Thursday, October 6, 2005


Dan'l Lewin starts his new column at AlwaysOn. Great addition to our lineup.

We do invest. We don’t invest. Which is it? Believe it or not, it does depend on how you define “invest.”

We don’t invest in startups in the traditional venture capital way. At least not any more. But we do aggressively invest our resources, programs, people, and, of course, technologies in startup companies worldwide, and we work proactively with leading venture capitalists to enable innovation and accelerate the software ecosystem. In fact, this has been my charter since joining Microsoft almost five years ago. Having lived and worked in Silicon Valley for almost 30 years—spending my formative years at Apple, helping to found NeXT, and then a series of startups and large corporate partnerships—I actually sought out Microsoft. Based on the shift in technology taking place around XML, open standards and Microsoft’s efforts around .Net, I believed Microsoft could be the best partner for entrepreneurs and early stage companies in the venture community.

In this first “Edge of the Valley” column, my aim is to clarify Microsoft’s position: We are heavily investing in startups. We’re open for business and care passionately about entrepreneurs and their commitment to changing the world. In fact, during the last three or four years, we’ve had hundreds of extremely successful engagements helping startups drive their shareholder and end customer value. The reality and leverage of the Microsoft partner ecosystem is amazing—96% of Microsoft’s revenue is driven through our partners, and for every $1 of our revenue, our partners make $7 to $8. We know venture-backed startups are fundamental to Microsoft’s long-term success.

VC Model Today

VCs bank on hitting a home run, and the top funds manage to hit one out of the park every five to 10 years. That world, however, is changing. VC funds today expect 90% or more of their “exits” will be through acquisition, where returns are very, very good, but not out of the park. For a company to go public today, the market requires about a $250-million market capitalization—perhaps five to 10 times forward-looking revenue. That’s a vast departure from the go-go days when companies were going public without revenue, with seemingly just a business plan and a prayer.
(full post)

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