Microsoft Entertains Idea of Funding Startups, Probably Won’t Take the Plunge

Last week I highlighted Kevin Merritt’s original blogpost in which he proposed that Microsoft develop a Y Combinator-like program to fund early-stage startups. Merritt also posted a follow-up in which he clarified that he worked at Microsoft for a year, owns some stock but remains “neutral” to the company, and doesn’t use Microsoft technologies at Blist, his current Seattle startup (he’s founder and CEO). Then on Friday, we at Xconomy posted an assessment from Y Combinator founder Paul Graham, who thinks this particular model would be “too messy this early” for Microsoft.

Nevertheless, it seems like people at Microsoft are taking the idea seriously. I sat down with Merritt over coffee last week to learn more about it (and other topics, which I’ll have to tackle another time). Merritt confirmed that in response to his post he’d received e-mails from, among others, Ray Ozzie and Don Dodge—two out of his hypothetical three-person team at Microsoft who would evaluate startups, the third being Dare Obasanjo. The gist of the emails was, in Merritt’s words, “You’ve started a firestorm here!”

Merritt went on: “Ray Ozzie is trying to take a contrarian view, fighting the bureaucracy,” he says. “The start of the value chain is [software] developers, and they’re losing developers in droves.” Investing in startups, whether early-stage or more established, just might be the key to turning that around.

Now it turns out Merritt is on the East Coast this week doing a press tour for Blist. He’s scheduled to sit down with Dodge in Cambridge, MA, today or tomorrow to discuss his Microsoft venture idea further—informally, he says. Merritt will also be meeting with Y Combinator’s Graham, so it’ll be interesting to see how his “M Combinator” idea might evolve from here.

What does Merritt think will come of all this? “Oh, nothing will happen,” he replies quickly. “Microsoft’s big problem is bureaucracy. They’ll have to call in legal affairs, and a hundred VPs will want to get involved.”

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