Last week I wrote a post about how I thought Microsoft should create a low friction seed investment program similar to Y Combinator. Startups would receive between $100,000 and $175,000 in cash plus all the Microsoft development tools, office space and cloud computing resources they could consume. Microsoft would get 10% of the company without any other rights plus a commitment that the startup would use Microsoft development tools and operating systems.

The post triggered some interesting reactions and good discussions. Among others, Ray Ozzie and some folks in Microsoft corporate development sent me private emails.

I want to clarify a few points that weren’t clear in my original post.

I spent a year at Microsoft post acquisition of my first company. That said, I’m neutral and agnostic about Microsoft. I still own some stock, but not enough to matter. I have friends there. My time there was fun, but not as much fun as a startup, so I’m back at it again. At blist, we don’t use any Microsoft technologies anywhere in our stack.

The program would truly be seed stage. You can vet lots of business concepts for $100,000 to $175,000. I think it should buy a typical 3-person startup a year to: build a product, launch it, demonstrate some traction, figure out how you can turn it cash flow positive or start the series A fundraising process. Nobody’s getting rich in the program. If you have 3 co-founders, maybe they pay themselves each $3,000 per month, which leaves about $65,000 for operating expenses.

One interesting concern that was raised was what I thought about dealing with conflicts and overlaps between two seed funded companies. Would the first to be funded exclude another startup? That’s simple. Microsoft decides to invest in each company in isolation. If two companies come through with similar ideas and Ray Ozzie, Don Dodge and Dare Obasanjo like both, so what? Invest in both. At this stage a startup’s one and only competitor is themselves. You aren’t a competitor of anyone if you have no product and are in no market. Focus on execution, your product and your prospective customers. What’s the worst thing that’s going to happen? Your company and some other fledling company are going to do exactly the same thing and decide to join forces? Maybe 6 guys with $350,000 has a better chance at success than 3 guys with $175,000.

Another concern that was raised was the risk that Microsoft would steal the best ideas and just run with it themselves. You obviously didn’t work at Microsoft for a year like I did. Trust me, you could give them your business plan and they’d be none the wiser for it. OK, that was too harsh. I’m poking fun at them partially, but realistically Microsoft is better off having you innovate without their meddling. You get the product into market, demonstrate traction and they’ll try to buy you later. While they have no official rights, they’ll play their “but we backed you when nobody else would” card for all it’s worth and you’ll enjoy the affection and attention.

The point that’s lost the most in my original post is that it’s time for Microsoft to take some risks. Starting a seed fund, housing startups, backing ones that compete with each other and even Microsoft itself are all acceptable risks. This is about as close to cannibalizing your own business as you can get. Maybe it doesn’t entirely solve the Innovator’s Dilemma, but it certainly gets them closer than what they’ve done to date.

Keep the dialog going - either in comments or via email. I’m at kevin.merritt _at_ blist..com.