Microsoft Confirms Bing Fund, a New Angel Investment Vehicle

7/12/12Follow @curtwoodward

Microsoft’s enthusiasm for early stage companies is getting turned up another notch.

Today, the company is pulling back the curtain on its new Bing Fund, an angel investment program targeting online and mobile startups. The fund is headed by Rahul Sood, a former entrepreneur who sold niche computer maker VoodooPC to Hewlett-Packard in 2006.

Details about the new investment effort have been dribbling out in recent days, particularly thanks to the sharp eye of CNet’s Mary Jo Foley. Microsoft is now saying more about the fund, including an interview doled out to VentureBeat.

The Bing Fund will invest up to $100,000 in a limited number of early stage companies that are beyond the idea stage, saying on its website that startups should at least have “a working prototype and a solid business plan.” It also has offices for portfolio companies, and touts access to Microsoft experts in areas such as search, natural user interfaces, and machine learning.

At a high level, that playbook—investment, mentorship, and group offices—sounds similar to independent early stage funds like Seattle’s Founder’s Co-op, which manages a pooled investment fund and connections to a strong group of mentors, along with Seattle offices that also house many of its portfolio companies.

But there are still some big questions about Microsoft’s approach, including the size of the fund, whether it has any portfolio companies yet, and exact source of the investment cash. Sood tells VentureBeat that the investments will be $50,000-$100,000 in convertible notes, a pretty standard angel investing instrument that starts out as a loan and can turn into equity later.

On his personal blog, Sood says the Bing Fund will invest in “fewer than a dozen startups at a time. When one graduates we’ll take on another.” (I have no idea what “graduate” means in that sense—the website says the Bing Fund will work with startups for at least four months, and perhaps longer depending on how much progress they make. )

“Raising money is easy—the amount of time and energy we’re going to dedicate to each startup in our program is worth more than any dollar amount we could throw at them,” Sood writes.

Why launch a new angel investment fund? Microsoft doesn’t need to generate revenue by selling companies or seeing them go public. But the competition for engineering talent in the tech sector is as fierce as ever, and these kind of outreach programs give a huge company connections to promising developers and entrepreneurs.

It also seems like a particularly important project to Sood himself, who writes about the frustration that entrepreneurial types can feel within a huge company. So maybe it’s also a way to keep him in the fold and working on innovative projects.

Despite its name, the Bing Fund says it’s not focusing specifically on search and other technologies related to Microsoft’s Bing search engine. The fund’s offices are located in the Bellevue, WA, Microsoft buildings that also house the company’s money-losing online services division, which is trying to chip away Google’s lead in Web search. Companies aren’t required to move to the Bellevue office, but they do have to be in the U.S.

The Bing Fund says it plans to work with some startup accelerators and incubators to find promising companies, which is significant in light of Microsoft’s relationship with national accelerator TechStars.

The TechStars program, officially headquartered in Boulder, CO, is supplying the template and expertise for Microsoft’s new accelerator programs—the just-completed Kinect accelerator, and the upcoming Azure accelerator. In fact, Sood tells VentureBeat the Bing Fund is “currently considering two or three companies in Microsoft’s Kinect accelerator.”

Both the Bing Fund and the new TechStars-aligned accelerators are in addition to the company’s BizSpark program, which offers discounted software and industry connections to startups working with Microsoft products. The Bing Fund doesn’t require companies to work with Microsoft’s technology, but it’ll probably be natural for startups in the portfolio to take advantage of the close relationship with Microsoft on any tools that fall into the Bing team’s sphere.

Today’s announcement comes just as Microsoft is confirming some 200 layoffs in its marketing department, most of them in the Seattle region.

I’ve e-mailed Sood to try to get more details about the Bing Fund, and will update if someone gets back to me with more information.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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