Examining Microsoft venture fund M12’s AI investment approach

Jan 16, 2024

Michael Stewart, Partner at M12, shares insights on Microsoft's venture fund's approach to AI investments. He discusses how the tech giant navigates the evolving landscape since its major investment in OpenAI. Stewart notes a shift towards smaller, innovative AI startups and emphasizes the importance of partnerships. He highlights the critical need for startups to align with generative AI trends while being open to investor input. The conversation also touches on responsible AI practices and the economic implications of emerging technologies.

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INSIGHT

M12's Investment Strategy

M12, Microsoft's venture fund, invests in startups even if they compete with Microsoft.
Their goal is to discover transformative technologies and potential collaborations.

ANECDOTE

From Engineer to Investor

Michael Stewart's career started in engineering, focusing on nanotechnology's potential to revolutionize electronics.
His interest shifted to the business challenges of bringing new technologies to market, leading him to venture capitalism.

INSIGHT

The Partnership Model

A new partnership model is emerging between large tech companies and AI startups.
This model involves strategic investments rather than acquisitions.

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In the age of generative AI, Microsoft has become one of the lead investors after its massive investment in ChatGPT creator OpenAI.

Since Microsoft's $13 billion investment in OpenAI, the AI market has seen changes including a tilt toward smaller and open source AI language models. Meanwhile, the tech giant's venture fund, M12, (which did not take part in the tech giant's deal with OpenAI) is still keeping its eye out for other AI startups that could be just as big as OpenAI.

M12 seeks technologies that are new and transformative in the market, said partner Michael Stewart.

"These are usually technologies where Microsoft does not have an existing large product," Stewart said on TechTarget Editorial's Targeting AI podcast. "[There's] less of a worry that Microsoft would be left behind in this unfolding story, as much as making sure they are aware of the most attractive, most competitive newest technologies that they could partner with."

In the hot AI market, there are more opportunities for AI startups to partner with big tech companies via investments than in the past, Stewart added.

"This is a very ripe environment for startups that have a partnership mindset to work with the majors," he said.

It's also critical that AI startups looking for investment understand where the generative AI technology is going, even if they are not all incorporating the technology.

Furthermore, startups must be willing to partner with investors and accept their input in the structure of their business model, Stewart said.

"It's very difficult for me to accept that investors who are buying a portion of the company have no say or even protection of their own investment as the company grows," he said. "We do look critically at structures that are really intended to foil the influence of boards."

Esther Ajao is a TechTarget Editorial news writer covering artificial intelligence software and systems. Shaun Sutner is a senior news director for TechTarget Editorial's enterprise AI, business analytics, data management, customer experience and unified communications coverage areas. Together, they host the Targeting AI podcast series.