Give us an introduction to yourself, as you have quite a track record in Microsoft, and previously Qualcomm.
I started my career as a software engineer, and I am still a sort of recovering software engineer at this point, but I have moved on to a business role at previous companies. Previous to Microsoft, I spent 12 years leading Qualcomm Ventures, and we grew the organisation, when I was there, from three people and a US-only focus, to investing in seven different regions, with over 150 portfolio companies. It has been a good journey so far, and I took that experience and joined Microsoft at the end of January to start up the early-stage corporate venturing group.
Introduce the Microsoft fund and the relationship within Microsoft that you have come in to lead?
Microsoft has a history of working with startups. We have also invested in the later stages, coupled with a strategic business agreement. What I came in to do was to extend that relationship in working with start-ups, but more on the early side. So a specific focus of the fund is to work with start-ups very early, starting in a series A round and beyond, without the requirement for any kind of strategic relationship with Microsoft at the time of the investment.
The relationship with Microsoft is critical, both for the fund and for the start-ups we invest in. Our promise is to provide access to Microsoft for the investments we do. To help them amplify their business using the relationship that Microsoft has, whether it is on the product side, the sales side, the marketing side, and help the companies we invest in to build a deeper relationship with Microsoft, but also with our ecosystem of partners, as part of the fund.
So it has a strategic purpose. What are the financial objectives?
We will invest in companies that are financially viable and that a VC would invest in, but we will invest in them if, and only if, we can also help them as Microsoft. So we do look at financial return, not in terms of contributing to Microsoft’s balance sheet necessarily, but as a screen for good companies to invest in.
The second criterion is whether we are able to amplify the business of the company we invest in with Microsoft’s help, then that makes it a good investment for us. We will not invest if one of the two is not there. If the company is not, we think, a good financial investment we will not invest. And if we do not think we can add value from Microsoft’s perspective then we will not invest.
What sort of size and plan have you?
We are not public on either the size or the plan for the fund. We will invest as the opportunities come up. I started at the end of January, and in the past seven months or so we have been very active. We closed our ninth investment just a couple of days back. So it has been a good clip since we started.
However, there is no target, either for the number of investments or for the funds we have to deploy. It is really based on the companies we see and opportunities we find. I think the reception from the community has been overwhelming. Both from the VCs and the start-up side, there is a pent-up demand to work with Microsoft, so we have been seeing very, very good deals.
What are the key technologies or business models you are searching for and seeing opportunities in?
Broadly speaking, we have classified our focus areas into five pockets. One, which is in line with what Microsoft is trying to do in our core business, is the area of cloud transformation – moving companies over to the cloud. In this area we are seeing a lot of activity on the start-up side, and we are very active ourselves. This could be all the way from core infrastructure, to build a cloud, to companies that are helping transform enterprises to move over to the cloud, security in the cloud, monitoring cost comparisons. So it is the whole gambit of how to get companies moved to the cloud.
The second area that is interesting to us is anything in business-to-business software-as-a-service, and this ties in with a lot of the initiatives we have around analytics.
The third big area is what I would call productivity and communications. It is tied to our office business, but we are looking for new ways of communicating and being productive, whether it is an enterprise, or whether it is on the consumer side. This is one of the areas where we are open to doing more consumer-led deals.
I view these as three key pillars on the vertical side. Then we have two horizontal areas which cut across the three pillars. One of them is security, and the other one is artificial intelligence and machine learning, which is becoming a facet of almost every new, exciting business we see.
Introduce us to the team members and tell us what you look for in a CVC team?
We have built the team in less than six months – sort of a record for building a corporate venture capital team. The experience of the team members ranges from somebody like Leo de Luna, who has worked 15 years in the VC industry, in VC firms, secondary firms. It is really a vast amount of knowledge that he brings to the team. He has a track record of many successful exits as well.
Matt Goldstein came from Trinity Ventures. He has a lot of experience in areas like containers, devops [development and operations], security, fintech. He covers what we call “the middle of the stack”. Leo would cover the top.
Rashmi Gopinath comes from experience at Intel Capital, but also, on the operating side, she was in a couple of start-ups in senior business development roles, including Couchbase. So she covers both the investing side and the operating side. And she has significant experience on the cloud infrastructure side.
We have Mony Hassid in Israel, who is a veteran of CVC. He has been with many CVCs including Motorola, Qualcomm and now Microsoft. And we have Lisa Nelson in Seattle, and she knows Microsoft in and out, has been working in Microsoft many years.
The team is a balance, some from the financial VC industry, some who have worked in the corporate venture capital industry and some that have worked in Microsoft. That combination provides the key ingredients for us to be successful, both on the investment side, and then, post-investment, getting the right connections back to Microsoft.
How do you manage that connection to the core business, and what type of people are you connecting with?
We are building a team in Microsoft to help connect the dots with the business. For example, we have a company we invested in that, within a week of investment, was able to get a pilot going with Microsoft as a customer. We have a company engaged on the sales and marketing side where our sales team are going out with the company and introducing them to new customers.
These are just two examples, but what we are trying to do is – post-investment, and sometimes even pre-investment – help the companies get connected to the right folk in Microsoft, either the product team or the sales team. Hopefully that will lead to bigger deals with Microsoft in the future.
How are you planning to measure your financial and strategic performance?
From what I have learnt in many years in corporate venture capital is that there is only one metric that is tangible, that can be measured, and that is financial. We are investing in early-stage companies, so I do not expect we will have any significant financial metrics so early.
On the strategic side what we have to do is build the infrastructure to make sure our companies are successful with Microsoft, and as we do more of those we can start building case studies, but that is the best in terms of how to measure it. An introduction to a Microsoft executive that leads to a lot of business, either for Microsoft or for the start-up, is not something that is easily quantifiable, but it is something that we have to do and that is part of the value-add.
What is quantifiable is if that start-up exits and returns money to Microsoft. So I think we will definitely measure that and then we will try our best to develop a system where we can also show the strategic value, but that is not an exact science.
Have you investments where you can see the strategic benefit or the financial benefit yet?
As a corporate investor, we are definitely more patient capital. We do not have any drive to get to exits. The idea is to be part of the ecosystem and help start-ups. Exits when they come are great, but there is no forcing function for us to drive a company to exit.
On the strategic front, I already mentioned a couple of examples where I think there has been good engagement with the specific companies in the portfolio, and in the coming months we will release some more details on that, in terms of how the collaboration worked. But we are already seeing some early wins, where both the company and Microsoft are benefiting from the relationship.
Kashyap is co-chairman of the Global Corporate Venturing Summit in California next year, and he will be speaking at the GCV Academy there on January 23
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 leads 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