Microsoft’s Startup Initiatives— “A Manual for Corporate Venture Capital”

I just updated my Paper “A Manual for Corporate Venture Capital” with the following new chapter about Microsoft’s Startup Motions and how they contribute to Microsoft’s core business and to each other:

Microsoft provides an excellent example for a 360 degree startup strategy and a seamless integration of a Corporate VC (CVC), Accelerator and Startup Evangelism motion (“motion” is a term often used at Microsoft).

There are currently only a few corporates on such a scale that are more serious about digital transformation than Microsoft (see “Microsoft’s successful transformation: From Microsoft to Microcloud”).

The cloud is Microsoft’s number one priority going forward. The whole organization and product roadmap is designed to shift the core business to cloud offerings.

Under Satya Nadella, Microsoft succeeded in positioning its Microsoft Azure Cloud as the most important Amazon AWS competitor (see “Sorry, Amazon, But Microsoft Is The World’s #1 Cloud Vendor — Here’s Why”).

Microsoft’s three main startup motions are finely tuned to contribute to this digital transformation:

I. Microsoft BizSpark & BizSpark Plus

BizSpark is a startup program, addressing seed/early stage companies and providing them with credits for the Microsoft Azure Cloud. BizSpark is open for every startup that meets certain criteria (like age and revenue). BizSpark Plus on the other hand is a program where Microsoft partners with over 200 leading startup accelerators around the world to provide their cohorts up to $120k of Azure cloud over two years.

II. Microsoft (Growth) Accelerator

Seven Growth Accelerator programs worldwide (Seattle, London, Berlin, Tel-Aviv, Bengaluru, Beijing, Shanghai) help Series A stage B2B tech companies to scale their business. The Accelerator doesn’t invest money and doesn’t take any shares. It provides access to Microsoft’s enterprise customers and partners, tech support, executive coaching in topics like pricing, sales and negotiation strategy and talent development and a significant amount in Azure cloud credits on top.
The Microsoft Global Startup Roadshow 2017 Mashup video conveys a good impression about the activites of the Accelerator and its interaction with the Microsoft organization.

“(…) here is a partial list of things MS accelerator helped us with:
- Connections with MS customers
- Introductions to known investors, one of which invested in the company
- Connections to departments inside MS which might become customers
- Introductions to other alumni startups with similar difficulties and challenges
- Provided Go-to-Market experts which helped us sell our product and convey our value proposition
- Provided us with $500K (!) in Azure credits for zero equity!
- Helped us close our $3M round (!) with leading investors
- Exposed us to hundreds of potential customers on a demo day which was live streamed to thousands of people via TechCrunch.”

Guy Kroupp, Founder & CEO at Coralogix, Microsoft Accelerator Tel Aviv Alumni focused on the power of machine learning and artificial intelligence to power log analytics; see “MICROSOFT, what have you done for me lately?” for more.

III. Microsoft Ventures

Microsoft Ventures, Microsoft’s CVC, is an active, strategic, investing partner at key stages of a startup’s growth, typically investing between Series A and C/D. Microsoft Ventures currently invests in startups located in North America, Israel and Europe.

“When I came to Microsoft in 2016, I was driven by the opportunity to establish a corporate venture group that would create an additional channel to engage the start-up ecosystem. It would support not just company objectives, but our customers, partners and the ecosystem more broadly. The idea was that we would take an approach which would augment our own product and technology efforts, and enable us to place both strategic and financial bets with early stage companies.”
Nagraj Kashyap, Corporate Vice President and Global Head of Microsoft Ventures

And here is how the three different motions contribute to Microsoft’s core business and each other:

Figure: How Microsoft’s startup programs support it’s core business.

I. Microsoft BizSpark & BizSpark Plus (offering seed/early stage companies Azure credits)

Contribution to Core Business:

• Tech-Adoption: Increasing adoption of Azure cloud and other Microsoft technologies; winning the successful businesses of tomorrow at very early stages.
• Community: Community building in the early stage startup ecosystem.
• Brand: Helping Microsoft to be perceived as an innovative, disruptive, fresh brand.

Contribution to Microsoft Growth Accelerator:

• Dealsource: Referring later stage companies to the Accelerator programs.

Contribution to Microsoft Ventures:

• No direct link, stage-wise the targeted companies are too far from the focus areas of both entities.

II. Microsoft (Growth) Accelerator (helping later stage startups to scale)

Contribution to Core Business:

• Tech-Adoption & new customers: Increasing adoption of Azure cloud and other Microsoft technologies in mature startups; winning the successful businesses of tomorrow as customers.
• Strategic alliances: Finding complementing startups as cooperation and co-selling partners:
  A) Offering startup products to enterprise customers to drive own revenues directly.
  B) Leveraging startups to position Microsoft products at the startup’s customers (like Accelerator Startups that advise their clients to implement Microsoft Dynamics as CRM) .
• Community: Positioning as a platform for startups and VCs, Community building in the startup ecosystem and in stages where real businesses start to evolve.
• Brand: Helping Microsoft to be perceived as an innovative, disruptive, fresh brand.
• Product Development: Identifying product and feature needs of mature startups, collecting their feedback to improve the core (cloud) products and increase their competitive edge.
• M&A: Feeding Microsoft’s corporate M&A with interesting strategic acquisition cases.
• Know-how: Being at the core of innovation, learning from the markets (trends, best-practices, startup culture etc.) and leveraging the learnings for the core business.

Contribution to Microsoft Ventures:

• Dealsource: Referring the best later stage companies to Microsoft Ventures:
  A) Accelerator startups and alumni
  B) “External” startups seen during the Accelerator team’s deal-sourcing activities.

Contribution to Microsoft BizSpark (Plus):

• Dealsource: Referring seed/early stage companies that they come across to the BizSpark team.

III. Microsoft Ventures (providing money for later/growth stage startups)

Contribution to Core Business (besides financial returns):

• Tech-Adoption & new customers: Increasing adoption of Azure cloud and other Microsoft technologies in growth stage startups.

In 2017 Microsoft invested directly (and not via the Microsoft Ventures unit) in Flipkart, an Indian unicorn. Flipkart is a great example for a financial investment that comes along with a strong strategic component related to the core business of the corporate parent:

“Microsoft Corp. and Flipkart, India’s leading marketplace, on Monday announced a strategic partnership to provide consumers in India with the best online shopping service. As a first step in the broad collaboration between the two companies, Flipkart will adopt Microsoft Azure as its exclusive public cloud platform. (…) Starting with computing infrastructure, Microsoft Azure will ultimately add a layer of advanced cloud technologies and analytics to Flipkart’s existing datacenters. Microsoft’s strong presence in India, along with its global scale, allows for continued growth and expansion, setting the stage for the long-term partnership.“ (Microsoft News)

• Strategic alliances: Finding complementing startups as cooperation and co-selling partners.
• Brand: Helping the Microsoft to be perceived as an innovative, disruptive, fresh brand.
• Product Development: Identifying product and feature need of startups in the growth stages.
• M&A: Feeding Microsoft’s corporate M&A with interesting strategic acquisition cases.
• Knowhow: Being at the core of innovation, learning from the markets and leveraging the learning for the core business.

Contribution to Microsoft Accelerator:

• Deal-source: Referring relevant companies that they came across during their own deal-sourcing activities to the Accelerator teams.
• Know-how: Providing knowledge, experience and network in selecting and scaling the Accelerator startups.

Contribution to Microsoft BizSpark (Plus):

• No direct link, stage-wise the targeted companies are too far from the focus areas of both entities.

IV. Core Business & M&A

Contribution to startup motions, especially Microsoft Ventures & Accelerator:

• Deal-flow: Referring interesting startups that business development executives and sales people in the field identify during their work.
• Know-how: Helping to evaluate tech cases with expert know-how in tech, markets, products, enterprise sales etc.
• Business Development: Supporting portfolio companies to scale their businesses (strategic alliances, co-selling etc.).
• Tech & Tools: Providing tools and deep tech support for portfolio startups.

Microsoft Ventures invested in Element.ai, a platform for companies to build AI solutions (within a 102 Million USD Series A round). Being able to leverage Microsoft’s core business capacities was an important added value for Microsoft Ventures and Element.ai:

It sounds like Microsoft is approaching this investment not just as financial backing, but also as more pragmatic operational backing. It is providing software, cloud storage via Azure and more of Microsoft’s existing tools. This ensures that whatever does get built, it has some degree of Microsoft baked into it.

“We all know ‘You’re only as good as your tools’ and now Element AI is getting supercharged with Microsoft Ventures,” said Gagne, who is leading the effort, in a statement. “Along with a strategic investment that is a real vote of confidence for Element AI, Microsoft is giving us the tools and services which will help our AI network achieve scale, which will undoubtedly create new technologies that help tackle some of the world’s biggest problems.”(Techcrunch)

To reduce complexity, Microsoft’s other existing startup and growth programs like “Success Management”, “Customer Access Program” (CAP), “Independent Software Vendor” (ISV) program and tech engagement with startups in 3rd party accelerators are faded out.

Bottom line: Microsoft covers all startup stages and uses its different startup motions to feed and support its core business and each other in a very structured way.

Iskender Dirik
www.id.vc/iskender-dirik