Pod Insights Equity Podcast In a more conservative venture capital market, will big tech step up? About this episode This week, Alex spoke to two guests from the world of Microsoft for Startups - GM, Hans Yang, and Senior Director, Tom Davis. We're working to figure out how big tech corporations are playing in the startup sandbox, starting with the launch of Microsoft's Pegasus program.
Here's what we got into:
Why programs like Pegasus are particularly helpful for startups in a conservative VC market
The mutually beneficial relationship between the large tech players and startups
The close relationship between Microsoft and OpenAI
As always, Equity will be back on Friday with your weekly news round up, but until then, you can catch us on Twitter @EquityPod
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Transcript 0:11 Speaker 00 Hello and welcome back to Equity, a podcast all about the business of startups, where we unpack the numbers and the nuance behind the headlines. My name is Alex and this is our Wednesday show, where we niche down to a single topic or a guest and dive deep. Today, we have two guests, both from the world of Microsoft for startups. I had them on the show because, well, I wanted to learn more about what Redmond is doing with upstart tech companies, how OpenAI and generative AI in general fit into that, and also, what are they hearing from startup founders on the ground about what they need in today's more conservative venture capital climate? So, next up, we have Hans Yang, GM, and Tom Davis, Senior Director of Microsoft for Startups. Hans, Tom, hello, welcome to the show. Thank you. It's our pleasure to be here. So, the funny thing for me here is, this is kind of a full circle moment, because
0:55 Speaker 00 way back in the day, jobs and jobs ago, I was a Microsoft beat reporter, and I always used to harass the fine folks in Redmond. I'm like, "Look, why don't you have a venture capital fund? You know, why don't you do this? There's like Google Ventures." And I was always told the same thing, which is that for a company of Microsoft's size, venture capital would not be accretive to the balance sheet, which, you know, is a reasonable point. And now, you know, 10, 15 years later, there is a venture capital fund, and there's Microsoft for startups, and you guys had some recent news about launching Pegasus, which provides credits to kind of growthier startups. And so, I'm kind of curious, have you guys reached your final form as an org? Like, is this the full stack of Microsoft startup stuff that I should expect? Or are you still going to be billing out more stuff on the Microsoft side to plug into startups and startup communities?
1:38 Speaker 01 One thing that we've found is that startups' needs have evolved a lot over time. And in the past, you know, a lot of startups were maybe more consumer oriented, and you think about mobile apps, and you think about games. And I think a realization that we had at Microsoft is, we're uniquely suited to connect startups with enterprises. And so, while our DNA may be enterprise-heavy, there's actually a lot that we can offer startups as well. And so, as we better understand what startups need, I think we'll continue to evolve our offerings, whether that's programs, or services, or investment. Our job is to meet founders where they're at.
2:09 Speaker 00 Yeah, but my read, Tom, of what Hans just said is that, you know, thinking about enterprise sales channels and kind of where Microsoft plays the most, it is in the kind of B2B software world, but also, given the Xbox team and consumer hardware and so forth, you have enough of a broad footprint that I presume there's not too many classes of startups where you're like, "Sorry, we have no overlap."
2:27 Speaker 02 Yeah, no, absolutely. I mean, Microsoft is an enormous company, as you just said, with a business in many different areas. Our objective really, when we're working with startups, is to bring the best of Microsoft to help these startups in whatever format may be. Obviously, we need to look at how we can do that in scale. Sometimes we do it in this breadth motion. Sometimes we work with particular startups in a depth motion as well. And so we can help companies that are going into the healthcare space. I mean, we've made some huge acquisitions as well with the Nuance product line, which is a great way to work with companies. Obviously, the partnership with OpenAI, and I'm sure we'll talk a lot about that coming up as well, as it seems to on everybody's lips.
3:10 Speaker 02 Even my mom is using ChatGPT, which is really a change in the world there. As you say, gaming is another area, the B to C area as well. We have an enormous number of devices using Windows. Teams, I think, has just hit three hundred million users now. So there are many, many different avenues that we can work on the technology side, or even into the customer side with industry expertise as well.
3:34 Speaker 00 So Hans, if you guys do really well, will Microsoft have enough money to bring back Windows Phone?
3:38 Speaker 01 I'm not sure I want to comment on that, Alex.
3:41 Speaker 00 Because I feel like I'm the only person.
3:43 Speaker 01 There might be some people that have some big feelings about Windows Phone, but again.
3:46 Speaker 00 Like me, I'm one of them. I bought a Zune, okay? Like, when it comes to Microsoft Consumer Hardware History, like, I'm like the one guy who's over here beating the drum.
3:55 Speaker 01 I didn't realize, I didn't realize we had a Microsoft hardware fanboy on the call. If so, then yes, we can make the Windows Phone come back for you.
4:01 Speaker 00 Thank you. You heard it here first. Hans has promised now. So on the startup front, though, what I'm curious about is, like, how many companies do you guys work with? Because I see Microsoft for startups, and to me, that could be, it could be ten, it could be ten thousand. So like, what's the the population of startups that you guys have under your wings broadly?
4:20 Speaker 01 So the startup journey in Microsoft really all starts with Founder's Hub, and that's almost like a self-service platform where anyone can go. And I think that's the introduction to the big, broad Microsoft world. Founder's Hub launched about a year and a half ago, and so it is a little bit of a newer thing. And even in that short time, we have tens of thousands. Thousands of startups in there.
4:38 Speaker 00 Tens of thousands.
4:39 Speaker 01 At the, at the very, very top end of our population is Founder's Hub with tens of thousands. As you get further and further along, as we find specific areas where we can help you, we try and whittle that down.
4:48 Speaker 00 Yeah.
4:49 Speaker 01 And try and navigate you to the best parts of Microsoft. And I mean, if you were a beat reporter at Microsoft, I'm sure you know how many groups there are, how easy it is to get lost within the halls. So our goal is to find you the right destination, navigate you through the right hallways and get you to the right place. And that's where we get down into programs like Pegasus where it's like in the hundreds.
5:06 Speaker 00 Okay.
5:06 Speaker 01 And then it gets smaller and smaller from there.
5:08 Speaker 00 Yeah, yeah. By the way, the, the point about Microsoft hallways is slightly a misnomer because it's not just hallways you can get lost in at Microsoft. I've gotten into the wrong building before. I've also been caught very quickly by my minders for being in the wrong building before and escorted back to the right building. So they will catch you if you try to, try to get away with some pirate activity up there. Okay. So tens of thousands down to the hundreds. And then of course, Microsoft has a venture capital arm as well, which is probably in the dozens range. But this means that you two have a pretty good, you, you see a lot of different startups and a lot of different maturity points at a lot of different industries. And so you probably have a pretty good pulse on what's going on broadly in founders' minds right now. Is that fair?
5:44 Speaker 02 Yeah, I think absolutely. I mean, we work, we're very customer centric. What we've tried to do in this sort of evolution of the Microsoft for startups program is to really get there and understand what's on the founders' minds. And we've sort of changed the program as we've got that feedback. And so we speak, personally, I speak to startups, half my day is speaking to founders about their challenges they're facing and how we can improve that. And really what we're also trying to do is make sure that we're not just working for the chosen few, but we really want to democratize innovation and access to things. It can't just be, I mean, transparently, a bunch of middle aged white guys in Silicon Valley who can get access to this.
6:28 Speaker 02 Well, I know, I'm a, I'm a middle aged white guy and I'm not in Silicon Valley. I'm in Seattle. It's slightly different, but slightly less sun.
6:36 Speaker 02 But with that, I mean, we are all very passionate about so the democratizing innovation.
6:41 Speaker 00 Yes.
6:42 Speaker 02 Whoever you are, wherever you are, you need to be able to get access to technology. You need to be able to get access to expertise as well. As part of our founders hub, one of the great sort of feature sets that we offer is what we call an expert network, where any founder, wherever you are, can book time with, we've got about, I think it's hundreds of different experts across Microsoft. Where you can talk about technology, you can talk about, I don't know, I want to go and open a business in Europe, but I'm actually sat over in India at the moment. How do I do that? What are the tax implications and things like that? These things in Microsoft is full of assets and knowledge and things like that. We want to help founders by tapping into that and really bringing it to the forefront for them.
7:27 Speaker 02 And it's proved to be hugely successful as well.
7:29 Speaker 00 Well, the answer to the question about India and taxes is that it's complicated and you're not going to have any fun at all.
7:34 Speaker 02 But no.
7:35 Speaker 00 If you're trying to set up a business in India, if you're an international company, it's, yeah, it's a treat. But because you guys do talk to so many startups, I'm curious what the concerns are that you're hearing from them. Because one thing that I've heard so much about from founders and VCs on kind of my end is that everyone's trying to cut costs, extend runway and is that showing up in your conversations? Or is there a different kind of main flavor that founders are coming to you and say, hey, you know, here's the main thing that's stressing us out right now?
8:01 Speaker 01 Yeah. If you look at the macro view of the startup ecosystem, I think the burden of proof for startups is just getting higher and higher. So it's no longer about having a great application with great technology. It's no longer good enough to just have a lot of users or a lot of customers. I think what VCs are looking for, what partners are looking for is essentially like true product market fit.
8:22 Speaker 00 Yeah.
8:23 Speaker 01 And I think that's where, when we think about being founder centric or customer centric, for us, what that means is what's going to help you get that product market fit? You know, I was just talking to a, he's a CMO of an B two B SaaS business yesterday. And his comment was, our pipeline looks great. Like right now, we have so many opportunities, so many leads, but I can't close and I can't make money. That's where when we thought about Pegasus and like, why is this the right time to announce this program? It's an opportunity where we as Microsoft for startups can actually help startups get what they really want, which is customers that are converting, which is ongoing revenue.
8:56 Speaker 00 Yeah.
8:56 Speaker 01 And essentially like making steady growth and real growth.
8:59 Speaker 00 But go back though, because I wanted to touch on the product market fit thing because I know it's part of how you guys kind of filter from the top of the funnel to the Pegasus program and so forth. But product market fit, everyone has their own definition.
9:10 Speaker 02 Sure.
9:11 Speaker 00 I think. And so I'm very curious from the Microsoft for startups perspective, how do you guys define product market fit? And then also, how do you tell if it's moving in the right direction at a particular startup that you're looking at?
9:22 Speaker 02 That's a great question because as you say, any founder worth their salt will always say, yeah, I've got a product and I can sell it to you. Because you do that from day one when you've had that idea. But it actually rolls into what we see as sort of a definition of it. Lots of people can get P O Cs. We know that you got a proof of concept, a project. It's actually, in my opinion, is one of the worst things for founders. When I had my company, I used to hate it and people coming along and kicking the tires. And you think, yeah, this is going to be the next big deal. I'm going to get fantastic. Let's go for it. I'll throw some resources in. They want something cheap or discounted. Yeah, I'll do it because the pot at the end of the rainbow is so big. But the reality is it can actually kill companies pretty quickly.
10:07 Speaker 02 What we're looking for, repeatable customers that are paying for your service. So it's not just they've done a P O C. It's now they're deploying it wall to wall, so to speak, and they're paying for it. That is the best thing. If a customer pays for it, it's a proof point that is actually working. You don't pay for something that doesn't work. And that's a really good sort of judgment.
10:30 Speaker 00 Right.
10:30 Speaker 02 That if they've got multiple customers that are actually deploying across the company in the real base, not just in the innovation lab. But I mean, it's great to have logos with people with the innovation lab doing something, but it's real things. That I think is there as a proof point. You have product market fit. But ultimately, you never have product market fit because you're constantly improving your product with new features. But that baseline, if you like.
10:56 Speaker 01 And when you talk about customers paying, there's the dollar side of it, which is hey, they they actually pay your invoice, which is nice. But there's actually the time investment, too, which is they take the time to integrate your solution into their stack.
11:08 Speaker 00 Yeah.
11:08 Speaker 01 And they're, in a way, putting skin in the game by committing their technology stack to you as well. And I think that's what we look for when we talk about Pegasus companies. Like, is a customer truly willing to adopt this into their workflows, make it part of their core business, not just like some exploratory innovation lab thing?
11:24 Speaker 00 So paid customers, key, customers coming back and buying more. And then also usage, really, like, are you building this into your process, tech stack, whatever it is?
11:33 Speaker 01 Exactly.
11:34 Speaker 00 Do you have to have all three of those to have PMF, in your view?
11:38 Speaker 02 I think we see that's the best way that we can help provide real value. Because what we're looking to do is, I mean, we have an enormous sales operation that we want to get our startups to be able to leverage that and be able to demonstrate that. And so you also have to have a certain sort of size of the company. I can remember, we've gone through this, why have we gone public now with Pegasus? Well, we've been working on it for a fair amount of time, making sure and understanding what's right and what's wrong, what works, what doesn't work. And one of the things we did early on, as we were sort of testing out, very much in a startup mindset, and it was sort of like, yeah, let's see if this works. Oh, it doesn't, let's move on, let's change,
12:20 Speaker 02 let's iterate, etc. Is we brought in companies that are still working with us, but they were too early. When you have the CEO trying to close all the business, as you do when you're, which is nothing wrong with that, that's probably too early, because you can't scale. Because if we suddenly drop you into the the Microsoft Salesforce, which works on multiples that are very large, then you're not going to be able to handle the leads and the sales calls that they would look to be able to bring you into. And then that that sort of ruins the effect, because then you get a bad name, because you can't live up to things and things like that. And we don't want that. We want startups to be successful. It's an on-ramp to help them really scale their business going forward.
13:00 Speaker 00 Okay, so when I put together this show, I really wanted to riff on a couple of things. So I'm taking it in a different direction than I had planned, but. Talking to you both and listening to how you guys define PMF, how you work with companies and so forth. I feel like you're doing all the value add that VCs claim to do, but you're not putting in a check directly. You know, you're doing credits, expert.
13:21 Speaker 02 And it's sweat equity.
13:23 Speaker 00 Right.
13:24 Speaker 02 That's what it is.
13:25 Speaker 00 But why not also just write them a check? I just did some math. If you have 20,000 companies in Microsoft for startups and you give me each 20K, it's only a billion dollars. That's like three days of share buybacks. Why don't you just not buy back some shares for like a weekend? And then just turn Microsoft for startups into also the world's biggest startup accelerator. Just put it out of safes and just say.
13:46 Speaker 02 I don't, but it's not just money. Money can't buy you love in business.
13:50 Speaker 00 But the point is you're doing the love bits. Like if you're sitting there with these people, looking at their, their customer base, helping them find the right sales calls to get on to. You're, it's like you're planning a wedding and then like the wedding comes, you're like, I'm out of here. A deuce.
14:03 Speaker 01 You know, you know what I think that, what I think the miss is there is that's great to get in and like at the ground floor. It's great to get into that pre-seed round. But I think where things get really interesting for us is those companies that now are in the series A, series B, series C range, where like those checks all of a sudden get bigger.
14:17 Speaker 00 Okay.
14:17 Speaker 01 And I think those are the companies that we really want to help. And so a spray and pray approach where we become pre-seed investors and like throw a bunch of darts out there and hope one of them hits. I think maybe undersells the value of what we can actually do. You know, put yourselves in the, in the shoes of like a C I M. And you need a solution for your autonomous store and you need computer vision. What you want to know is that that company is going to be there in five years.
14:40 Speaker 00 Yeah.
14:40 Speaker 01 And you want to know that if you're going to build all of your autonomous stores around this technology, you better hope that that's a partner worth trusting because that's a big part of your strategic bets.
14:48 Speaker 00 Yeah.
14:48 Speaker 01 So like what we as Microsoft can do is we can vet these companies. We can look at their technology and make sure that they're actually enterprise ready. We can vet their team and understand that they're ready to go to market with you. They can handle these sales calls and that they're going to be there five years from now is the partner that you were so glad you invested in.
15:04 Speaker 00 Right.
15:05 Speaker 01 And so, yeah, we can write them a $20,000 check and that's fine. But what would be even better is if we can get them to that $10 million deal. That's going to build their business for the next three years and then help them with the $100 million deal. It's going to get them for the next 20 years.
15:19 Speaker 02 This is so important and it's where we've changed our approach over the last twelve, twenty four months, which is credits aren't everything. Credits play an important part, which essentially is money. You look at your startup, the credits is money if you're spending on
15:33 Speaker 00 It's essentially cash, yeah.
15:34 Speaker 02 Yeah, I mean, it's really important, but cash isn't everything. What and credits aren't everything because as a startup, you need customers, you need long-term growth, and that's really what we're looking to do is to bring that. And so we've got the Azure Marketplace and things as well, which enables you to make that connection point at scale with customers as well. And so sometimes we'll go deeper with startups and that's what Pegasus is all about, where we can really provide a more hands-on approach. Unfortunately, that's not scalable because it does require a fair amount of human resources to do that. But also we have the scale approach, which is where we have the Azure Marketplace, which is that matching between customers
16:14 Speaker 02 and startups as well. And that's what's absolutely critical. If you go and speak to any successful founder, he's successful, he can get money because there's a fair amount of money in the system. It's harder to get now. I appreciate that. But it's really how do they grow their business? Because you need to be a sustainable business in the long term. And that's what customers brings you is that sustainability.
16:36 Speaker 00 Yeah, no, no, all that tracks with me. I'm just saying that for the Pegasus companies, I would also attach an equity check. I'm not saying stop. I'm saying why not also? And, you know, if you don't want to do a spray and pray, you're already doing the hard work to narrow them down. But I will stop pushing that point and getting you in trouble with someone else in turn.
16:54 Speaker 01 It's actually, you know, you bring up a good point, though. For the Pegasus companies, we do have a corporate venture capital group, M12, that we do work with. And so there is a check being written to many of these companies. And what's really great for M12 is they know that these companies have traction. They see what the pipelines look like and they can have faith that they're making good investments. At the same time, when an M12 portfolio company comes knocking, we could certainly give them an extra look and say, hey, I think you're a good fit for Pegasus. Like, let us help you get customers. And so we do have a nice synergy going. So you can claim a half win on this one. We're definitely doing some investment.
17:26 Speaker 00 Look, I remember when it was called Bing Fund and it was the only thing at Microsoft where my money was flowing out the door to startups. And I was just like stamping my feet because at that time, back in the day, AWS was much smaller. Satya, I don't think was the CEO. It was a different era of tech, if you will. And it seemed like Microsoft was not at the plate in the same way that a couple of other companies were. Now everyone's playing for this space. And I'm just kind of curious to say, you know, like in five years from now, what does the relationship look like between mega tech companies and startups? Because, you know, not to get my antitrust hat on, but like Microsoft does a lot of stuff. And you probably don't want to fund people that are trying to knock you off your pedestal. And so I wonder if as y'all get bigger, if there's less safe room to invest and
18:08 Speaker 00 support things that might be coming after one of your nascent or mature business lines.
18:12 Speaker 01 I think one, one way to think about it is if we stop trying to own everything, sorry, not that we're doing that now. But if we don't try to own everything, but actually we're an enabler and we're a partner, then that's actually a pretty safe space to operate because we're essentially friends, right? Like we work with companies who, you know, maybe they do similar-ish stuff. And we work with startups who are in similar spaces to our first party products.
18:32 Speaker 00 Yes.
18:33 Speaker 01 But they're going to cover use cases that we can't. They're going to handle edge cases or certain industry problems that we can't. So our view of it is, how do we help these startups? How do we be friendly from the get go? So that it doesn't feel like we're just trying to take ownership and we're trying to block progress. We're here to enable the progress.
18:47 Speaker 00 That's why Azure and AWS and Google Cloud matter, because they're platforms first, as opposed to first party software solutions first. And it does feel there's been a center of gravity shift amongst Microsoft and a couple of other players to have more weight on the public cloud, IaaS, past platform side of things, which I think is cool and smart and accretive. It will be interesting to watch the competitive dynamics as time goes along. But AI, we have to talk about it. There's no way we cannot talk about it. So first of all, I watched YC's demo day in March, I think it was. And everybody was trying to get a pencil out and scribble on their notes and write AI across their logo because they knew that everyone was talking about it, that it was hot and that it was hype. You guys have, of course, at a corporate level, a partnership slash ownership arrangement with OpenAI, one of the leading
19:32 Speaker 00 providers of LLMs, famously known for ChatGPT. And I'm curious, from a Microsoft for startups perspective to start, if that partnership with OpenAI has made your part of the Microsoft universe more popular with founders, because they might think of you guys as a great way to get a foot into the Microsoft OpenAI world, if you will.
19:51 Speaker 01 I think, you know, I should mention, many of us on the Microsoft for startup team. Are actually former founders. And so if you look at the composition of our team, it's actually half kind of founders, startup entrepreneur types and half long time Microsoft folks. Like we're talking 10, 15, 20 plus years. And the whole concept there is that if we can bring in the founder lens and we can bring in the best of Microsoft, that there's like really good synergy in there. So, you know, our team is essentially built around that idea of bringing the best Microsoft, but with a founder-centric lens. As you think about this AI era and like what it's done for Microsoft, it's the first time that for a former founder like me, that I thought about Microsoft is, oh, like, this could work for my B to C startup. Like, we aren't just a B to B SaaS focused on enterprise customer company.
20:36 Speaker 01 We can actually help all startups, no matter what category they're in. And we have a technology which is like supportive of that.
20:42 Speaker 00 Yeah.
20:42 Speaker 01 So I think that's where it's been really cool to have something that signals to the world like, hey, we can be helpful outside of B to B SaaS businesses. Now, I'm going to steal Tom's thunder on this one. I like his analogy. I think through our relationship with OpenAI, it's kind of the first time that we get to be the cool kids. Like, we walk into the party and people are excited to see us, not like, oh, here are the Microsoft people again.
21:03 Speaker 00 Yeah, I didn't want to say it that way, Hans, but yeah, I mean, I started covering Microsoft in the tail end of the bomber era. A different era of brand equity for the Redman team.
21:13 Speaker 02 Yeah, I think you're absolutely right. And it's changed so much. I mean, we've had the Azure cognitive services that have been around for a while, so text, speech, et cetera, images. And we've had great companies, even through the Pegasus program. I mean, Aplica.ai was a company that was recently acquired by Snowflake. And they were talking about, hey, wow, thanks for your cognitive services because it really helps us accelerate our development. Now we have like this great candy called OpenAI. We have a partnership with OpenAI and our startups through Founders Hub get credits for OpenAI. But then they can also use all those Azure credits for the Azure OpenAI service. And so they get an SLA that's with Microsoft.
21:57 Speaker 02 And if you're building something on Azure and you use Azure OpenAI, it all fits together really nicely. But this is, I mean, it's a really exciting time. To be in this space and we've got companies that are starting. I mean, my favorite company at the moment is company called perplexity, which is as Hans was talking about a B to C company. Perplexity is eight months old. It is going great guns. It's got millions of users. And the reason why it's been able to build an application is because it's there's a new development paradigm going on. It's not like building applications as we did, let me say, a year ago. Wow, this is how fast this is changing. This is crazy. They have now got this sort of building on top of a foundational model, which is open AI.
22:41 Speaker 02 They've managed to create an incredible product that's got massive market uptake. It's a brilliant sort of knowledge engine that they're using. And it's great. And this is a relatively small company and it's sort of changing. It's impacting people and everything they're doing.
22:55 Speaker 00 But okay, so Tom, I just pulled it up. One perplexity phonetic. Thank God. Thank you for spelling it the way I thought it was being spelled. Shout out to that team. Aplica, I had to Google really quickly. By the way, that had raised over 20 million before it sold as a data point. So perplexities, they're in your kind of, they're in your radar. They're doing well. And all of a sudden they get a little too popular and so they dial up Hans and Tom like, hey, guys, listen, we need another 50 million credits on open AI and Azure. Like, do you guys have like a, like a friend you can call and be like, we got a hot company. You need to open up the tap for them. And like, how fast can you link those pipes together to make magic happen for these companies?
23:30 Speaker 02 I mean, with these things, to be honest with you, perplexity, the companies that are doing well, don't need another batch of credits. They've got investment and it's not going to grow their business. They're more likely to phone us up and say, hey, we want to go and speak to that customer. Can you help me get into that customer because we're doing not only B to C, we're going to do a B to B play now. Let's talk about how we're going to do that. That's the conversation that we are really happy to have with them. Because it helps grow their business long term.
23:59 Speaker 00 Yeah.
23:59 Speaker 02 I mean, we get other companies as well. Let me say a company like Isara. Isara is a company, a Bay Area company, Menlo invested. They have built an AI support engine for IT. So instead of having people answer.
24:15 Speaker 02 The telephones, they've automated that whole process. Now their business has been going well for it. So they're slightly older, been going well for a number of years. Now along comes G P T and they have now taken G P T and they've got a really smart sort of product officer there. Puru who's gone, right, how can I leverage this? He's built it into their product.
24:35 Speaker 00 Yeah.
24:36 Speaker 02 So they've got far more efficiency in their product. But what I really love is the innovation that this is bringing. Cause he's not only said, right, I'm going to build it into my product to give to my customers. He's gone, okay, let me think about how I get money for my business. I sell my product and the quicker I can get it installed, the more money I'll make because I just make it a repeatable process. Now they had an implementation process because they're talking about I T support desks. They would have to go through, imagine a large enterprise, you'd have to go through like manuals and manuals of things that they've done in I S O nine thousand or anything like that. And then basically translate that into their product. So they've got a decision tree.
25:16 Speaker 02 And so I goes out, if they call up and say, my computer's broken and the policy is three years, you get a new computer. Or if this then do that, they have to translate that into their product. Now he's been super smart and gone, that takes us a whole bunch of time. So we're going to get paid later on, et cetera. And so what they've done is now sort of have G P T goes through all that documentation and automatically creates the templates that go into their product. So instead of having weeks of implementation, they don't have to minutes to do that part. And that's where this innovation of using A I to really help somebody or help the startup in their whole business. So it's just looking at it holistically, not just as how can I jam more features into my product.
25:59 Speaker 00 Well, yeah, I think the cool thing about generative A I is that it is a feature, it empowers features and it also connects things. It should fit into the connective tissue of software at every kind of layer from hosting through consumer usage. I know this were all the wrong terms, but you know what I mean? How many startups of, let's say you, the next hundred you guys talk to, the next hundred, what fraction of those do you think are going to come to you and say, hey, and this is how we're going to use? These new, modern LLMs and other generative AI techniques, how prevalent is it?
26:29 Speaker 01 So I think right now it's probably 50 50.
26:32 Speaker 00 Wow.
26:33 Speaker 01 Come to us and talk about that. But what I would tell you is that actually it should be 100% of them that are having that conversation with us. Because to Tom's point, even if the customer facing side of what you do is in AI, there's something within your company that AI can help improve.
26:47 Speaker 00 Yeah.
26:47 Speaker 01 And so I think like, that's one of the things that we spend time working with our companies on is, what are the right technologies to make your business a better business? And, you know, I think by taking that founder centric view and thinking about, hey, if I was a founder and I was in your shoes and I was the CEO, like, what would I do? I want to make sure you know about this. So, you know, I think the ICERA example that Tom gave, every company could use that. All the documentation they're pouring through, all the knowledge that's been accumulated over the years, all of those things AI can help streamline.
27:15 Speaker 00 Yeah. I mean, like Bessemer Adventure Capital Fund in their state of the cloud had a big section on how, you know, their advice, their portfolio companies was, start using this now. Speed of execution is your edge in the moment. And honestly, you know, just because I used to be a Microsoft beat reporter, I pay more attention to what your overall company is doing the most, folks. I've been kind of not shocked in like a mean way, but like pleasantly surprised maybe at how fast co-pilot-ish tools are being baked into various software products that I have historically put into the stodgy category, even though I know they're big and mattered to folks who are not me, respectfully. But like, it's been fast. And so there does seem to be this almost like headlong rush into, here's the new thing, it's going to be, make everything better, let's get at it.
27:59 Speaker 00 Any downsides you guys have seen so far? Any people over indexing on, on the progress of the tech or putting it in the wrong places? Cause I think we know the, the bull story is not that hard to paint out. I'm just curious if there's a bearish side of it.
28:11 Speaker 02 I think we're going through, I'm old enough to remember the dot com era and things. And everybody was sticking E in front of their name to make it themselves sound cool and all of that. And we're going to get a bit of that with AI. As you were saying before, the YC demo day, everyone was scribbling AI onto their logo. And everybody is going to say that AI, something or other. And they should be because AI brings incredible productivity. And as Hans was saying, it's not just in the product, it's in the processes around it. And Bessemer has sort of confirmed that as well. And so everybody should absolutely and co-pilots are fantastic. I mean, and that's the core thing.
28:51 Speaker 02 And the importance of this, and it's something I'm very proud of Microsoft is we've taken a long-term view on this and it's around responsible AI. And so we do need to be sure when people are innovating, that it's done in a responsible manner.
29:08 Speaker 00 Yeah.
29:08 Speaker 02 Because otherwise, if it's not, you will fail sooner or later. You have to think about this from the get-go. Because when you're going to customers, they're going to be asking these questions. They're going to be interrogating you whether it's responsible. How are you handling the data? What are you doing with the data? What are the the potential sort of areas of exposure and things? Microsoft has really been thinking about this. It's come about, as you say, it seems like everything is just suddenly being born overnight around this and it's in lots of products. The reality is it's been years in the making.
29:42 Speaker 00 Yes.
29:42 Speaker 02 And that is really why we've been able to sort of produce so much in such a short space of time, at least outside of the company. That's the way it looks.
29:50 Speaker 00 Yeah, well, I mean, the last AI boom slash bubble we had was in twenty eighteen, I think, and everyone was trying to be an AI company then. And that was in and around the era we had the chatbot mini boom. And little did we know that those two were going to come together, you know, five years later into this particular era. Going back, I meant to say this, Isera, if you want to look it up, is A I S E R A. Thanks to Hans for slacking that to me so I could find it on the internet. We have to, we have to slowly move towards a conclusion here. So I want to get to a very important question. Microsoft for startups, there's Google for startups, and there's AWS for startups. Do you guys have like an intramural, like football league or like a paintball match between the three groups out there battling for startup hearts and minds? Because you should, if you don't, I mean, I'm just.
30:31 Speaker 02 Hans, we should have a surf off because we've got Hans as an avid surfer. I would back him any day on that. So.
30:37 Speaker 01 You can consider the gauntlet throne. We're ready to do any kind of intramural sporting event that they would like to do.
30:43 Speaker 00 All right.
30:44 Speaker 01 I think in the name of supporting startups. We're happy to do that. I think our founders would appreciate it as well.
30:48 Speaker 00 I volunteered to adjudicate because I've only surfed twice and both times I was mostly in the Bay Area water versus on the surfboard. No, but a real treat and we have a little tradition on this episode of Equity, which is we wrap up with kind of a fun question. So I was thinking about things that I really care about and for me it's music. Music is my, it's one of the reasons why I like to be alive. So I'm curious. You can pick from these two questions, favorite music album of all time or a band or singer that you recently discovered and you're very excited about. And we'll start with Tom, we'll start with you.
31:19 Speaker 02 Okay. Favorite album, I would probably say The Score by The Fugees, which I actually have here behind me on vinyl.
31:31 Speaker 00 Okay. The Score by, I mean, I know The Fugees. I think I've heard that record, but I have not, I think, ever listened to it, started back. So I will do that today. Thank you.
31:39 Speaker 01 Oh, no, you, you have to listen to that front to back. One of the highlights of working with Tom is I get to look at the cover art for, for The Score behind him all the time is one of my favorites as well. I don't know if this is my favorite album, but it's definitely one of the most impactful for me. I'd say the Abbey Road by The Beatles. And part of it is I have three kids and their names are actually full on Beatle themed. So I have Penny for Penny Lane. Maxwell. So there's a song called Maxwell Silver Hammer. And then my third one is of course Abbey for Abbey Road. So that'll be my, that's, that's certainly the most impactful album in my life.
32:12 Speaker 00 Did your spouse know that they had Beatles names or did you tell her after the fact?
32:16 Speaker 01 We were, we were in two out of the three and, and like by, by that point she was too committed to leave me. So she had to accept my third choice.
32:24 Speaker 00 Shout out for having three kids. We just had our first and I am, I am half dead. I have a four month old and I'm clinging on for dear life.
32:33 Speaker 02 I wonder why you like the coffee so much.
32:37 Speaker 00 I'm essentially a man who has a spine of caffeine right now because between three dogs and a baby, it's been busy. Well, listen, guys, we gotta go, but I really appreciate the time and the context and what you guys are working on. And if folks wanted to find Microsoft startups, where's the best place on the internets to click in?
32:52 Speaker 01 The starting point is always going to be Founder's Hub. So you can Google it, or you can go and Bing it is actually what I would strongly suggest you do. But go to Founder's Hub, Microsoft startups, and you'll find the starting point for the journey. That really is the entry point. And from there, we'll make sure that you get to the right parts of Microsoft. We'll make sure you get the support you need. So Founder's Hub.
33:11 Speaker 02 Yeah, super easy. Startups dot Microsoft dot com is where you find everything about us.
33:16 Speaker 00 There you go. There you can find everybody. Tap in if you want. And you're all, of course, invited to the intramural fencing competition between Amazon, Google, and Microsoft, done on surfboards. And we'll do it in LA for Hans, because it's closer to home for him. But guys, listen, I really appreciate it. Let's have you guys back on in a year and talk about where the world is and what you guys have learned from basically the AI boom, because I'm trying to just figure out what's real and what's not. And I feel like we don't know yet, but we will soon.
33:41 Speaker 01 Maybe I'll maybe I'll just send an agent to go and do the interview for us. So, you know, hopefully the AI will solve it for us.
33:48 Speaker 00 If you didn't get that joke, congratulations on having to socialize. All right. This is Equity. We are back on Friday. We'll see you all then. Hans, Tom, thank you very much. And Microsoft, thanks for lending us to your folks. We'll see you all soon.
33:59 Speaker 01 Thanks, Alex. Bye.
34:00 Speaker 02 Thank you. Bye bye.
34:02 Speaker 00 Equity is hosted by myself, editor in chief of TechCrunch Plus, Alex Wilhelm, and TechCrunch senior reporter, Mary Ann Azaveto. We're produced by Teresa Loconsolo with editing by Cal. Bryce Durbin is our illustrator. And thanks to the TechCrunch Audience Development Team and Henry Pekervad, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.
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