investors. Lip-bu and I have been good friends for many years. In this chat, we talk about his investment philosophy, what he's bringing from his turnaround of Cadence Design to Intel, and his priorities for the year ahead.
Lip-bu and I have known each other for gosh must be 25 years now.
I think it's more than that. [laughter] You know, we had met early early on. And Lip-bu would join the board of Flextronics and then in 2013 we started this firm Celeste together with our partner Nick Brathwaite and so we've known each other a long time. So I just want this to be a conversation with old friends. You've done a lot of things. I think it would be helpful for the audience to hear how you got to where you are, where you started, how you wind up in Silicon Valley. Why don't we start there?
Sure. Yeah. I was born in Malaysia. Johor. And then spent my high school college in Singapore and then I thought the energy problem is a crisis. So I enrolled to MIT for my nuclear engineering and unfortunately the Three Mile Island accident happened and then the placement director told me that you should get out of here and then there's no new nuclear power plant. There's no future career for you. So I say okay and I supposed to have a PhD program. So I cut short that and then so I wrote the only one resume on my life to apply for a job and then so they send a free ticket and hotel to come to California San Francisco. I said why not, it's a good deal. So I came here and I love it here. So have been here for the rest of my life.
How old were you? [laughter] How old were you when you got here?
I think it's about 20, early 20.
Okay. Fantastic. So you have been a technology investor, a technology pioneer for all these years. What attracted you to hardware if you will? You've done a lot of investing around hardware from early on. So what about hardware got you interested?
Yeah, actually I invest across the board as you know I'm very curious and learn new things. And I still remember I invest in the Google for search but I invest early in that. I invest in LookSmart in Australia. And then first investment you return 10 times the fund and so the rest is not important, you return the 10% 10 times you know every investor are happy. So I think so far I always believe in building something that the problem you try to solve, the industry need, and then you just zoom in and focus on whether you find the right people to do it and that's kind of fun too and how to scale it. Learned a lot from Flextronics that thank you for inviting me to be on the board.
Well, so look, we've been around for a long time and Silicon Valley started with hardware and when I listen to some of the debate, you almost forget that Silicon Valley started with Fairchild and National Semiconductor and Intel, of course, and then went through PCs and Cisco and all these, the PCs and cell phones and all that kind of stuff. And then for about the last 20 years, everybody's been doing software, software, software. And of course, it takes both. And now hardware has become really important. Everybody knows Nvidia became the first trillion dollar company, is the most valuable company in the world. And that's kind of changed the whole discussion around hardware. How do you think about that? The transition back to the focus I would say on hardware because obviously we have AI software but the SaaS software companies have been under stress. How do you think about that from an ecosystem standpoint?
Yeah, it's a very good question. First of all I thought that semiconductor is hard and deep tech is very important. And a lot of application if you don't have the silicon or the platform, you know like for example my phone and I had to have three batteries because you run out in the middle of the day and unless you switch off some of the applications. So in a way I always thought that semiconductor foundation is so important and 20 years ago that is not very popular. So I went to some of the tier one venture firm friends of mine and initially the host and a partnership attending meeting with me. Then after I talk about semiconductor half kind of find excuse to leave the room politely and then later on only left with two who sympathetically listened to me and then by the way at the end they said do you have any software as a service company startup. So it's not very popular and then I decided being that's why I have the name called Walden, being a contrarian investor.
Then you and I talk and then I decided to focus on semiconductor and then even some of my investors thought are you nuts.
It's a sunset industry, all the tier one venture fund is getting out of it and you want to double down triple down on it. But I believe that that is the right thing to do being a contrarian and then lo and behold I still remember on one of the investment we make together and then one of the co-invest investors asking me, name me one semiconductor company that over one trillion market cap. And I will try to argue with him, don't shut down the semiconductor part of the business. And I'm so happy right now that question is gone. The most valuable company is a semiconductor company.
Yeah, it really is. Well, one thing that's interesting and a lot of the investors and media who are here and who are part of this whole deep tech week, there's a lot of focus on obviously as it should be on Nvidia and Cerebras has gone public and all this kind of stuff. These big things, SambaNova which is on the stage here as well and all that stuff and I think people tend to not think about all the little companies, all the little things that take place. For example you talk about energy use, batteries and stuff and there's all these little companies that we've invested in together and that the venture guys have invested in like that make chiplets to take energy out and stuff like that. I like to remind people that the hardware and semiconductor space is a big space. It's not just these big companies we know about, but you've been very good at picking those little companies and investing in them early. What brings you to think about it that way?
Yeah, it's an interesting question. So when I started I always believe in putting hard work to learn what's going on and I always have the curiosity of mine. So when you reach out to me to join the Flextronics board initially I say no but later on I decided to. Yes and the main reason is really understanding the supply chain and logistics and then how to source the material. Here that I learned a lot by being on the board and how to scale the operations and so that teach me a lot. So every time I always look at the people ask me to join the board and I want to figure out what can I learn from it. Like Schneider Electric I thought that very important for me to learn why on earth Siemens bought Mentor, my competitor, and then this whole electronics and with SEAQ and now the software for design of the electronics and also the mechanical, digital twin, how that tie in together, why on earth they bought Mentor. So I want to learn what's going on in this whole change. It turned out to be very helpful for me in terms of power management and also industrial automation. So every company I'm involved I try to understand what can I learn and what can I contribute.
Well, the natural followup to that is what got you interested in SambaNova which was, you know, now a hot company, was on the stage, big deal. Like a lot of these companies, our first investment there which was led by you was $2 million in 2017. So I think the valuation was something like 12 million or some silly little number. What got you interested in that one and now you followed it along and as you I think you all know Lip-bu is also the chairman of SambaNova still and thank you for your work there but what did you see back then?
Yes, it's a good interesting question. So I was early investor in some of the graphic companies like S3 and others. And understanding this GPU is very power hungry and so I strongly believe agent AI going to be the future much bigger than the training side and so I thought that this will be interesting to address. And knowing the GPU is very power hungry, so at that time is almost 10 years, nine years ago. So I backed two companies, two technologies that I thought is very useful. One is Cerebras, this is a wafer scaling and it's not easy to do and I was really admire what Andrew tried to do. So I invested in series A. And then same thing with Dust Photonics, this is a data flow architecture that you can get much lower power, performant and much lower power. So I backed both of them.
And then SambaNova I like because the CEO and two professors came to you about the idea.
In fact, I tried to persuade them. You know, Rodrigo, some of you know Rodrigo. He came to my office. He used to be my customer when I ran Cadence and he's from Sun Microsystems. And I said well, it's about time for you to come out and do something. And he was very curious, every time he invite me for lunch. Finally one day he called me, Lip-bu, I'm going to start a company and with these two professors with this new disruptive architecture. So I jumped on it after doing some technical review. And I thought this is something, good architecture, so I've been funding him from series A round, B round, C round, D round, now F round. And every round I was for him bringing the right investor to come in. So I'm in the process of closing F round, you know somewhere between 800 million to one billion and so we are delighted to see finally.
That's the money coming in, not the valuation. So obviously there's themes going on here. Let's talk a bit if we might about the global nature of technology. You're from Malaysia, you've traveled around. There's India now is trying to put a big effort into trying to get more technology if you will into the India ecosystem. We're starting to do work in Canada as you know which is another new area, a lot of universities same as we have in India. There's the political issues with China which I'm very sad about, I'm sure you are because we've had such good experiences there. How do you feel, you know everybody's trying to get Silicon Valleys now and of course there's going to be more of this because of what's happening with these companies. How do you think about the global aspects and what impacts that has on Intel? We'll get to Intel here in a minute. But how do you think about the global nature of our business?
Yeah. I think I always have at Walden, when I started Walden it's kind of think globally, act locally. And so I always believe in investing that you can add hands-on and helping the company. I travel a lot. I invest a lot in India. And then same thing with China and Taiwan. So you always think about where are the best talent that you can get and then you invest and then how to scale the business. And I think it's very important to just find the right team to back. And then in some way nine out of 10 investments I make they change their business plan. Yes, because the market changed. And so I want a team that can really build a world-class company and then with the right culture and then it's kind of nice to be a mentor and helping them to succeed and so it's always nice to see them go IPO or being successful trade sales. And it's kind of enjoy doing that. I'm still enjoy doing that.
Well me too. So much fun and we've backed companies in Israel, in Korea, I think U goes in town now from Hadeep, and of course India and the United States and Canada. It's exciting to actually see entrepreneurs from these different places, they bring different things and you can learn a lot of interesting stuff from them. So I agree about that. Let's switch gears a little bit. I think everybody knows what a success you had at Cadence which is a bit different from the early stage investing. But you took this company over, gosh I think the stock was like $3 or something silly but enough, 3,000%. It'd be interesting to hear, I'm sure everybody would just be interested, what made that successful and more interesting I think is what did you learn in that process that's helping you today at Intel?
Yeah. In fact, history is interesting and the former CEO approached me probably 10 times and but they are very consistent at Cadence. And then finally I accepted to be on the board and the next thing I know is they asked me, Lip-bu, can you step in to be an interim CEO. And this is a slippery slope, right, for 3 months. And I said 12 times no and finally they are very persuasive, just do it for 3 months. That three months become 15 years.
And the stock I think hit $2.42.
Yeah. And I was just doing it for three months as an interim CEO and while doing the search for CEO initially I'm part of the search committee but I said I'm too busy focus on customer and products. So I took myself out of the search committee and then they continued the search and one day the chairman came to me with a smiling face. I say okay you found the CEO. When they pass the key to he said you can keep the key. I said no. So long story short that is 15 years. I think it managed to help turn around the culture, turn around, focus on the products. And I still remember the couple of meetings with customers was so mad, he said not only you have to return the money and we don't want to use the product. And then each one of them will bring them over and they become my continue expanding as a customer. So I think it's kind of first time CEO, I still remember the HR director gave me three books, the CEO for Dummies reading. [laughter] And I read every page. And one thing, without being a CEO before actually it's my benefit. I made a mistake in all hands meeting. I said well I'm a first time CEO so if you have any good idea send it to me. [laughter] And I receive 300 emails per day. And then I responded every one of them and then some of them I listened to them, had meetings with them. They said well in the past we drop a CEO email we never heard of it. You surprised me you came out to my cubicle and talked to me.
Yes. And I think the culture of being, listen carefully what people tell you and then pick up some of the good ideas and then run with it and focus on creating the best products and then delight the customer. And I still remember some of the complaint customers said well we complain about your product, never heard of it until the renewal of the contract then you guys showed up. And I changed it. And the funny part is one of the customers said Lip-bu, I don't know what you do with them. I just complain to you, less than 24 hours people come to office and fix it. So that's a culture of being responsive to delight customer. That had been my trademark, being humble, good listening. Every meeting I have I always will prepare and then I take notes on some of the customer complaints or suggestions. I follow up and that's the best way.
