Earlier this year, Microsoft quietly announced a “new” mission and investment strategy for its nearly seven-year-old venture fund, M12. The post, published with little fanfare in early January, was kind of vague, and I was curious to find out more—about what the changes practically meant for M12 within the overall VC space and for its portfolio companies. What I found was that there’s been a big shift at the fund over a year in the making, which has prompted “tough” internal conversations under new management, while at least eight employees have left M12 since the summer of 2021.
I dug into the before and after at M12 in my latest deep dive. As an independent corporate VC fund set up by Microsoft in 2016, M12 built on the company’s long history of backing founders, all the way back to its massive venture losses during the Dot Com bust. M12’s founders Peggy Johnson (now the CEO of Magic Leap) and Nagraj Kashyap designed the fund to be “a different kind of corporate VC,” as Kashyap wrote in 2018. The fund focused primarily on financial returns—that was their “true Northstar,” as one former employee told me. But since mid-2021, things have been changing.
Chris Young, Microsoft’s executive vice president of business development, strategy, and ventures, told me that when he joined in 2020, he felt the M12 team had done a “phenomenal” job setting up the fund, but that it wasn’t focused enough in its investment areas. He hired Michelle Gonzalez in July of 2021 as M12’s new global head, and she told me that now the firm is more “strategically aligned” to Microsoft, focusing more on connecting startups with the tech giant’s ecosystem of divisions and customer networks. As I wrote:
But since the new leadership came on board, the former employee said that M12 has “changed dramatically.”…
[Gonzalez] says that M12 continues to have autonomy from Microsoft, but while previously the fund was “primarily a financial VC with loose affiliation to Microsoft,” now they have closer connections with stakeholders. It’s something the former employee felt as well: “There was a desire to say, ‘Okay, great financial return, [but] we want to see more strategic value.’ And that’s always the tension with a corporate VC,” they said.
I’ll let you dig into all the details yourself, but a few changes to highlight: M12 now focuses on investing in a few core “thesis” areas, including cloud infrastructure, cybersecurity, and, of course, A.I. M12 is also more open to co-leading and participating in rounds, versus leading (although they say they’ll continue to lead). And, interestingly to me, Microsoft CEO Satya Nadella appears to be involved with M12 himself: Gonzalez told me he “sometimes” sends notes about companies he thinks are interesting.
The changes were brought about through conversations with Microsoft management and portfolio company founders, Gonzalez told me, who expressed they wanted closer connections within Microsoft and help with customers. But as I found through my reporting:
…Apparently not everyone was excited about the new strategy. According to the former employee, some people inside M12 felt like the new mission was not what they had signed up for. “When you have a big strategy shift,” the former employee said, “you can either embrace it or it can alienate you or you’re still along for the ride. And I think it certainly played out for many folks that way.” The former employee described “tension” as changes were being rolled out.
When asked about the turnover at M12, Gonzalez says they’ve had some “tough conversations” as they’ve made the changes, and that “the new strategy wasn’t for everybody” in terms of being more focused versus “generalist” and the tighter ties with Microsoft. M12 says over the last year they’ve added 15 people to the team.
This all comes at a time when VCs of all kinds are contending with a trickier environment, and historically during recessions, corporate VCs have tended to pull back and prioritize the company’s current results.
But what I see as the big takeaway here is that Microsoft is clearly trying to be more intentional with its approach to investing in startups and how those relationships benefit the company and the way it’s innovating. We see that through the firm’s massive investment in buzzy A.I. startup OpenAI and ChatGPT’s integration with Bing, and now through M12 putting its stake in the ground with these thesis areas. And for the venture community overall, it seems like they can expect a different M12 moving forward: One more strategically focused and dedicated to connecting its portfolio companies to Microsoft’s vast network and divisions, and perhaps not so much one battling it out to lead a round. As for startups? They can expect to get a lot more Microsoft with that M12.
You can read my full story here.
Have a great weekend,
Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
VENTURE DEALS
- BlocPower, a New York-based climate technology company, raised $24.6 million in Series B funding. VoLo Earth Ventures led the round and was joined by Microsoft Climate Innovation Fund, Credit Suisse, Builders Vision, New York State Ventures, Unreasonable Collective, and others.
- Attio, a London-based customer relationship management platform, raised $23.5 million in Series A funding. Redpoint Ventures led the round and was joined by Balderton Capital and Point Nine.
- Pili, a Toulouse, France-based sustainable dyes and pigments producer, raised $15.8 million in Series A funding. Ecotechnologies 2, Famille C Participations, Elaia Partners, SOSV, and Startupangels.de invested in the round.
- Qwak, a Tel Aviv-based machine learning operations platform, raised $12 million in funding. Bessemer Venture Partners, Leaders Fund, StageOne Ventures, and Amiti invested in the round.
- VerAI Discoveries, a Boston-based mineral asset generator, raised $12 million in Series A funding. Funds and accounts advised by T. Rowe Price Associates, Orion Resource Partners, Chrysalix Venture Capital, and Blumberg Capital invested in the round.
- Edurino, a Munich-based hybrid learning platform, raised €10.5 million ($11.3 million) in Series A funding. DN Capital led the round and was joined by Tengelmann Ventures, FJ Labs, btov Partners, Jens Begemann, and Emerge Education.
- immi, a San Francisco-based plant-based instant ramen brand, raised $10 million in Series A funding led by Touch Capital.
- TeraPore Technologies, a San Francisco-based nanofiltration membrane systems developer for biomanufacturing, raised $10 million in funding. Anzu Partners led the round and was joined by Entegris.
- Rubi, a San Leandro, Calif.-based manufacturing company, raised $8.7 million in seed funding. Talis Capital, Tin Shed Ventures, and H&M Group co-led the round and were joined by Collaborative Fund and Necessary Ventures.
- Zarta, a San Francisco-based pay-per-view video platform for creator content, raised $5.7 million in seed funding. Andreessen Horowitz, Endeavor, AirAngels, Dragonfly Capital, and others invested in the round.
- Ramp, a London-based forecasting analytics company, raised $5 million in seed funding. AlbionVC and Eurazeo co-led the round and were joined by Triple Point Ventures and others.
- Renovate Robotics, a New York-based automated solar installation company, raised $2.75 million in pre-seed funding. Alley Robotics Ventures led the round and was joined by Grit Ventures, SOSV’s HAX, Newlab, Uphonest Capital, and Climate Capital.
PRIVATE EQUITY
- EQT Active Core Infrastructure fund and Public Sector Pension Investment Board agreed to acquire Radius Global Infrastructure, a Philadelphia-based property interests aggregator. The deal is valued at approximately $3 billion.
- BioTouch, a portfolio company of Atlantic Street Capital, acquired Titan Solutions, a Shannon, Ireland-based logistics, kitting, and life sciences supply chain management solutions provider. Financial terms were not disclosed.
- Excolere Equity Partners acquired EPS School Specialty, the Nashua, N.H.-based literacy and math solutions division of School Specialty. Financial terms were not disclosed.
- Signia Aerospace, a portfolio company of Arcline Investment Management, acquired Lifesaving Systems, an Apollo Beach, Fla.-based helicopter and maritime rescue and survival equipment supplier. Financial terms were not disclosed- Summa Equity acquired a majority stake in Logpoint, a Copenhagen-based cybersecurity operations platform. Financial terms were not disclosed.
EXITS
- Xtant Medical agreed to acquire the Coflex, a Deerfield, Ill.-based interlaminar stabilization device, and Cofix product lines from Surgalign for $17 million.
- Colorcon acquired Airnov Healthcare Packaging, a Romorantin, France-based health care products manufacturer, from Arsenal Capital Partners. Financial terms were not disclosed.
- The Master Group acquired Refrigeration Sales Corporation, a Valley View, Ohio-based HVAC/R parts and equipment distribution platform, from Rotunda Capital Partners. Financial terms were not disclosed.
OTHER
- IXL Learning acquired Teachers Pay Teachers, a New York-based educator-created content and tools platform. Financial terms were not disclosed.
- Rocket Software acquired Key Resources, a Lake Villa, Ill.-based mainframe security and vulnerability identification and assessment company. Financial terms were not disclosed.
- Simpli.fi, backed by Blackstone and GTCR, agreed to acquire Bidtellect, a Delray Beach, Fla.-based contextual and native demand-side platform. Financial terms were not disclosed.
FUNDS + FUNDS OF FUNDS
- Felicis, a San Francisco-based venture capital firm, raised $825 million for its ninth fund.
- Northleaf Capital Partners, a Toronto-based investment firm, raised more than $675 million for a fund focused on mid-market private equity investments.
- B Capital, a Los Angeles-based investment firm, raised over $500 million to invest across the digital and biotech health care sector.
- TTV Capital, an Atlanta-based venture capital firm, raised $250 million for a fund focused on investing in early-stage fintech companies.
PEOPLE
- Felicis, a San Francisco-based venture capital firm, hired Javier Soltero as a senior venture partner. Formerly, he was with Google Workspace.
- Hunter Point Capital, a New York-based investment firm, hired Richard Golaszewski and Stephen Swentzel as managing directors and coheads of GP financing solutions. Formerly, the two were with 17Capital.
Correction: The online version of this newsletter has been updated to reflect TTV Capital raised $250 million for its fund, not $275 million.
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