Nagraj Kashyap, corporate vice-president of Microsoft Ventures, at the GCV Symposium in May
Ventures reimagined was the title of a May blog post by Nagraj Kashyap, corporate vice-president of Microsoft Ventures (see Powerlist profile). In it he said: “While we have aspirations to have global impact in new and different ways, we do not believe we need a large team to do it.”
Certainly, his resources were relatively slight at the start of his Microsoft Ventures role. At the sidelines of the Global Corporate Venturing Powerlist dinner in London, UK, in May, he said he was enjoying getting back to the basics of finding investments and wiring money to them himself.
The deals have certainly flowed since he joined at the start of the year with five, all US-based, in the past month:
• Outreach, a Seattle-based sales acceleration platform hosted in the cloud, raised $17.5m in its series B round, which was led by venture capital firm (VC) Trinity Ventures with participation from previous VC investors Mayfield, MHS Capital and Floodgate. Outreach might be especially valuable to Microsoft after its recent $26.2bn acquisition of business network LinkedIn, as its data may be incorporated into Microsoft’s Dynamics CRM (customer relationship manager) to provide more client data to salespeople, according to press reports.
• San Francisco-based high-performance computing (HPC) technology developer Rescale raised $14m in an A round that included Itochu Technology Ventures and VCs TransLink Capital, which led the round, Jump Capital, Two Roads Group and Data Collective. Rescale supplies simulation software and cloud HPC software for enterprises through a web-based application environment.
• Oakland-based smart office app Comfy secured $12m in a B round backed by real estate services firm CBRE Group and VCs Emergence Capital, Claremont Creek and Westly Group. Comfy, owned by Building Robotics, offers on-demand personalised comfort in the workplace, such as temperature control.
• San Francisco-based data analytics platform Crowdflower raised $10m in a D round co-led by Microsoft Ventures, Canvas Ventures and Trinity Ventures. Crowdflower operates a big data platform that combines machine learning with human-labelled training data. The company’s offering includes Crowdflower AI (artificial intelligence), which can understand instructions in conversational English and can automate a range of business processes such as classifying customer support tickets.
• San Francisco-based customer engagement platform Helpshift raised $23m in its B round from Microsoft, cloud computing company Salesforce and semiconductor manufacturer Intel, joined by VCs Nexus Venture Partners, True Ventures and Visionnaire Ventures. Founded in 2012, Helpshift operates a platform that can be integrated with mobile and web apps to help companies provide native customer support.
Strategic imperative
These deals are all in areas Kashyap tagged in his blog post: “Given the move to the cloud remains the single largest priority for the industry, identifying the bleeding-edge companies who complement and leverage the transition to the cloud is key to our investment thesis.
“Companies developing product and services that complement [Microsoft’s cloud service] Azure infrastructure, building new business SaaS [software-as-a-service] applications, promoting more personal computing by enriching the Windows and HoloLens ecosystems, new disruptive enterprise, consumer productivity, and communication products around Office 365 are interesting areas from an investment perspective.
“In addition, and on a more horizontal axis, you should expect to see us invest in companies who are doing work in the areas for machine learning and security.”
It is an admirably clear statement of intent and reflection of the big strategic issue in the industry that computer processors are effectively cheap and ubiquitous and hence the issue becomes which services are most suitable in an always-on world.
Bob O’Donnell, president and chief analyst of consultancy Technalysis Research, in an article in Fast Company magazine in June, said Apple founder Steve Jobs’s declaration in early June of 2010 of the “post-PC era” was prescient. Personal computer shipments peaked a year later. He added that we are now “entering a ‘post-device’ era.
“There is no obvious successor to the smartphone on the horizon. Instead, the future of computing seems to be about a set of platform and device-independent services. Specifically, voice-based interactions, driven by large installations of cloud-based servers running deep learning-based algorithms.”
Chris Dixon, partner at VC firm Andreessen Horowitz (A16Z), in a post on Medium in February, said: “The PC enabled entrepreneurs to create word processors, spreadsheets and many other desktop applications. The internet enabled search engines, e-commerce, email and messaging, social networking, SaaS business applications, and many other services. Smartphones enabled mobile messaging, mobile social networking, and on-demand services like ride-sharing. Today, we are in the middle of the mobile era.
“If the 10 to 15-year pattern repeats itself, the next computing era should enter its growth phase in the next few years. In that scenario, we should already be in the gestation phase.
“I tend to think we are on the cusp of not one but multiple new eras. The ‘peace dividend of the smartphone war’ created a Cambrian explosion of new devices, and developments in software, especially AI, will make those devices smart and useful.”
In his keynote at this year’s GCV Symposium in May, Kashyap focused his attention on the declining cost of technologies as a major element of disruption. He claimed many companies today, including smartphone manufacturer Xiaomi and electric vehicle producer Tesla, were actually software companies, pointing out that if Tesla wanted to upgrade a car it could do so through a software update without replacing any parts.
Kashyap was hopeful that corporations were understanding this change, citing investments by car companies Ford and GM in startups, such as data firm Pivotal and ride-hailing app Lyft, respectively.
It is a remarkable assumption given it was only five years ago that venture capitalist Marc Andreessen, co-founder of A16Z, wrote “Why software is eating the world” in newspaper Wall Street Journal. As he put it: “Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale.”
For the world’s most successful software company, which floated 30 years ago (see box), the shift from selling software licences for a PC to a cloud-based system brings opportunities to extend its reach into newer areas while it waits for the next products to be “gestated”.
Microsoft had admitted being late to mobile, and the acquisition of Nokia’s phone division failed to gain traction. Offering cloud-enabled services run by data centre servers, such as those developed by Intel after its acquisition of Altera, could effectively recreate a hardware-software tie it had through the “WIntel” duopoly of PC processors developed by chip maker Intel using Microsoft’s Windows and Office software.
Corporate venturing in its broader sense, beyond minority investments in earlier-stage companies to include accelerators and partnerships, is an important function to help both the shift into the cloud and act as the “eyes and ears” on breakout product cycle shifts.
In a phone interview for this profile, Kashyap said ventured needed to have “impact at the early stage and be a sensor” for Microsoft. In his May blog post, he said: “As with the rest of the business development team at Microsoft, our view [at Microsoft Ventures] is outward into the market — we focus on the inorganic growth of Microsoft, looking at where we can provide a step function, versus incremental progress.
“On one side of the spectrum, we help early-stage companies with tools, technology and consulting through Microsoft Accelerator. And at the other end is where you will typically see our larger investments and acquisitions. Microsoft Ventures now fills a gap we have had somewhere in the middle of that range.
“The Microsoft Ventures name was assumed from an existing team within Microsoft’s Developer Evangelism team. That team has now been rebranded to Microsoft Accelerator. Microsoft Ventures will focus on startup investments while Microsoft Accelerator will focus on startup enablement, primarily through [its] seven accelerators around the world.”
Microsoft’s venturing history
Microsoft had a reputation for ruthlessness against potential or actual rivals that was well-deserved as it grew from a 1970s startup to market dominance in the 1980s and 1990s. Rumours still do the rounds – from impeccable sources if unconfirmed by officials – of how then Microsoft chief executive Steve Ballmer called up politician Dick Cheney to help it crush nascent rival Netscape during the height of the browser and open-source software wars in the mid to late-1990s.
Once this dominant position was achieved, the company reconsidered its reputation and engagement strategy with third parties.
Dan’l Lewin, corporate vice-president at Microsoft now in charge of civic engagement, was hired to established Microsoft’s worldwide engagement efforts with the venture capital and startup community, including BizSpark and related Microsoft Innovation Centres, from 2001.
Until this current decade, however, Microsoft had mostly eschewed taking minority equity stakes as part of this engagement process after the millennium.
It had notably bought 150 million shares in Apple in 1997 when Steve Jobs returned to the company as a tool for developing its Office suite for the Macintosh computer, as well as taking financial stakes in startups. Microsoft exited its Apple holding in 2001 along with dumping most of its corporate venture capital portfolio during the dot.com implosion. This boom and bust affected its view on taking stakes unless there was a clear strategic angle, such as its purchase of a stake in social network Facebook.
According to news provider Fortune, then-CEO Ballmer pushed through the deal for Microsoft to buy 1.8% of Facebook in 2007 for $240m at a reported $15bn valuation against internal opposition and despite subsequent negative press reviews.
Microsoft and Facebook have since cooperated on advertising technologies and agreed not to take each to court as part of a $550m deal for Facebook to buy 615 patents that Microsoft had originally acquired from AOL, the eventual buyer of Netscape’s browser many moons ago.
As well as these strategic connections between the company, Microsoft reaped more than $1bn for its shares in Facebook after the latter’s flotation on the Nasdaq stock exchange in May 2012. Facebook’s share price has nearly tripled in the past four years to June 26 to give it a market capitalisation of more than $300bn and within reach of Microsoft’s own near-$400bn market cap after its near-two-thirds stock increase in the same period.
But however high-profile its investment in Facebook has been, Microsoft’s core external engagement strategy was built on the 100 innovation centres around the world and BizSpark, which since 2008 has offered entrepreneurs access to Microsoft products and support services without any equity stakes.
BizSpark now gives three years of free software, developer tools, support and Azure Cloud Services to build apps and scale a business.
Out of the successful engagement through BizSpark came the idea to set up accelerators in 2012 to help entrepreneurs with “the support and resources necessary to building a sustainable company and scaling up every aspect the business: CEO coaching, team culture development, recruiting talent, creating distribution channels with global Fortune 500s, learning how to work with big corporates and developing new markets”.
This was also controversial at the time. As news provider ZDNet said in 2014: “When Microsoft got into the accelerator business two years ago, not everyone in the tech world was impressed. After all, this was Microsoft, the corporate behemoth that had become symbolic of the top-down, bureaucracy-heavy and limited-mission type of company that was as far from a startup as you could get.”
It appears less controversial now. Scott Coleman, general manager for Microsoft Accelerators, in his latest blog post said:
• “Over 80% of our alumni have built businesses based on our platforms and services.
• “Our 454 alumni to date have raised $1.8bn over four years.
• “82% of startups that went through our accelerator program managed to raise funding.”
Breaking it down by region identifies 438 graduates made public from aggregating the accelerators’ individual websites’ data, excluding any from its accelerator in Sao Paulo, Brazil, which has been closed, and before the latest round of graduates takes the number past 500.
• Bangalore, 83 graduates, 76% funded with an average of $1.08m
• Beijing, 106 selected, 84% financed with an average of RMB28m ($4.2m).
• Berlin, 31 graduates, 80% funded with an average $2.1m in first two batches
• London, 46 graduates with the sixth cohort now open
• Paris, 65 graduates, the eighth cohort to end this month
• Seattle, 24 graduates, 75% funded, $867,000 average
• Tel-Aviv, 83 graduates, 81% funded with a $2.4m average with the latest cohort open.
Amir Pinchas, head of operations and portfolio at Microsoft Accelerators since June 2014 – he helped found the first accelerator in Israel – updated the figures and lists 35 trade sales and three flotations (see table overleaf). The most recent exits include the acquisitions of Portadi by OneLogin last month, and Prism by PayNearMe in May.
Microsoft’s sole public acquisition so far of a graduate was in March 2013 for MetricsHub, a service that automates cloud performance management and helps its customers manage their cloud services more efficiently. MetricsHub participated in the Microsoft Azure Accelerator, a competitive three-month accelerator program the company hosts in collaboration with TechStars.
Led by Tel Aviv, the accelerators are increasingly looking for less nascent entrepreneurs they can help “scale up”. Coleman, who also looks after its global VC engagement team run by director Lynda Ting, has also struck a partnership with Temasek, a Singapore state-owned investment company.
Six of Temasek’s portfolio companies – Ascendas, InnoVen Capital, Quann, ST Engineering, CapitaLand and Fullerton Financial – have agreed to collaborate on dealflow in four Microsoft accelerators – Berlin, Seattle, Tel Aviv, and Bangalore. Coleman said: “This partnership will help startups in our accelerator program scale significantly and quickly reach global markets.
“This strategic partnership gives the startups the ability to leverage subject matter experts, mentors, pilot programs, joint go-to-market initiatives and marketing support from Temasek and its portfolio companies.”
In return it gives Temasek’s six portfolio companies access to a strong roster of startups and potentially on to Microsoft’s other 200-plus partner accelerators, such as the CLAS-Expara Vietnam accelerator, which was launched in November as a collaboration between Vietnam’s Customer Loyalty and Acquisition Services Company – which was born in Microsoft’s Innovation Centre – Singapore-based venture capital and entrepreneurship consultancy firm Expara, and Microsoft Vietnam.
It also opens up Microsoft’s accelerator program alumni, which continue to leverage access to resources, networks, and potential customers and, from last month, a global meeting.
Pinchas said in a blog post: “As part of the swift transition Microsoft Accelerator is making towards supporting more mature startups, we are fortunate to host 15 startup CEOs, out of 500-plus, from our global portfolio for a five-day event in Silicon Valley and Seattle. These startups from our global Alumni Program are currently on a mission to penetrate the US market, and our goal is to help them strengthen their presence and scale up. A great example is Testin – mobile quality assurance – one of our alumni that graduated from the Microsoft Accelerator Program in Beijing, and already operates in the US.”
Testin has raised nearly $65m, including from publisher International Data Group’s local corporate venturing unit in China, IDG Capital Partners.
But as the Microsoft Accelerator portfolio starts to scale up, it will be interesting to see whether Microsoft Ventures under Kashyap or the corporation’s strategic investments team run by Brian Schultz and ultimately Marc Brown, global head of M&A and strategic investments at Microsoft since the start of 2000, will back the graduates.
Schultz, in his LinkedIn profile, said: “We invest in Microsoft partners, typically later-stage growth rounds where the partnership scale is more meaningful.
“In early 2015, we refocused our investment efforts and plan to execute [about] 10 investments annually. Since we launched we have funded 14 companies with over $240m, including [Pivotal Software], Mesosphere, InsideSales, DocuSign, Informatica, Cloudflare, Uber, Edmodo, Snaplogic, Lookout and Unify Square.”
Prior to this “refocusing”, its strategic investments included Klout, Adchemy and Foursquare, and Facebook of course.
Out of what is now ventures came other investments. Pinchas, for example, led Microsoft’s investment in mobile applications developer SkyGiraffe, a graduate from the Tel Aviv accelerator he had run, in October 2013. This was part of a series of investments by the Bing Fund set up in 2012 to find deals to support Microsoft’s Bing search engine, and then run by James Maiocco and Rahul Sood. Other Bing deals included BuzzTable, Sonar, Buddy, LikeBright and Pinion as the corporation merged BizSpark, Bing Fund and Accelerators into one startup unit, Microsoft Ventures, in mid-2013.
Interestingly, while Bing as a search engine has had limited success against Google as a consumer search engine, it has had success powering next-generation search tools. Technologist Anil Dash on Medium said: “It is really interesting that both [Apple’s voice communication assistant] Siri and [Amazon’s] Alexa fall back on using Bing, which, of course, Cortana does as well. Except for Google’s own products, all the next-generation voice-activated search devices rely on Microsoft’s platform, which could be a meaningful advantage for them in the future.”
However, between 2013’s merger of Bing Fund with the broader Microsoft Ventures and Kashyap’s effective relaunch, Microsoft invested in a number of deals, such as mobile app Zula’s seed round, mobile platform Askem’s A round and cloud collaboration tool Teambition’s $12m B round. Going forward, these types of deals are done by Kashyap’s team, although there is a separate fund to help people access the internet (see box).
The emphasis now is on what Kashyap described in his blog as effectively internal and external collaboration. “True advancement will require the efforts of many organisations within Microsoft being smart and focused in what they do best and collectively work to help startups scale.”
Looking ahead
Kashyap described his approach to building a team and doing deals as being at the “prudent stage”.
This degree of humility augurs well and the firm is ranked fifth in the GCV Analytics Power Index for the IT sector (see sector review). As GCV wrote in May for Kashyap’s Powerlist 2016 profile: “It is a good hire for Microsoft after Kashyap built a global corporate venturing platform at Qualcomm Ventures netting multiple $1bn exits [Waze, NetQin and InvenSense] and with plenty of others in the portfolio, such as China-based phone maker Xiaomi.”
Kashyap said for his Powerlist profile: “At Qualcomm, I was lucky enough to be part of a company that led the charge in the smartphone revolution, enabling creation of many of big companies of the last few years, including Waze, Xiaomi and Uber. I believe that the transition to the cloud will result in another wave of new large companies, and I joined Microsoft to be part of this next big platform change.”
He has now been building his team and hired former Qualcomm Ventures colleague Mony Hassid to run Israel and has senior executive “buy-in” for his strategy to build “credibility with entrepreneurs”. He has also just hired Matthew Goldstein, a principal at Trinity Ventures, which had co-invested or lead in two of Microsoft’s five deals in the past month.
Peggy Johnson, executive vice-president of business development at Microsoft since late 2014 and who formerly held the same role at Qualcomm working with Kashyap, said for this profile: “We created Microsoft Ventures to bolster our own product and technology efforts, and enable us to place strategic and financial bets with early-stage companies. Guided by Nagraj’s leadership and expertise in corporate venture, the team is already investing in innovative companies around the globe, and I look forward to seeing the other new and exciting technology they are able to uncover.”
That executive buy-in for ventures and working with entrepreneurs reaches to the top. Satya Nadella, CEO of Microsoft since February 2014, had previously been executive vice-president of its cloud and enterprise group. He supported the development of the accelerators programme, which started in Israel in 2012.
Tzahi (Zack) Weisfeld, founder and now general manager of Microsoft Accelerators under Coleman, pitched the idea of establishing a global constellation of accelerators to Nadella. In an interview with the Wall Street Journal, Weisfeld said: “We told him that we believe there is a great way to connect to the best entrepreneurs in the world. And Satya loved that.
“Some of these guys are going to be the biggest enterprises of the future. So the ability to work with them on the latest things that we are bringing out is tremendous. They are our biggest future enterprise customers.”
Since becoming CEO, this support has grown. Nadella was in Paris, France, on November 9 and made a few announcements, according to the local accelerator’s CEO, Pascal Fite. “Most important for startup[s] is the increased investment in the French startup ecosystem. Microsoft is committing €70m ($75m) to help startups in France.”
Having argued against the Nokia purchase and for Microsoft to be effectively placing its bet on services hosted in the cloud and to partner more with entrepreneurs, Nadella has reshaped his team accordingly, bringing in Johnson and rehiring Kurt DelBene as executive vice-president of corporate strategy and planning.
DelBene had left Microsoft in late 2013 to help US president Barack Obama make improvements to Healthcare.gov, the enrolment website for the Affordable Care Act, and afterwards was a venture partner with VC firm Madrona Venture Group, which has been a top-tier firm as an early backer of Microsoft’s main cloud services peer, Amazon, in the 1990s.
Nadella promoted Scott Guthrie to his old role of executive vice-president of cloud and enterprise. Guthrie described on LinkedIn how he “helped relaunch the service in the middle of 2012. Azure has grown by triple-digit [year-on-year] growth since then and has established itself as one of the two largest cloud platforms in the world. 85% of Fortune 500 companies use Azure today”.
Nadella has also given focus to inorganic growth, such as the purchase of LinkedIn and other venture-backed companies, as he looks to bring in growth. At much smaller scales, since 2014 Microsoft has bought Intel Capital-backed InMage and Revolution, Hewlett-Packard-backed Adallom and Deutsche Telekom-backed 6Wunderkinder.
In two short years Microsoft has developed a clear strategy and narrative for further growth with a central role for a broad corporate venturing business development function within a wider innovation and M&A toolkit and hired and promoted top talent to execute on it. Rather than “ventures reimagined”, therefore, it could be seen as setting a benchmark for other corporations to follow but results will await it metaphorically “being punched in the mouth”, as boxer Mike Tyson would say.
From the Global Corporate Venturing Powerlist, May 2016
Nagraj Kashyap, Microsoft Ventures, number five in the top 25
“Clout in venture capital is earned through success and in recent years Nagraj Kashyap, the head of Qualcomm Ventures, the corporate venturing unit of US-based semiconductor company Qualcomm, has been making a lot of noise.”
This was the introduction to Kashyap’s 2014 Powerlist profile and remains valid even if he is no longer at Qualcomm but in charge of Microsoft’s ventures program from earlier this year. His move just gives him a bigger platform as Microsoft is four times bigger in revenues and six times bigger in market value.
Kashyap said: “At Qualcomm, I was lucky enough to be part of a company that led the charge in the smartphone revolution, enabling creation of many of big companies of the last few years including Waze, Xiaomi and Uber. I believe that the transition to the cloud will result in another wave of new large companies and I joined Microsoft to be part of this next big platform change.”
Those close to the company indicates Kashyap’s ventures program will start with about $1bn in commitments, although he declined to comment.
It is a good hire for Microsoft after Kashyap built a global corporate venturing platform at Qualcomm Ventures netting multiple $1bn exits and with plenty of others in the portfolio, such as China-based phone maker Xiaomi.
Kashyap, in a speech at the 2014 Global Corporate Venturing Symposium, said: “We have had a few successes in the past three years. We had three companies that were all $1bn on exit. Waze was the most recent, but prior to that we had NetQin and InvenSense. We then had a number of other smaller exits.”
Kashyap joined Qualcomm Ventures in 2003 and oversaw the North America ventures team until 2007 when he was appointed head of global venturing before starting at Microsoft in January.
Kashyap grew the Qualcomm Ventures portfolio to more than 100 investments last year from 10 in 2003 and established a well-regarded early-stage competition, QPrize, which rewards entrepreneurs around the world with prize money.
He began his career as a software engineer at Nortel, Motorola and 3Com/US Robotics before moving to management consulting firm PRTM, now part of PricewaterhouseCoopers.
From the Global Corporate Venturing Rising Stars Awards, January 2016
Tzahi “Zack” Weisfeld, general manager and head of global accelerators, Microsoft Ventures
When a company finds a stellar employee, it will try almost anything to keep or re-hire them and Microsoft is no exception.
Tzahi ‘Zack’ Weisfeld, general manager of Microsoft Ventures’ global accelerator programme in Bangalore, Beijing, Tel-Aviv, Berlin, London, Paris and Seattle, has now been back at Microsoft for his third, and longest, stint.
The co-founder of Microsoft Ventures in 2013, Weisfeld is a serial entrepreneur, having co-founded Sequoia-backed Mintigo and been vice-president of marketing and strategy at Modu, the Israel-based personal communications startup that raised $120m and whose intellectual property was sold to Google. His earlier roles included setting up Microsoft’s strategic R&D centre in Israel for a year from mid-2006 and co-founding its MSN internet portal in the country in the late 1990s.
After such long and sustained success, he was named one of the top 10 most influential Israelis in worldwide technology by news provider Business Insider in May 2014.
Scott Coleman, general manager of Microsoft Ventures (editor update: now called Microsoft Accelerators), said: “Zack has built a world-class global accelerator programme that has identified and grown great startups into significant companies, is a thought-leader in promoting startup ecosystems globally, and has connected Microsoft to the emerging tech community around the world.”
In turn, Weisfeld recognises the opportunities that come from working for the very apotheosis of a software provider. “There are only a few companies around the world that can make such a big difference and impact on startups.
“Building one of the top corporate accelerators in the world is my greatest achievement. We have been building a programme that is based on doing good, helping startups achieve more, while helping Microsoft achieve growth.”
Microsoft has won prizes for being the number one acceleration programme in China, India and Israel, with 410 startups graduating and 82% of them raising an aggregate $1.2bn in follow-on funding and 27 already having exited.
There were many detractors in the early days. Weisfeld, who had spent three years as senior director of strategy and business at Microsoft before setting up the ventures arm, said: “Internally and externally, many people questioned why would we build such a programme. They also questioned our ability to be successful with such an entrepreneur-first programme. Industry influencers were questioning our motives as we started.”
He said Microsoft’s ability to be a trusted adviser to startups and put them first came from avoiding acting in the same ways “as any other internal rate of return-driven fund. “The corporate should have long-term strategic goals that include building a proper ecosystem brand equity.”
Acting the part for success suits Weisfeld, who is also on the board of Nissan Nativ, the leading acting academy in Israel. He said: “Every successful entrepreneur should be able to act, perform on stage and improvise constantly.”