A Microsoft venture fund

Kevin Merritt has a great suggestion for creating a Microsoft venture fund. This is not new, I wrote about my displeasure with the proposed Yahoo! deal back. Kevin has thought about a YCombinator-esque microfunding model.
  • A three person team comprised of Ray Ozzie, Don Dodge and Dare Obasanjo would be the investment committee.
  • Anyone can submit a 10-slide business plan. No NDA protection, which is the norm in the VC industry.
  • Plans are reviewed once a quarter. Those that make it through the screening are invited to a 90-minute in person demo and pitch.
  • At the end of the 90-minute demo & pitch, the three-person Ozzie/Dodge/Obasanjo investment committee makes an immediate decision. It’s pass/fail. You’re in or you’re out. American Idol style. You’re going to Hollywood or you aren’t.
  • If you pass, here’s what you get: an investment of $100,000 cash plus $25,000 per founder, but never more than $175,000;  all the Microsoft software you need; unlimited, free use of Microsoft’s cloud computing infrastructure for 3 years; mandatory office space for up to 5 people for the first year in either the Redmond or Silicon Valley Campus; all the non-sense administrative support services that typically saps a startup, a collegial environment working with other Microsoft funded startups.
  • In exchange, Microsoft gets: 10% of the company in common stock with no special preferences or rights; your commitment to exclusively use Microsoft development software and operating systems for 3 years, other than with written exception by Microsoft; your commitment to deploy your software to Microsoft platforms first (i.e. if you build a mobile app, it has to run on Windows Mobile before iPhone).

That’s it. Quid pro quo. Startups need cash, tools, infrastructure and elimination of noise and distraction. Microsoft needs access to innovation and a future generation of folks building software with Microsoft development tools and to be run on Microsoft platforms. My bet is that Microsoft will flat out buy some of the companies during their year of incubation. And if you assume each startup will have 3 to 5 people, even the ones that fail will produce a good stream of folks who could easily become employees. Microsoft probably already spends $50,000 per hire anyway, so it’s not really costing them much if anything at all.

Oh, there’s one more important twist to help stem the tide of people leaving Microsoft to found companies or join startups. Microsoft employees in good standing having spent at least 2 years at Microsoft can quit their job and can be admitted into the incubator program with only a single approval from the investment committee. No business plan, pitch or demo are required. You’re in. Your prior contributions are your ticket. How many young entrepreneurs-to-be are willing to put in two good years at Microsoft just to get into the incubator program? I think more than a few. It’s a VC spin to the army college fund. It’s the Microsoft future entrepreneurs fund.

This is a great, well thought out plan for putting $25M to work. The biggest questions for me are: how does the model scale around the world? What are the implications with respect to existing anti-trust agreements and funding companies?  What are the areas, much like the Y Combinator 30 ideas, that are part of the initial investment thesis? It feels like without a clearly defined investment thesis that this is really a public relations campaign with entrepreneurial leaning technologists.

3 thoughts on “A Microsoft venture fund”

  1. I see the benefit for Microsoft but see a few issues:<br />
    <br />
    1.) Would a startup want money from them?<br />
    2.) Would a startup trust them to not take the idea sooner or later?<br />
    3.) Would MS invest in a startup that's developing in a LAMP environment (I don't know of one startup using .net as an example)?<br />
    4.) What changes in process, culture, etc would need to be made throughout MS for this to be successful?<br />
    <br />

  2. I see the benefit for Microsoft but see a few issues:

    1.) Would a startup want money from them?
    2.) Would a startup trust them to not take the idea sooner or later?
    3.) Would MS invest in a startup that’s developing in a LAMP environment (I don’t know of one startup using .net as an example)?
    4.) What changes in process, culture, etc would need to be made throughout MS for this to be successful?


  3. $25,000 per founder and $100,000? That’s peanuts. I think capable entrepreneurs can raise much, much more from angel investors and friends & family. I’d argue that you need to be investing at least 1 million in the company and $100,000 per founder. You want your founders to be happy and productive, don’t you? Not all founders are teenagers and college freshmen. Many have families and children. The idea is to make entrepreneurship easy and accessible, not a test of poverty and suffering.

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