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Voodoo PC founder Rahul Sood, GM of Microsoft’s new Bing Fund.

Microsoft today confirmed that it has created a new angel investment fund and startup incubator sponsored by its Bing search engine. The Bing Fund will be making investments in selected startups, giving them access to Bing’s data for use in their applications, and generally helping them build their businesses.

News of the fund first leaked out earlier this week.

But how will the Bing Fund investments work, exactly? We asked, and it turns out Microsoft won’t necessarily end up with an equity stake.

Rahul Sood, GM of the Bing Fund, provides these details via email: “Microsoft will not take an equity stake in the companies but will instead invest through standard convertible notes (loans that convert to equity at Microsoft’s option).  We also add an interesting clause to the note whereby we would forgive the debt if the startup meets certain milestones. The overarching goal was to create a startup-friendly program.”

Bing Fund part of a broader effort by Microsoft to work more closely with startups. The company is also partnering with TechStars on programs connected to Kinect and Windows Azure, although Microsoft isn’t taking equity stakes in the startups as part of those programs.

The company says the goal of the Bing Fund is to create closer ties to the startup community and expose itself to new companies that it could partner with or acquire, which is another possible outcome for companies in te Bing fund. Companies accepted into the program are encouraged but not required to use Microsoft’s development platforms.

Sood is the VoodooPC founder who was previously a general manager in Microsoft’s Xbox business.  The Bing Fund will have a co-working space for participating startups in Bellevue.

Microsoft isn’t disclosing the exact size of the Bing Fund. Sood explains via email, “We are a rolling fund and will continue to move startups in as more graduate. We will go deep with them for 4-8 months and then bring on another, working with less than a dozen at a time.”

More details in the official Bing Fund FAQ, including this great question and answer …

  • Will you help me get Steve Ballmer or Bill Gates for my board?
  • We love entrepreneurs who dream big.
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