- Microsoft Ventures renamed itself M12 earlier this week.
- M12 head Nagraj Kashyap explains the master plan, and why he believes his team is a better choice for entrepreneurs.
- While M12 provides Microsoft software and services to the startups it works with, Kashyap says that Microsoft brings much more value to the table — in fact, M12 helped one startup land Microsoft itself as a customer.
- Kashyap says that you don’t need to be working with Microsoft technology to get funded by M12. In fact, he says, 90% of the startups it funds are using competitors’ cloud computing platforms.
Earlier this week, the two-year-old venture capital firm formerly known as Microsoft Ventures announced that it is now M12 — M for Microsoft, and 12 because “entrepreneur” is a twelve-letter word.
Ahead of that announcement, I sat down with Nagraj Kashyap, the overall head of M12, to talk about its strategy, its successes so far, and what to expect next. In short: In a world where funding is so easy to come by that startups can afford to shop around for the perfect investor, Kashyap believes M12 stands apart from other corporate VC firms.
M12 is empowered to make fast decisions and offer competitive terms, says Kashyap. But because it’s backed by the $735 billion Goliath that is Microsoft, it can offer tools and technology that no other startup can match. And, as Kashyap notes, Microsoft isn’t exactly hurting for cash, so it can afford to take the long view with its investments.
“We are much more patient,” says Kashyap. “We don’t raise a fund every three years.”
That sales pitch has so far attracted about 50 companies to the M12 portfolio, including diabetes monitoring company Livongo, 3D printing specialist Markforged, and industrial drone startup Airobotics. For its part, M12 is about 21 people, working out of offices in San Francisco, New York City, London, Seattle, and Tel Aviv.
The sales pitch
M12 was founded as Microsoft Ventures about two years ago, when Kashyap came over from Qualcomm Ventures. He reports to Microsoft’s dealmaker-in-chief, Executive VP Peggy Johnson, who made her own move from Qualcomm in 2014.
In general, M12 is interested in startups that want to sell their wares to the enterprise — not because of any value judgment, but because consumer technology is “not a strength” of his team. In other words, Kashyap says, it only wants to invest in those places where it can offer value beyond just the money.
“If we can’t help them, why are we investing in them?” asks Kashyap.
And he makes sure to tell founders that an investment doesn’t mean that Microsoft wants to buy them one day, either: “We are not set up for invest-to-acquire,” says Kashyap.
The benefits of going into business with Microsoft are a little deeper than that, says Kashyap. M12 does offer all of its portfolio companies some basics: Subscriptions to the Office 365 suite; some free credits for the Microsoft Azure cloud platform. He says this is good, but it’s “table stakes,” and tries to do more for the companies.
Besides, he says, M12 doesn’t require that a startup uses its technology in order to get funded. Indeed, 90% of M12-backed startups are using Amazon Web Services, Google Cloud, or another competing cloud platform. Even in those scenarios, though, M12 believes it can help companies be successful.
“We are not selecting companies based on platform, we are choosing the best companies,” says Kashyap. “If the companies don’t succeed, it doesn’t help anybody.”
How Microsoft can help
Sometimes, the assistance M12 gives its portfolio companies is technical. One of M12’s portfolio companies wanted to do a tricky integration with Microsoft Teams, the company’s work chat products. So Kashyap’s team made some introductions to some Microsoft engineers, and helped bring the feature into reality.
Oftentimes, though, M12’s help comes in the form of business development. If you’re an M12 portfolio company and you want a partner to help you sell into the European market, Microsoft knows a guy who knows a guy, says Kashyap. Similarly, if you’re going after a big customer, M12 can both make introductions and help you prepare.
In fact, says Kashyap, in at least one instance, Microsoft itself turned out to be the customer. Thanks to M12, Microsoft became a customer of Livongo, and now its diabetes management tools are available as an employee benefit across the company.
In a less material sense, too, Kashyap says that Microsoft is eager to learn from the startups that it funds. He says that there’s no sense of competitiveness between Microsoft and the one-day disruptive companies that it funds: “There’s no zero-sum game there,” he says.
To that point, he says that Microsoft CEO Satya Nadella is actually a tremendous fan of working with startups, and is “always energetic” when he gets facetime with a founder, says Kashyap. Indeed, Kashyap says, those meetings tend to go long, as Nadella “always wants more time with them.”
That’s part of why M12 actually organizes field days for Microsoft executives, putting them on a bus and having them take a full day of nothing but meetings with startups so they can talk shop. The goal is to reap some inspiration.
“It opens their mind to what is possible,” says Kashyap.