Microsoft has started its own venture capital fund called
Microsoft Ventures less than six weeks back, a platform that will help entrepreneurs with incubation facilities, seed-fund and in customer acquisition for scaling up the startups.
Mukund Mohan, director at Microsoft Ventures, heads the Asia-Pacific and Africa operations, largely out of Bangalore. Here he talks about the advantages of startup boom in India that coincides with the prolonged global downturn and why we need more startups. In a conversation with Darlington Jose Hector & Anand J, Mohan talks about why India can afford to lose money in experimenting and investing in the eco-system for the long-term evolution. Excerpts:
Tell us about Microsoft Ventures.
We have three parts, one is the Fund that invests in early stage companies. The second part is the Accelerators. We will invest in about 200 companies out of accelerators every year. Third part is the start-up engagement programme under BizSpark for the last several years and we are doubling the efforts there. We are offering lot of cloud and mobile offerings where people are building their applications these days. We have six accelerators that are running right now. Seattle, London, Berlin, Bangalore, Tel Aviv and Beijing. In the next couple of months we will open four more in Paris, Rio de Janeiro, Moscow and Singapore.
Last year, Microsoft did about 131 investments in start-ups. Most of the investments were in the smaller ticket size of $50,000. We have done some 10 in the bigger ticket size of $2,50,000 and the range in between. We also do some follow up investments in the bigger ticket size investments. One of such investments was Israeli firm, Waze, where we invested $10 million that got acquired by Google recently.
Is this initiative more a way to entice startups to use Microsoft cloud product Azure and Office 365, which is now available as a service?
Out of the 131 companies out of our programme last year, less than 10% were using Microsoft products. We don?t ask any of the startups to come on Azure platform or to develop for Windows phone or to develop for Windows 8. Lot of startups did because our offer is very compelling. We said if you do as part of the programme, for two years it is completely discounted upto $50,000 of cloud usage. Our intent is to make our products better so that we can compete lot more efficiently.
How would you help startups beyond a conventional accelerator or a seed fund? What will be your focus at Microsoft Ventures?
More than anything else, startups need customers. That is what we focus on. Microsoft has the broadest footprint from Xbox users, who use gaming, to consumers who use mobile phones, to a billion users who have Windows on their desktops to users who are large enterprises. We have one of the largest partner networks of 56,000, who go out and sell and help our small and medium sized companies. Across the platform we can give access to customers than anybody else can and nobody is doing that in India yet like us. If you are a startup in India, it is easy to get traction quickly with lots of incubators, seed funds that are coming up, lot of early stage angel investors that are coming up and you will get confused very quickly. It is no longer easy for the startup to say that this is my only option.
There are more startups coming up today than say five years back. Is the proliferation necessarily a good thing?
My biased answer is that it is always a good thing. Startups, though most of them fail, tend to be more innovative. It helps the young people to create something they know to a large extent will enhance their skills much faster than any other place in the short-term. At Microsoft Ventures, we get opportunity to see the best of the talents. Vice-versa, we have helped one of employees in the research team to start a venture to make a product out of his idea. Now there are 21 companies started by ex-Microsoft India employees.
How you see the startup ecosystem over the past five years?
It is nothing short of dramatic with little over 100% growth. In 2006-07, we had around 300 startups and now it?s close to 1,500. That coincides with the growth in number of early stage investors. In 2006-07, we had around 40 early stage and venture investors and now there are 83. Amount of capital invested was little over $600 million and now it is $2.3 billion every year in just technology startups.
Are we seeing results though?
It takes a while for the system to mature and was so in Silicon Valley. It is okay, even for people putting money into it. They invest because they see an upside. The returns for venture investments in India is in the 11-15% range whereas it has gone up to 20-25% in the last couple of years. We need just 25% companies to do well, which will give you a 3x-4x return and the bottom 75% would not return the money. But this is high risk high reward investment.
The explosion of startups in India has also coincided with the extended downturn. Is there a good time to start?
It is not done to time starting up a venture as it depends on
opportunity. It is like stock markets, you never know when it is going to go up or down but in the long term you gain. In US, 26% of the companies started during the downturn grew faster than any of the companies during the upturn. The companies that gets started in downturn reaches the IPO stage faster. For best talent, there is no downturn as big companies are always looking for good talent. During downturn, it is easier to hire people and the real estate will be 30-40% cheaper.
What will happen to 90% of the failed start-ups?
Within 18 months, 50% of the companies die. Three things happen. Around 60% of them will go and join a big company like Microsoft or Google because they have some debt, family pressure and so on. It should have been around 75% earlier and is coming down, 20% of them go and join another well funded start-up and rest 20% will go and start another company. We still look for the security.
