When big companies like Amazon, Boeing and Microsoft invest in startups, is it all about the startup? Or is it all about what the startup can do for the big company?
The truth lies somewhere in the middle, representatives of the three companies’ venture groups said today during a Techstars Startup Week Seattle panel discussion.
On one hand, there’s no way Amazon’s Alexa Fund is going to back a venture creating voice-command software that doesn’t work with the Alexa voice assistant.
On the other hand, Microsoft’s M12 corporate venture fund isn’t going require the ventures that it backs to use Microsoft’s Azure cloud platform.
“We don’t actually require approval or support from our business units to do a deal,” said Lisa Nelson, managing director of the two-year-old M12 fund. “We’re fairly autonomous in that way, and in fact I’ll say that 90 percent of the startups we invest in are on AWS. That’s just the reality of the startup world. And a lot of people at Microsoft … are surprised by that. They’re like, ‘Why would you invest in a startup that’s not on our platform?’ ”
Nelson explained that M12 is focused on financial return as well as the potential for leveraging new technologies for Microsoft’s use, and the fact that a company uses Amazon Web Services rather than Azure isn’t an impediment. “That’s where we get the most signal,” she said.
Even the Alexa Fund, which Amazon established in 2015 to fuel voice technology innovation, isn’t overly rigid about its investments. If a startup’s product isn’t compatible with Alexa, “that would not be great,” Alexa Fund investment director Rodrigo Prudencio said. But he added that “we never require the companies to work exclusively with us.”
In fact, an Israeli-based speech-recognition startup called VoiceItt has won backing from M12 as well as Amazon’s Alexa Accelerator. (And for what it’s worth, it’s one of the companies in the running for the first-ever Ubiquity-GeekWire Award tonight.)
Nelson said M12 generally targets startups that are working on their Series A or Series B rounds, with investments ranging from $2 million to $10 million. Prudencio said that the Alexa Fund looks for ventures at a similar stage of development. The Alexa Fund provides $100 million in venture capital funding but doesn’t usually disclose how much it puts toward individual startups.
Founded last year, Boeing HorizonX is the newest of the three big-company venture funds, Its objective is to seek out and invest in startups that have the potential to enhance the aerospace giant’s productivity or open market-disrupting opportunities in aerospace.
“There was a recognition that there needs to be some acceleration of innovation in aerospace, and how we get people and goods around,” said Beckett Jackson, investment portfolio director and strategist for Boeing HorizonX.
So far, Boeing HorizonX Ventures has announced investments in 16 startups, focusing on technologies including additive manufacturing, autonomous flight, advanced batteries, hypersonic flight and laser communications. The investments range from $1 million to $10 million, and run the gamut from seed-round to late-stage funding.
One of the startups in HorizonX’s portfolio, Texas-based Spark Cognition, is partnering with Boeing on an air traffic management system for drones that will make use of artificial intelligence and blockchain technology.
When big companies partner with small companies, the small company typically worries that the big company will co-opt its ideas. To address that worry, each of the three corporate venture groups have procedures to insulate the startups from the venture fund’s corporate cousins. “We never share anything with any of the product groups unless we have the express permission of the startups to do so,” Nelson said.
Nelson said M12 has to be careful about its investment choices.
“We would never invest in a company that is competitive with something one of the teams at Microsoft is working on, just because it would be so hard for us to help that startup be successful,” she explained. “If we’ve got 5,000 engineers working on that already, and now there’s a startup of 20 people, it’s going to be hard for us to get that leverage and buy-in and support within the company.”
But technological frontiers shift so rapidly that awkward situations can arise.
“There could be situations where maybe we’re invested in a company that wasn’t doing something that was competitive with Microsoft as of the day of investment, but it’s turned out that it’s now on our product roadmap as a company,” Nelson said.
The Alexa Fund’s Prudencio said treating entrepreneurs “with total respect” is the best policy in such cases.
“If there’s the possibility of overlap, then we disclose it at the right time and give the entrepreneur the opportunity to back out of the relationship with us,” he said.
Although all three venture groups have global reach, Nelson admits she has a selfish interest in seeing Seattle-based startups do well. That’s mostly due to her more than 13 years of experience at Microsoft, plus her University of Washington education. And then there’s that characteristically Seattle spin on startup culture.
“I think there are amazing entrepreneurs here, and talent coming out of the Amazons of the world, and the Microsofts and every other tech company that set up business here. … I hope there aren’t too many Bay Area entrepreneurs here, but I think that there’s a lot of ego down there, and a lot of arrogance, right?” she said. “When you go into the room, they’re like, ‘Hey, I worked at this company, and this is why I’m awesome,’ and they don’t really tell you the story.”
Seattle entrepreneurs, in contrast, tend to have a sense of humility that Nelson likes.
“They walk into the room appreciative of the opportunity to pitch, but very confident about what they built and how they built it,” she said. “They really spend the time telling you the story about that. That’s something that I very much appreciate.”
That attitude carries over to the bottom line as well. “I think the valuations in Seattle, and basically everywhere outside the Bay Area, are much more reasonable,” Nelson said. “So when we think about investing and getting a return, that’s actually a big piece of it.”