M12 ventures down a new path

Microsoft Chairman and Chief Executive Officer Satya Nadella with Manny Medina, cofounder and CEO of Outreach, one of M12’s portfolio companies.

As we begin a new year, I am delighted to share some exciting changes we’ve made at M12 to better deliver value to our portfolio companies and to Microsoft. While I experimented with ChatGPT while writing this blog post, and have been impressed by its results, I decided on a traditional, human approach.

2022 was quite the year overall, with some exceptional volatility in the startup and venture capital ecosystem. We whipsawed from valuing speed of execution and growth above efficiency, to prizing diligence with guidance toward efficiency and profitability as valuations returned to pre-pandemic levels.

In the six years since M12 was founded, we’re proud to have invested in over 100 companies, including 15 unicorns and 6 IPOs. Millions of people rely on the products and services from M12 portfolio companies to protect them from identity fraud, ensure healthcare facilities have accurate patient data, engage in learning to help them do their jobs better and make their tasks easier though AI experiences. We are at our best when we partner early with teams and will continue to focus on investing in Series A and B startups.

However, over the last 12 months, we realized startups and Microsoft needed a new M12, and so we developed a more focused investment strategy tightly aligned to Microsoft. This has helped us create exceptional value through connections, customers and unique benefits for our portfolio. You might say we’ve leaned into the “M” of M12, where we tap more into Microsoft and the power of its network.

Our closer connection to Microsoft focuses our work and positions our portfolio companies to accelerate their growth, two things that are proving to be even more critical as we navigate the volatile macroeconomy. This approach is part of our new mission, and we’ve added additional experienced investors and operators to our team to make it a reality.

As we continue our work to build and nurture innovative early-stage startups, our goal is for our companies to have meaningful partnerships with us that empower them to win.

We’re thesis-driven and aligned to Microsoft stakeholders to support portfolio growth

Our core thesis areas are AI, cloud infrastructure, cybersecurity, developer tools and vertical SaaS (areas like retail and healthcare). Great companies in these spaces such as Innovaccer, a healthcare data platform, and At-Bay, a cyber insurance platform, often find success partnering with Microsoft on product integrations, growing their customer base, building out ecosystems and getting traction in our sales motions.

We also selectively make frontier investments in companies that innovate in autonomous systems and Web3, metaverse and gaming. These are spaces we think have the potential to influence the future direction of the industry, and we work to ensure they too can realize the power of having a deeper connection to Microsoft.

For example, Web3 is an emergent category we are paying close attention to and are partnering with Microsoft to support companies that are innovating here.

Space and Time, one of our latest investments in this area, is a decentralized database company. Their plans include an integration with Microsoft Azure to help customers access, manage and run analytics on blockchain-native data, a key driver of their growth goals. In this new era of ubiquitous computing, the comprehensive Microsoft Azure cloud platform and industry-leading identity and security capabilities provide a trusted set of services to develop and run Web3 applications, enabling Space and Time to build new and advanced use cases in Web3.

In addition to our work with Space and Time, we’ve seen our thesis-driven approach help create more value across the M12 portfolio.

Our new approach to stakeholder engagement and thesis-driven investment saw its biggest moment in recent months with our announcement of the M12 GitHub Fund. GitHub, which is part of the Microsoft family of companies, is all about empowering developers. With DevOps being one of our core thesis areas, our partnership created a fund managed by M12 to make investments in promising open source startups developing on GitHub’s platform. CodeSee, an open source platform that enables developer teams to visually understand their codebases, and Novu, open source notification infrastructure for developers, are our first portfolio companies to benefit from this effort. We see the establishment of this fund as a powerful proof point that Microsoft, M12 and our portfolio are all better together.

Leaning into the power of our platform to deliver value 

To deliver on the goal of bringing differentiated value to startups, we’ve leveraged our redesigned investment approach to better support our portfolio. Our investing and operating team members are now aligned to our specific thesis areas, which allows us to develop deeper expertise and partnerships in these domains.

Before every investment, we challenge ourselves to identify the unique value we can add. To meet that commitment, today more than half our team is dedicated to helping our portfolio companies realize their growth objectives. This support may take the form of a startup showcase with Microsoft’s CEO and most senior leaders; introducing our portfolio companies to new customers; a senior Microsoft executive formally advising a portfolio company; facilitating technology collaborations or engaging in co-selling or marketing activities. No matter the case, we’re always working to find creative solutions to deliver value for our portfolio companies.

Aqua Security has a strong history of working with Microsoft to include deep product collaborations, and co-selling and joint marketing activities to accelerate Azure deployments. In one example of this relationship, Aqua enables software licensing and procurement directly through the Microsoft Azure Marketplace, allowing customers to utilize existing purchasing methods in place for Azure services. This solution simplifies the process of building out a secure infrastructure for cloud applications, and customers deploying containers on Azure can utilize the solution to quickly complete their purchasing cycle.

Aqua and Microsoft have jointly conducted a series of regional marketing programs to educate customers on cloud native technologies and provided the opportunity to interact with local technical resources from both companies. As Aqua’s enterprise customer base and scale of their cloud deployments increase, Microsoft’s prime position as a cloud leader is a distinctive benefit to their success.

This type of collaboration and many others like it make us confident we can be a driver of innovation and an enabler of growth. By investing in areas where we have a unique ability to support our portfolio companies, we see a bright future for our work ahead and the technology that our fund will enable. We’re excited by what our approach can do for entrepreneurs, and we can’t wait to see what’s in store for 2023 and beyond.

Feel free to reach out to us or learn more about our team at m12.vc. We’re always looking to connect with interesting companies and partners to help accelerate the future of technology.

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