Give us a brief introduction to yourself and your role within Microsoft.
I run Microsoft Accelerators globally. I am also the founder of what we used to call Microsoft Ventures at the beginning and now we call Microsoft Accelerators.
I have been an entrepreneur most of my life – 20-somewhat years of starting different start-ups. I have also been a corporate entrepreneur. This is my third time at Microsoft. I start things and when it gets too boring or not interesting anymore I go and do other things.
I spent about eight years in Silicon Valley. I am a founder of a Sequoia backed start-up. I came back to Microsoft about six years ago, with the purpose of helping reconnect Microsoft in a stronger way to this new breed of entrepreneurs that you see now around the world, in the US, across Europe, across the Middle East and Asia.
Tell us how the Microsoft Accelerator works.
We just celebrated four years to the program. We started in April 2012 with the first accelerator out of Tel Aviv. The accelerator started on what we call the pure accelerator model, a four-month, cohort-based program – a very strong curriculum, a mentor-heavy program. We get about 10,000 applications every year, and we accept about 2% of the people that apply. They join us for a four-month program, ending with a demo day.
We have seven accelerators around the world – Bangalore, Beijing, Berlin, London, Paris, Seattle, Tel Aviv. We also have a joint venture in Sao Paulo. So far more than 500 start-ups have graduated through the program, and they have raised a total of almost $2bn. Our average follow-on funding for a start-up is about $4.8m. We have had 32 exits through acquisition and three through IPO.
The interesting thing we have started doing lately is moving the focus of our program from early stage, which was pre-seed and seed start-ups, where most of the accelerators are, to a bit of a later stage – so more through series A, or what we call market-ready start-ups, where most of our programs are now. This is where we believe corporates, and Microsoft specifically, can actually give much more value to these start-ups.
How are things going to be changing in the Microsoft Accelerator structure?
We have started the Microsoft Ventures fund. We used to have a small seed fund as part of the work that my team has been doing, and now we have a real, full Microsoft Venture Fund that Nagraj Kashyap [corporate vice-president, Microsoft Ventures] is leading. We now support start-ups from a very early stage, through our BizSpark programs, a bit later through our accelerators, and now even later stages, up to anywhere from series A to series C, and even beyond that through the Microsoft Ventures Fund.
The accelerator is part of this funnel, and we see the fund as a great opportunity for accelerator start-ups to get funded, but also for other start-ups who did not go through our accelerator program to get funded through the Microsoft Venture Fund and strategically align with things that are important for Microsoft.
What types of technologies and new business models are you looking for?
We look for companies we believe could be really big and are using technology as their main growth engine. We did three vertical programs in the past – one around cybersecurity with Akamai and Jerusalem Venture Partners, one around medical health with Becton Dickinson and Healthbox, one around connected home with American Family Insurance.
Our Seattle accelerator has been focused on machine learning and now the next cohort is going to be around machine learning as well as industrial or commercial industrial internet of things. Most of our accelerators accept a wide variety of technologies and business models. However, there are areas that we usually do not deal with, for example gaming, a hit-or-miss business.
We want to make sure our start-ups are driven by technology, that there are areas of interest for us, which are – as I said – pretty wide. If you look at verticals that are interesting these days, you look at retail. I think health is interesting, education is very interesting.
But there are three main pillars Microsoft is trying to bring innovation into – the intelligence cloud, and definitely start-ups that were built on that intelligence cloud is a great thing; the future of productivity; and what we call the more personal computing, which is augmented and virtual reality, and the way voice is integrated into different kinds of applications.
Describe some of the people within the accelerator.
We have a blueprint our accelerators are following. Each of our accelerators has a minimum of four or five people on its staff. The two key people in the accelerators, the people who run it, are what we call the CEO-in-residence, which is the managing director, who in most of the cases is a serial entrepreneur, someone who has built companies before, raised funding, managed the board, managed, invested, hired, fired, went through all the process.
Then his partner is what we call the CTO-in-residence, who is a technical person, very well immersed in open-source technology and cloud technology, and can help with the technical side of the work. Then there are a couple more people, one who deals with dealflow and alumni, another who deals with the operations of the program itself – there are a lot of moving parts in these programs.
This is the minimal blueprint and then it goes beyond that, depending on the location and the size of the cohorts.
How do they link in to the core business of Microsoft and the particular technology areas?
They do it through multiple ways. One is we have a global team of success managers, people based in main markets like the US east and west coasts, Europe and Asia. They do three things. One is taking a portion of our portfolio and connecting these startups to customers. We believe the biggest value an accelerator can provide for start-ups, and definitely a program like ours which goes a little bit further in the stages of the start-ups, is business connections and how you help them create business. When you have business, funding will follow, when you just have funding, you do not always get the business side right.
The success managers connect start-ups to the business, sometimes through the Microsoft Sales Organisation, which is a fairly big and effective sales organisation, and sometimes directly. The second thing they do is connect them internally to Microsoft – working with the different product teams, working with the different engineering teams, finding the right connections into Microsoft. I will give you a couple of examples in a minute. The third thing they do are industry days, or what we call customer events. We just did one in London around retail, where we brought a few of our corporate partners and customers as well as start-ups from all over the world, to meet and discuss the start-ups’ solutions.
That is what the success management side of the house does. Sometimes you find really interesting connections and really interesting opportunities. I will give you one example – a company that graduated our accelerator in Seattle called OneBridge, that operates in the oil and gas industry. This is an industry that is important to Microsoft, but it has been challenging for our sellers to penetrate with our cloud technologies. So having one of our sales people walk in with a start-up that leverages our Azure cloud technology and offers a great solution to that industry is a win for everyone. It is win for the start-up, it is win for that specific seller, it is win for that account and for the customer.
Over the 15 years I have been involved in corporate venturing, I have seen that the accelerator and venture models are now evolving from what was just investing in an interesting technology and the next shiny piece of technology, to corporates trying to get their heads round how joining up different technologies and joining up different startups is going to change the business model, and fundamentally change some of the areas. That is what I would term “innovative new value chains”. How would you see that manifest in the Microsoft scenarios?
We see these changes. We actually think that is part of the value proposition we provide to the company, and part of the value proposition accelerators in general provide to the corporates that run them – the ability to look at new, emerging business models and technologies and stay up to date.
The way we explain internally our biggest value to the company is that we get 10,000 applications every year, from all over the world. We accept only 2% of those into our accelerators, but it gives us a unique glimpse into these startups, providing a proprietary set of signals that we analyse to learn about business trends, technology trends, market trends.
An example is where the president of our online division asked us to give him some information about a set of 10 or so companies he was interested in. We actually turned back 260 companies in the artificial intelligence space, with a pretty deep analysis of where we think we should go, and where the industry is going.
If you follow Microsoft lately, Satya Nadella [CEO of Microsoft] has done a great job in changing this company completely. And you look at how we engage with start-ups, and at the kind of companies we have acquired lately, it is a very different story than in the past.
The example I like giving is something like Acompli or Sunrise, small companies Microsoft decided to acquire. They do an amazing job with email and calendar applications on iOS and Android. Two years ago you could not have imagined our Outlook team acquiring a small email client company, because from their perspective they are the people who invented email. They have been there forever, they have the largest footprint in email clients, and suddenly have signed a little San Francisco company that does a really, really good job on the user experience on mobile.
Something that could not have happened a couple of years ago now makes sense and we can do. So the company is changing and it is changing in many forms.
On new business models and new areas, we constantly approach the different teams inside Microsoft with the things we see, and it could be in robotics, it could be in new markets, the online to offline market, the sharing economy. There are lots of interesting things we see, and we service them to the relevant teams inside Microsoft, and I believe some of them will end up with great new business for us, and great new connections with start-ups across the world.
How do you measure your financial and your strategic performance?
When we started this program, we wanted to make sure that we appealed to the best entrepreneurs out there. We wanted to make sure that we do whatever we can to build the best value-add program we could. So we put in front of us success metrics like: How many of a certain cohort get funded? What is the percentage of a cohort that gets funded? What is the average funding per cohort? Things like business traction, which is very hard to measure, but things that we definitely wanted to see. What is the business traction that our graduates get? These are the main things we looked at.
If you look at the numbers, 81% of our graduates get funded, the average follow-on funding is $4.8m. The number of exits and IPOs, they are very, very high, and that helped us get to a place where we can attract the best start-ups out there to apply to the program. Of course, what helps us also is the fact that we provide a significant amount of cloud credit, if they decide to use our platform, and also we do not take equity.
So this is the first set of things we measure, to make sure we compete well in the market.
The second portion is the feedback from the start-ups. This is where we check our net promoter score after every quarter. We work with an external vendor to survey our graduates about the cohort they were part of, the mentors and the program itself. It is a very mentor-heavy program, so we survey both the mentors and the start-ups on the value created there. That is a set of health-related key performance indicators (KPIs).
The third one is more of a Microsoft internal measurement and KPIs, and there we measure a few things. First we show significant uptake to our cloud platform. Although the companies that come to the program do not have to use the Microsoft platform, we do want to show that we bring some of the best and brightest start-ups to the platform. So we show a percentage of the cohort that would pick up Azure as their cloud platform. We show their average monthly usage. It is also a good proxy for us to see business traction with these start-ups. We also measure strategic engagements with internal teams. We measure the voice out in the industry that these start-ups will carry. So these are more our internal measures.
We did not optimise the program to create acquisitions or funding opportunities for Microsoft. These are great when they happen, and they do happen, but they are not the focus of the program.
From every program you get what you optimise for and what you measure. We wanted to measure a program that creates great start-ups and I think that is what we got.
How do you relax?
It is pretty addictive, I have to tell you. Meeting start-ups all across the world, and entrepreneurs, is fascinating. I am trying to go to most of our selection days and demo days, and there are two per location, so it gets a bit busy. But it is an amazing job.
This week I am going to our demo day in Berlin and in London and then I am speaking in Paris. But next week I am taking my family scuba diving in the Red Sea, which will be great fun. So trying to balance is not easy. We think of this team as if we are a start-up inside Microsoft, and as I think many start-up founders will tell you, it is very hard to balance work and life, but as long as you do what you love and you love what you do then it all works well.
You can listen to this and other interviews on a podcast available at gaulesqt.podomatic.com
Andrew Gaule leads the GCV Academy, developing the capabilities and expertise of organisations leading open innovation, venturing and corporate venturing programs to drive strategic benefit. He also supports innovation programs and collaborations in innovative new value chains in global organisations.
To contact Andrew Gaule and for future interview ideas, email andrew.gaule@aimava.com or James Mawson, jmawson@globalcorporateventuring.com