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July 04, 2007
Microsoft's Stake In Early Stage Euro Startups
We looked into the Microsoft's IDEAS program that is active in France and neighbouring countries in June. We have been covering this beat long enough to think of Microsoft, and some of the other tech giants out there as startup killers, rather than catalysts for killer startups.
But a couple of things made us follow up to find out more about the well over one-year old program. Several startups in the IDEAS program raised VC, about €90M worth, according to our interview below, and a couple have been acquired to become part of a large software company - no blockbusters yet, mind you. And we have been hearing that quite a few have hit the ground running in part due to participation in program.
The thinking goes: if the VCs are investing there must be some high-potential companies there that are delivering more than just add-ons to Microsoft platforms and making most of their revenues from providing services.
But it was the candid expression of envy of Microsoft's IDEAS and its platform marketing effort by an IBM executive in Paris that clinched it, and made us look up Microsoft's Julien Codorniou, who heads up the effort in Paris. Read on to find out why Microsoft wants to be startup founders' and VC's best friend.
How long has IDEAS been running? And why are you doing it?
IDEAS is a strategic investment in our ISV ecosystem of tomorrow. In France, more than 60% of software developers build applications on the .net platform, many of them work at startups or ISVs, IDEAS' mission is to identify and support the most promising of them. 25 every year.
It's a French initiative, which was launched almost 2 years ago when Bill Gates was in Paris for a conference with the French industry ministry.
Microsoft is probably the most partner-oriented company in the world. 95% of our revenues come from our partners like OEM, SIs and ISVs. We do well when our partners do well. That's why it is life-critical for us to develop, support promote but also renew our ecosystem of partners.
How many startups are in the program?
We recently recruited the 55th, YouSaaS, based in Reims, founded in 2007. The program lasts 2 years. After that, ISVs usually get Gold Certified and enter the usual partner process at Microsoft, pretty efficient.
It's not an exclusive program, i.e, we work with companies using multiple technologies and platforms like Java, or Linux on interoperability issues. Xcalia, an historical Java player, is a good example of that.
Are they all ISVs or do you have some online ventures in there too?
We're looking for innovative software applications and business models, whether it's on your desktop, your browser, your robot, your mobile or XboX.
We embrace the Software + Service vision, so we do really like the Internet Software space, represented iin IDEAS by companies like Idylis, Criteo, Neocase, Sidetrade or Tellmewhere.com.
The big question for us is can such startups get acquired - for VCs a trade sale is your typical exit in Europe
In the last 2 months, 3 IDEAS companies were acquired (AS Infor, Polyspace and Pertinence), and I know that 3 or 4 of them are in final due diligence now with potential acquirers, so they can for sure get acquired, but not by Microsoft, in theory.
We don't take any equity stake in our partners but we want those partners to grow as much as possible. It might sound optimistic, but we're looking for the next big partner like CEGID or Ilog here.
But , we also know that innovative software companies, with strong management teams, strong IP and triple digits growth will sooner or later gather attention from large players.
What is Microsoft getting out of all this?
Well first, it's important to develop a strong and vibrant local software economy. It's important for Microsoft but also for the whole French software industry.
Secondly, IDEAS demonstrate, concretely, that software companies building on the Microsoft platform do much better than the others. It's platform marketing. We get to work with the most promising new software ventures in France, and it brings new and innovative applications for our clients and partners. IDEAS is also a good deal flow for acquisitions. This is, for example, what happened with Screentonic recently. (see our post on the Screentonic deal here)
That's why we want Microsoft France to be the startups and VC's best friend.
What are the benefits for a startup?
The most precious asset of the IDEAS program is the Microsoft Technology Center, in Paris. A place where startups can make software architecture design sessions, stress tests, POC, benchmarks, etc...
This year our MTC Software architects (and their 200 servers) dedicated up to 10% of their agenda to IDEAS Startups. Companies like Seemage or Keeneo receive most of their clients at the MTC.
Then it's a virtuous circle. We observed that our technological caution brings partners, clients, and investors in faster. Most of the IDEAS companies, like Miyowa, Excentive or Brainsonic are on the fast track, doubling or tripling revenues every year.
So far, 2 IDEAS companies went out of business, but that's part of the game, since we bet very early.
Do you know how many have been funded by VCs?
Of course, we measure this very precisely. Almost 30 startups out of the first 50 have raised a first VC round, since entering the program. For an average of 3M€. The lastt one is Bluekiwi, who just raised 4M€ from Sofinnova.
VCs recognize the value of the Microsoft technological platform and ecosystem and we spend a lot of time talking strategy and roadmap with software-friendly VCs like Elaia Partners, Partech, I-Source, Xange, and AXA.
We also want to identify and connect with all potential business angels with a taste for software investments. We believe there are a lot of opportunities on the French market right now.
Can you ame a few of the ones that we should watch for?
Companies like Seemage, Criteo, Excentive, Miyowa, Skyrecon, Sparus, Tellmewhere.com, Total Immersion, Open Portal or Bluekiwi Software are definitely ones to watch.
Thanks for the interview!
You may recognize Codorniou's name from a post we did last year on his book about how Kelkoo went from research project to a half a billion Yahoo acquisition target based on its European price comparison business, which is how we got to know him in the first place. He has a blog called Codor
Posted on July 4, 2007 05:42 PM | Posted to Being European | Permalink
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