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Microsoft Builds Bridges with Venture Capitalists

Kim Hart

Microsoft knows advertisers have a hard time reaching males between the ages of 18 and 34. So the company has started selling ad space inside its XBox games. Corporate logos flash on animated billboards and car companies pay to have their newest models on the streets--all in Microsoft's efforts to position itself as the ultimate gaming platform.

That's the kind of valuable information that venture capitalists crave from giant companies like Microsoft. By knowing what types of technologies Microsoft is interested in acquiring, venture capitalists can steer their investments into its path. Getting purchased by Microsoft--or any tech giant, for that matter--often means a big payday for investors.

Venture capitalists from the Washington area attended Microsoft's annual VC Summit last week in Palo Alto, Calif., to get a better sense of the company's wish list in the coming year. Jack Biddle and Phil Bronner of Novak Biddle Venture Partners were there, along with Tim Meyers of Updata and Don Rainey of Intersouth Partners.

Last year, Microsoft bought 19 companies, including Massive Inc., which inserts ads into games. In a company blog, Microsoft says it bought as many startups as Google and Yahoo acquired, combined. Microsoft didn't, however, spend as much on acquisitions as, say, Google and IBM.

In the 1990s, Microsoft did little to build relationships with the venture capital community, and many investors were wary of backing a company that could potentially get steamrolled by the software giant. But as the company has begun to lose ground to Google and Yahoo in search and advertising, Oracle in databases and Apple in digital music, some startups and their funders say Microsoft has become more friendly. In fact, Microsoft's recent struggles has piqued the interest of local venture capitalists.

"Frankly, for early stage companies, you really do want to partner with the number two or number three" instead of the industry leader, said one investor who went to the forum. "They have more to gain and more to lose. They're willing to be more innovative and move more quickly."

By Kim Hart  |  March 20, 2007; 6:00 AM ET  | Category:  Kim Hart
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