Microsoft’s VC arm launches contest to fund female founders

Microsoft executive vice
president of Business Development at Microsoft

Microsoft

• Microsoft’s independent seed venture fund M12, Silicon
  Valley Bank, and EQT Ventures have launched a contest to
  fund enterprise startups with at least one female
  founder.
• M12 is the brainchild of Peggy Johnson who tells
  Business Insider that the contest is part of her effort to “put
  her money where her mouth is” when it comes to encouraging more
  women in tech.
• But, she said, it’s also just good business, given the
  research that shows that startups with at least one female
  founder generally outperform those with male-only
  founders.

Peggy Johnson thinks the time has come to change the tech
industry’s well-documented gender-disparity problems, and she’s
ready to do her part. 

So Johnson, who oversees Microsoft’s venture investments as its
executive vice president of business development, has helped cook
up a contest to
find and fund female founders. The two winners of the contest,
which Silicon Valley Bank and EQT Ventures are
cosponsoring, will be awarded $2 million apiece.

“I know what it’s like to be a woman in a large male-dominated
field,” Johnson said. “All those years when I was coming up
through the industry, typically being the only woman in a room.”

“When I see a female founder walk in to pitch, I get a little
smile on my face,” she added. “I feel I know what she’s going
through and what it took for her to walk into this room. And I’m
so proud of her. So from a personal goal, I wanted to make sure I
was putting my money where my mouth is.”

Microsoft is sponsoring the contest through its M12 venture fund,
a brainchild of Johnson’s. The contest is open to enterprise
startups — i.e., companies making tech for business use, not for
consumers — with at least one female founder.

For Johnson, the contest is about business, not just doing the
right thing

Although the contest is personal to Johnson, it’s not simply a
feel-good public-relations stunt, she said. Instead, the contest
is motivated by straight-up business.

Research by First Round
Capital first published in 2015, which was followed by
analysis published
in the Harvard Business Review last year, found that the
rate of return of female-led firms can exceed those of male-led
ones by as much as 60%. Other
studies have found similar outperformance by female-led
startups, although some
research has cast doubt on the idea.

“The [return on investment] is great on female founders,” Johnson
said. “It’s great to think that I can have a diverse portfolio
but, I can make 60% more with female founders? Why wouldn’t you
do that?”

The benefits of having female founders was a topic of discussion
for Johnson last month at the Aspen
Ideas Festival, and it all got her thinking about and taking
a closer look at the M12 fund. Founded in 2016, M12 has made
about 60 investments so far. Only about 8% of those companies had
at least one female founder, she said. 

That’s actually a worse rate than the venture-capital industry as
a whole. Startups with at least one female founder got 14% of all
venture capital money in 2017,
according to Pitchbook.

Johnson turned to a contest to find female founders

The small proportion of M12’s investments that went to female-led
startups happened despite the fact that the fund was designed
with diversity in mind. When Microsoft launched the fund, Johnson
and Nagraj Kashyap, who runs the fund and reports to her,
deliberately hired a broad crop of people from different
locations with different specialties. Some 40% of  M12’s
team are women, Johnson said.

“We wanted to be intentional about diversity,” Johnson said.
“You have to find people who have different networks — you
don’t want everyone all from the same spot.”

Venture capitalism, especially at the seed, or initial
investment, level, is all about who you know and what you hear.
The more feelers investors have, the better they are able to spot
new trends from different places, hear about young companies with
great upside, and understand the potential of atypical founders
when they come in and pitch their ideas.

But despite its intentional diversity, M12 wasn’t finding and
funding female-led teams, and Johnson wanted to address that. So
she and her team chose to sponsor the contest, opening it up to
companies in North America, Europe and Israel.

That may seem strange, but it wasn’t unusual for M12. The fund
had previously thrown a similar contest — also in conjunction
with other venture-capital organizations — to seek out promising
artificial-intelligence startups. That contest brought in
hundreds of applications, which M12 and its partners narrowed
first to about three dozen finalists and then to four winners,
which each got a share of a $3.5 million pot.

Those hundreds of applications gave M12’s investors a whole crop
of interesting AI startups to keep tabs on.

Johnson is hoping the same will be true with the new contest. Not
only does she expect to find two promising female-run companies
to fund as the winners, but also to discover lots more that could
lead to future investments for M12. 

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