Microsoft provides an excellent example for a 360-degree startup strategy and a seamless integration of a corporate VC, accelerator and startup “evangelism motion” – motion is a term often used at Microsoft. There are only a few corporates on such a scale that are more serious about digital transformation.
The cloud is Microsoft’s number-one priority. The whole organisation and product roadmap is designed to shift the core business to cloud offerings. Under Satya Nadella, Microsoft succeeded in positioning its Microsoft Azure cloud service as the most important Amazon AWS competitor. Microsoft’s three main startup motions are finely tuned to contribute to this digital transformation:
Microsoft BizSpark and BizSpark Plus: BizSpark is a startup program addressing seed and early-stage companies and providing them with credits for the Microsoft Azure cloud. BizSpark is open to every startup that meets certain criteria, such as age and revenue. BizSpark Plus is a program in which Microsoft partners more than 200 startup accelerators around the world to provide their cohorts up to $120,000 of Azure cloud over two years.
Microsoft Growth Accelerator: Seven growth accelerator programs worldwide – Seattle, London, Berlin, Tel Aviv, Bengaluru, Beijing, Shanghai – help series A-stage business-to-business tech companies to scale their business. The accelerator invests no money and takes no 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 credits on top.
Microsoft Ventures: Microsoft Ventures, Microsoft’s corporate venturing unit, is a strategic investing partner at key stages of a startup’s growth, typically investing between series A and C or D. Microsoft Ventures invests in startups in North America, Israel and Europe.
Nagraj Kashyap, head of Microsoft Ventures, said: “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 startup 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.”
The diagram shows how the three different motions contribute to Microsoft’s core business and each other.
Microsoft BizSpark & BizSpark Plus – offering seed and early-stage companies Azure credits – contribution to core business:
- Tech-adoption: Increasing adoption of Azure 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.
Microsoft Growth Accelerator – helping later-stage startups to scale – contribution to core business:
- Tech adoption and new customers: Increasing adoption of Azure and other Microsoft technologies in mature startups. Winning the successful businesses of tomorrow as customers.
- Strategic alliances: Finding complementary startups as cooperation and co-selling partners. Offering startup products to enterprise customers to drive own revenues directly. Leveraging startups to position Microsoft products at the startup’s customers.
- 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.
- Knowhow: Being at the core of innovation, learning from the markets – trends, best practices, startup culture – and using the lessons in support of the core business.
Contribution to Microsoft Ventures:
- Deal source: Referring the best later-stage companies to Microsoft Ventures – accelerator startups and alumni, and external startups seen during the accelerator team’s deal-sourcing activities.
Contribution to Microsoft BizSpark (Plus):
- Deal source: Referring seed and early-stage companies that they come across to the BizSpark team.
Microsoft Ventures – providing money for later and growth-stage startups – contribution to core business, besides financial returns:
- Tech adoption and new customers: Increasing adoption of Azure cloud and other Microsoft technologies in growth stage startups. In 2017 Microsoft invested directly – not via Microsoft Ventures – in Flipkart, an Indian unicorn (a business valued at $1bn or more). Flipkart, an online markeplace, is a great example of a financial investment that comes along with a strong strategic component related to the core business of the corporate parent. As reported in Microsoft News, “Microsoft and Flipkart 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 data centres. 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.”
- Strategic alliances: Finding complementary startups as cooperation and co-selling partners.
- Brand: Helping 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 using the lessons in support of 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.
- Knowhow: Providing knowledge, experience and network in selecting and scaling the Accelerator startups.
Contribution to Microsoft BizSpark and BizSpark Plus:
- No direct link, stage-wise the targeted companies are too far from the focus areas of both entities.
Core business and M&A – contribution to startup motions, especially Microsoft Ventures and Accelerator:
- Dealflow: Referring interesting startups that business development executives and sales people in the field identify during their work.
- Knowhow: Helping to evaluate tech cases with expert knowhow in tech, markets, products, enterprise sales and so on.
- Business development: Supporting portfolio companies to scale their businesses – strategic alliances, co-selling and so on.
- Tech & Tools: Providing tools and deep tech support for portfolio startups.
Microsoft Ventures invested in Element AI, a platform for companies to build artificial intelligence (AI) solutions, in a $102m 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.
Element AI CEO Jean-François Gagné, who is leading the effort, said: “We all know you are only as good as your tools, and now Element AI is getting supercharged with Microsoft Ventures. 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.”
To reduce complexity, Microsoft’s other existing startup and growth programs – Success Management, Customer Access Program, Independent Software Vendor – and tech engagement with startups in third-party accelerators is being faded out.
This is an edited version of an article first published on Medium