The Seattle area’s largest “A round” last year went to the first licensee of a new effort to more ambitiously license Microsoft’s broad base of under-utilized IP. Its name was Inrix. When something as significant as that happens it’s worth taking a closer look. So Seattle24x7’s Dave Chase weighed in with David Kaefer, Director of Business Development for Microsoft’s IP Licensing group.
Microsoft spends billions annually on R & D. By partnering with the company on technologies ranging from biometric identity authentication to counterfeit-resistant labels, from the Wallop online community to LaunchTile, a UI navigation system for mobile devices, tech groups can accelerate technology development, drive products and services to market faster, and reduce much of the risk inherent in any fledgling venture.
Will these opportunities for adoption soon be writ large over the emerging techno-landscape? At this point, the technologies that Microsoft is making available tend to be “pre-commercial” in that they aren’t quite ready for primetime in terms of a final product form, at least in the areas that are getting funding. Generally speaking, they tend to be standalone products or at least a substantial feature of a bigger product. But the possibilities couldd eventually loom large. Herein, we gain insight from the man who is in position to know — the purveyor of Microsoft’s budding IP potential.
Seattle24x7: How are you going to measure the success of Microsoft’s IP Licensing program?
David Kaefer (DK): Success of this program is indicated in many ways, but in the short term it is shown with every licensing agreement we sign. Because of the nature of these agreements, the ultimate success and benefits from this program will be borne out over the long term.
Seattle24x7: The first licensee (Inrix) was all ex-MS people? While I assume you don’t have to be an ex-MSFTie to license the technology, why would an ex-Sun person (as an example) consider licensing your IP?
DK: Inrix technically wasn’t a part of this IP Ventures program, but rather that agreement occurred as a result of the kinds of inquiries we received on a regular basis and is an example of some of the impetus for the creation of the IP Ventures program.
The program is open to all comers, and we hope that it is interesting to all parties regardless of their former employer. The program offers rich, stand alone technology that is best utilized by a party who has the capability of taking it from the prototype phase into the production phase and ultimately to market. We want to talk with any interested party who has those capabilities.
Seattle24x7: What’s a typical deal structure? Equity? Royalty? For how long?
DK: Each agreement is negotiated on an individual basis. We can accept cash or up front payments, but we recognize that many start ups need to conserve cash. Equity or royalties or any sort of creative combination of the two are what we expect to see on a regular basis in these agreements. The length of each agreement will also vary on an individual basis and will depend on the parties, the technology, the perceived market for the technology and other relevant factors.
Seattle24x7: You have 20 technologies listed on your site that are available. Why these 20? How many others will come out? Are you going to be focused in particular areas?
DK: We started with these twenty based on feed-back we received from the venture capital organizations we spoke with. They helped us identify the technologies that are most marketable and the ones that are receiving the most VC backing right now. We expect many others to be unveiled over time, but it’s impossible to predict exactly how many or when or even the particular technology focus of the innovations added to the IP Ventures program in the future.
Seattle24x7: What makes these technologies something MS wants to share vs. other R&D that isn’t shared externally? Which do you think are most valuable of what they are licensing? Why?
DK: The main reason these technologies are being shared is that we see a market opportunity for them. They are not currently being used by Microsoft in the manner in which another company could use them. We think that all of the technologies available under this program are valuable.
Seattle24x7: What kind of assurances do your licensees get that the IP is defensible? If there’s a dispute where a 3rd party claims infringement, how is that handled?
DK: Each agreement will be negotiated individually to the mutual satisfaction of the parties. There are many ways that the potential liabilities can be borne and distributed amongst the parties and each agreement will factor in the unique indemnities and assurances necessary for the parties involved.
Seattle24x7: Has any form of market validation or input taken place for these technologies? Do you know what markets are likely to be interested in the various technologies? Is there an objective person/team providing that validation?
DK: Right now, the primary form of market validation has been the input of the VC’s and entrepreneurs we have been talking with in the last few months. For example, we have had discussions with VC’s like 3i plc, Advanced Technology Ventures, MDV-Mohr, Davidow Ventures, OVP Venture Partners, and Insight Venture Partners. The true test will occur when the technology is released to the market, but we feel confident that the outsiders we’ve spoken to represent a broad cross-section of the market place with a sophisticated business sense about which technologies are best to pursue right now.
Seattle24x7: What’s the process once someone sends a mail to the team expressing interest?
DK: The complete details about how to take advantage of this program are available at http://www.microsoftipventures.com.
Seattle24x7: With corporate VC investment on the rise, will MSFT ever be a financial backer of these companies in addition to providing IP?
DK: That is not how we envision our participation in these agreements but it isn’t something that we would necessary rule out.
Seattle24x7: How will the researchers who developed the technology be available to the startup?
DK: To operate this program successfully, we recognize the need for a high-touch approach. We intend to work with the licensee to provide them with what they need to implement this technology into their products. Access to Microsoft researchers may be important to transfer basic know-how about the products that isn’t well documented in some other form. Access to these researchers will be a consideration for a number of the deals.
Seattle24x7: How do you plan to reach out to the entrepreneurial and VC communities to make them aware of what has been developed?
DK: Our outreach has already begun. We have been meeting with VCs and entrepreneurs over the last few months. We have spoken to large groups of VC’s at the NAVC conference in New York last week and the VC summit in the Bay Area this week. Our IP Ventures team is going to Europe next week to continue the engagement we’ve begun with venture groups like 3i plc. Additionally, we’ve issued a press release and conducted many media briefings on this program roll-out.
Seattle24x7: Are there any upcoming events where people can learn more?
DK: To this point, we have done 1:1 meetings with VCs as well we are included in forums Microsoft puts on that target VCs. We have also had meetings with established companies looking for specific IP. What often happens is we share some of what we have and they indicate specific areas they are looking for. In some of those cases, we have technologies that are applicable.
Seattle24x7: Have you reached out to angel alliances or individual angel investors?
DK: We are experimenting with a variety of different groups to reach out to. While we have spoken with individual investors, it’s an interesting idea that we’ll consider.
Seattle24x7: Do you have any technologies applicable to the emerging Smart Energy arena?
DK: The technology behind Inrix is focused on “machine learning” and has been applied in areas ranging from anti-spam to traffic (Inrix) where there are repetitive and predictable outcomes. It’s entirely possible that the same technology could be applied into Smart Energy. In addition, a Utility could use a technology that we call “Zone Zoom” that would allow a utility to drill down on problem areas on the grid. We have also done work in battery cell technologies. [24×7]
Dave Chase is a Contributing Editor to Seattle24x7. His blog is Chase Market Velocity. Dave is a partner with Altus Alliance , which specializes in driving revenue traction for emerging businesses. Before joining Altus Alliance, Chase spent nearly 20 years in the industry with the last twelve years at Microsoft in various senior marketing and general management roles, including his role as MSN’s managing director for industry marketing and relations. In that capacity, he was responsible for MSN taking a leadership role within the Interactive Marketing industry to grow Online’s share of the overall ad market in concert with AOL, CNET, Yahoo!, Google and other market
Bryan Mistele (Inrix CEO) on licensing IP from Microsoft
Seattle24x7: Start to finish, how long was the process of working with Microsoft’s Intellectual Property (IP) team?
Bryan P. Mistele (BPM): We started engaging with Microsoft in November and closed our deal the middle of February. Subtract the two weeks at Christmas and that would mean it took us 3 months from start to finish. Overall, I was impressed with how fast Microsoft could move.
Seattle24x7: Did the fact that you were ex-Microsoft make a difference in making the deal happen? If you were an ex-Sun employee, how different do you think it would be?
BPM: Being an ex-Microsoftie made a big difference. I could speak the language, the technical due diligence went a lot easier, I knew many of the people involved and was perceived as a “friendly” party. If I was ex-Sun, it would have been harder, not because Microsoft would have anything against an ex-Sun person, but because they probably wouldn’t have the same network and as with any business deal, who you know is as important as what you know. This was especially true since we were the first company to do this. Now that they have a program established, a team helping facilitate these IP discussions, I imagine future companies (and independent companies) will find the process much easier.
Seattle24x7: Are there any other technologies that you are considering licensing from Microsoft?
BPM: The Microsoft Research team is continuing to do leading-edge research into the areas of traffic analysis and prediction. Some of this work we will be able to take advantage of for free under our agreement, some of it we may choose to license at some point in the future.
Seattle24x7: What kind of assurances do you have that the IP is defensible? If there’s a dispute where a 3rd party claims infringement, how is that handled?
BPM: Microsoft maintained ownership of the patents themselves and the responsibility for prosecution. We have perpetual rights to these and derivative patents. If there is a dispute with a 3rd party over these patents, it will naturally be between Microsoft and that 3rd party.
Seattle24x7: Was any kind of market validation done on the technology beyond the internal “beta” of Microsoft employees using the technology?
BPM: Inrix did do quite a bit of diligence on the “market opportunity — meaning we contacted many potential customers across a variety of channels to validate interest, the opportunity, the perceived value of the predictive capabilities and our overall business strategy. These conversations led directly to the development of our business plan, pricing model and gave us a good deal of comfort about the assumptions we had made regarding the competitive landscape.
CMV: How did the VCs that funded/didn’t fund look at the fact that you were licensing IP from MS?
BPM: 90+% of the VCís we talked to viewed the Microsoft connection as extremely positive — it provided us a level of credibility around the technology and science that as a startup we wouldn’t have achieved otherwise. More importantly, it provided us the opportunity to come to market very rapidly (within months of closing our Series A), which is very unique for a startup. We view this as one of the main advantages of having licensing IP from Microsoft. Some VC’s (especially in the bay area), had concerns about Microsoft and didnít believe Microsoft was opening up to licensing IP.
Seattle24x7: Did you ever talk about Microsoft’s Corp VC fund investing in Inrix?
BPM: In our initial conversation, we decided not to pursue this. We felt it would be more advantageous for Inrix to be perceived as an independent company rather than a Microsoft-controlled entity because our potential customers included folks like Google, Yahoo, MapQuest, etc. which might have concerns working with a Microsoft-affiliated entity.
Seattle24x7: How will the researchers who developed the technology be available to you? Beyond paying royalties, is there any ongoing involvement by MS?
BPM: There is a good period of time where the Microsoft researchers will continue to be available to us to successfully transfer the technology, answer questions, brainstorm, debug issues, etc. Our overall goal in structuring our relationship was to create a scenario whereby both companies would be motivated to make Inrix a success. Therefore, even beyond the contractual obligations, we feel Microsoft will make every effort to help Inrix become a success because itís in their best interest to do so.
Seattle24x7: Are there any requirements that you continue development on a MS platform?
Seattle24x7: What was the purpose of the Microsoft conference you just attended? From what you could tell, what kind of people attended?
BPM: The Microsoft VC Summit is a combination of Microsoft executives and VCís. It is an annual event where Microsoft reaches out to the VC community to help build better relationships, explain Microsoftís roadmap and look for potential areas to work together. Inrix was asked to attend because this year IP Licensing was a big, new initiative for Microsoft and we were the first company to license technology from Microsoft. As such, we had a good opportunity to explain to the VC community how great it was to work with Microsoft and the benefits of doing so.[24×7]