Microsoft's Peggy Johnson has a new plan to get a 60% better return on investment for her corporate VC fund

MicrosoftMicrosoft executive vice president of Business Development at Microsoft
  • Microsoft’s independent seed venture fund M12, Silicon Valley Bank, and EQT Ventures have launched a contest to fund enterprise startups with at least one female founder.
  • M12 is the brainchild of Peggy Johnson who tells Business Insider that the contest is part of her effort to “put her money where her mouth is” when it comes to encouraging more women in tech.
  • But, she said, it’s also just good business, given the research that shows that startups with at least one female founder generally outperform those with male-only founders.

Peggy Johnson thinks the time has come to change the tech industry’s well-documented gender-disparity problems, and she’s ready to do her part.

So Johnson, who oversees Microsoft’s venture investments as its executive vice president of business development, has helped cook up a contest to find and fund female founders. The two winners of the contest, which Silicon Valley Bank and EQT Ventures are cosponsoring, will be awarded $US2 million apiece.

“I know what it’s like to be a woman in a large male-dominated field,” Johnson said. “All those years when I was coming up through the industry, typically being the only woman in a room.”

“When I see a female founder walk in to pitch, I get a little smile on my face,” she added. “I feel I know what she’s going through and what it took for her to walk into this room. And I’m so proud of her. So from a personal goal, I wanted to make sure I was putting my money where my mouth is.”

Microsoft is sponsoring the contest through its M12 venture fund, a brainchild of Johnson’s. The contest is open to enterprise startups – i.e., companies making tech for business use, not for consumers – with at least one female founder.

For Johnson, the contest is about business, not just doing the right thing

Although the contest is personal to Johnson, it’s not simply a feel-good public-relations stunt, she said. Instead, the contest is motivated by straight-up business.

Research by First Round Capital first published in 2015, which was followed by analysis published in the Harvard Business Review last year, found that the rate of return of female-led firms can exceed those of male-led ones by as much as 60%. Other studies have found similar outperformance by female-led startups, although some research has cast doubt on the idea.

“The [return on investment] is great on female founders,” Johnson said. “It’s great to think that I can have a diverse portfolio but, I can make 60% more with female founders? Why wouldn’t you do that?”

The benefits of having female founders was a topic of discussion for Johnson last month at the Aspen Ideas Festival, and it all got her thinking about and taking a closer look at the M12 fund. Founded in 2016, M12 has made about 60 investments so far. Only about 8% of those companies had at least one female founder, she said.

That’s actually a worse rate than the venture-capital industry as a whole. Startups with at least one female founder got 14% of all venture capital money in 2017, according to Pitchbook.

Johnson turned to a contest to find female founders

The small proportion of M12’s investments that went to female-led startups happened despite the fact that the fund was designed with diversity in mind. When Microsoft launched the fund, Johnson and Nagraj Kashyap, who runs the fund and reports to her, deliberately hired a broad crop of people from different locations with different specialties. Some 40% of M12’s team are women, Johnson said.

“We wanted to be intentional about diversity,” Johnson said. “You have to find people who have different networks – you don’t want everyone all from the same spot.”

Venture capitalism, especially at the seed, or initial investment, level, is all about who you know and what you hear. The more feelers investors have, the better they are able to spot new trends from different places, hear about young companies with great upside, and understand the potential of atypical founders when they come in and pitch their ideas.

But despite its intentional diversity, M12 wasn’t finding and funding female-led teams, and Johnson wanted to address that. So she and her team chose to sponsor the contest, opening it up to companies in North America, Europe and Israel.

That may seem strange, but it wasn’t unusual for M12. The fund had previously thrown a similar contest – also in conjunction with other venture-capital organisations – to seek out promising artificial-intelligence startups. That contest brought in hundreds of applications, which M12 and its partners narrowed first to about three dozen finalists and then to four winners, which each got a share of a $US3.5 million pot.

Those hundreds of applications gave M12’s investors a whole crop of interesting AI startups to keep tabs on.

Johnson is hoping the same will be true with the new contest. Not only does she expect to find two promising female-run companies to fund as the winners, but also to discover lots more that could lead to future investments for M12.

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