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Scott Orn

Scott Orn, CFA

Tamara Steffens on her career as an entrepreneur and now as a Managing Director at M12, Microsoft's Venture Capital Fund

Posted on: 09/08/2020

Tamara Steffens

Tamara Steffens

General Manager/Managing Director - M12 - Microsoft's Venture Fund

Tamara Steffens of M12 - Microsoft's Venture Fund - Podcast Summary

Tamara Steffens retraces her career as an entrepreneur at, Boingo, and others. Then she talks about life at Microsoft’s VC Fund, M12, where she is a Managing Director. She finishes up by sharing some of her favorite portfolio companies.

Tamara Steffens of M12 - Microsoft's Venture Fund - Podcast Transcript

Scott: Hey, it’s Scott Orn at Kruze Consulting and welcome to another episode of Founders and Friends. And before we start the podcast, let’s give a quick shout out to Rippling. Rippling is the new cool payroll tool that we see a lot of startups using. Rippling is great for your traditional HR and payroll. They integrate very nicely. But guess what? They did another thing. They integrate into your IT infrastructure. They make it really easy for when you hire someone, to spin up all the web services in their computer, which sounds kind of like not a huge deal, but actually we did the study at Kruze. We spend $420 on average, just getting a new employee’s computer up and running and their web servers up and running. It’s actually a really big deal. It saves a lot of money and the dogs are eating the Dogwood. We see a lot of startups coming in to Kruze now using Rippling. So please check out Rippling. Great service. We love it. I think we have a podcast with Parker Conrad. You can hear it from his own words, but we’re seeing them take market share. So, shouts, Rippling. And now to another awesome podcast at Kruze Consulting’s Founders and Friends. Thanks.
Singer: (singing) So when your troubles are mounting in tax or accounting, you go to Kruze, Founders and Friends. It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.
Scott: Welcome to the Founders and Friends podcast with Scott Orn at Kruze Consulting. And today, my very special guest is Tamara Steffens of M12 VC Fund. Welcome, Tamara.
Tamara: Thanks, Scott. Glad to be here.
Scott: Awesome. And maybe you can tell everyone, just retrace your career a little bit and tell everyone what M12 is.
Tamara: Yeah. M12 is Microsoft’s Venture Fund, so we’re a separate organization, but under the Microsoft umbrella and we do the venture investing for Microsoft.
Scott: It’s a pretty amazing perch to sit on, to be able to look at the startup ecosystem from. Microsoft is like an all-powerful company right now. It’s pretty exciting. So, I’m sure you have a ton of companies that want to work with you.
Tamara: Yeah. It’s a pretty fortunate platform to have, and you are correct. We definitely have an eye on the market and get the opportunity to talk to the best startups, hopefully. Hopefully, we get to see them all. That’s the advantage of being at Microsoft. Yeah, so it’s a great platform.
Scott: Well, we’ll talk a little bit Microsoft in a second, but maybe you could, I mean, you have an amazing resume career. You’ve worked at a ton of great startups and I’d love to just kind of go into that. You’ve been an operator and that expertise adds a lot of value when you’re a VC. Maybe you can start off and just talk about a couple of the companies you worked at and we’ll go from there.
Tamara: Yeah. I think I’ll go backward. My last company was Acompli and we were acquired by Microsoft about five and a half years ago. And kind of a funny story. I feel like I never get away from email because my first startup was No, it wasn’t a software company from that perspective. We didn’t sell multiple types of software. We actually did email. And so, I feel like I started and ended on email with a bunch of awesome companies in between. But it was great to get back to my roots and figure out how email still is ever evolving. Right? Nobody’s gotten away from it and it’s still one of the most important applications people use every day at the office.
Scott: For sure. Well, actually one of our big clients is Superhuman, and they’re still evolving email. So, I’ve watched those guys grow from a two-person startup to a really powerful company. So yeah, there’s still tons of innovation going on in email. What was the It merged with What was the story there?
Tamara: Yeah. So, we started in, oh gosh, it’s got to go back to ‘94, maybe even a little bit earlier than that. I joined them in ‘96 and helped them grow their sales organization. And then after a few years, that market was pretty hot. We didn’t raise a lot of venture funding. We actually were one of the early stage companies, which didn’t actually go secure a bunch of venture funding. We took small amounts of Cisco’s venture funds, still a dear friend of mine, Mike Volpi, who is now at Index Ventures. We thank him for making that investment back in the day. But-
Scott: Yeah.
Tamara: So, after that, we decided that consolidation of some of the technologies would be a great thing to do. And if you remember, was a WAP based technology. And for those who don’t know what that means, it’s wireless access protocol. So, it basically gave you access to the internet on your phone, which seems easy today, of course. But we didn’t have Android, we didn’t have iPhone. And so, it was really, if you think of your old flip phones, brew-based technology from Qualcomm, getting on the internet with something new. So, if you combined mobile access on the internet with email, what would you get? And again, it seems so every day now, but it really wasn’t back then. It really took off and we sold mostly to the major operators, AT&T, Verizon, all over the world. They offered email to their customers who wanted to get internet access. I laugh because I think I go back when I was going to take the job. I remember John McFarlane, the CEO, and I were talking and he’s like, “Email is it.” And I’m like, “Yeah. I think so as well.” And I told my friends. I was like, “I’m going to go to work for this company that does email. They’re going to give personal email access to people.” And everyone was like, “What? Nobody’s going to, everybody uses voicemail. Who needs their own personal email accounts?”
Scott: Yeah.
Tamara: Right? I mean, people had email at work, so don’t get me wrong. It wasn’t as if email didn’t exist at work. It just, nobody was really moving toward their own personal email account. And if you think about domains back in the day, it was Microsoft who kind of set up the barriers where you couldn’t have a million users on a single domain. So if you were at ABC company, it might be So, they’d have to break up that domain to make sure they could get some number of users in that. And so’s kind of sweet success was based on, they figured out a way to put millions of people on singal domains as these ISPs, these internet service providers started to ramp up. It was so much fun. And we took the company public in ‘90, ‘99, I think it was.
Scott: Yeah, I think it was ‘99.
Tamara: Yeah.
Scott: Well, we were talking before turning the mics on, but I think I might’ve worked on, or someone in my bullpen at Hambrecht and Quist actually worked on that deal. Or you guys bought another company from one of our clients. But I remember following and And I do remember that old world of the WAP based access and selling through the operators or the carriers and how crazy it was, and how they were the gatekeepers for everything. And just signing one of those big deals would make your stock go up like 100% in one day.
Tamara: Yes.
Scott: It was just a wild time.
Tamara: Yep. Yeah. It really was. It was so much fun. And we did do a bunch of smaller acquisitions, just to take in some additional technology and continue to grow the company. And it was great. I mean, what a ride and what great experience. Yeah. And then, the next job I took was equally fun and I thought, “Oh my gosh, this is crazy. I can’t believe these.” And it was at Boingo. If you remember Sky Dayton, he had started EarthLink. And when he was in his twenties, early twenties, 19, 20, 21, and then he started Boingo. And it was the same story. I remember meeting him and he’s like, “You know what? Everybody’s going to use this thing called WiFi. And we’re going to somehow connect all these WiFi networks.” And I’m like, “Yes. I love this. This is so cool.” You’ll be able to get on to these networks. And remember, phones at the time still weren’t really WiFi capable. PCs were.
Scott: Yeah. Not at all.
Tamara: Your laptops were. So, we did a lot of work again with the operators, giving them access to different WiFi networks. But we actually had this technology where you’d go out and you’d sign up coffee shops and airports and anybody who was putting in a WiFi network. And we found a way to connect them all, so you could have a single sign on. I remember my friends thinking, “Who’s going to do that?” And-
Scott: I’ve been on so many Boingo networks over the years. I totally remember that. That was the brand.
Tamara: Yeah.
Scott: Especially at airports, I feel like. Or in coffee, you’re right, coffee shops too.
Tamara: Yeah. It was great. What fun to work for people like John McFarlane and then Sky Dayton. I don’t know. You can’t really top that. So, it was a great beginning of working for startups and I got very addicted to it. People keep asking me, “You’re still at Microsoft five years later?” And I go, “I know.” I do love Microsoft and I think being at M12, it kinds of has given me that, I get to go back to my crack addiction of talking to startups and working with them and figuring out how to get them to grow. So, I do get that, I get that fix back. So, it’s fun.
Scott: That’s really cool. Well, what are some of the, because there’s some venture capitalists who are just pure finance people, who’ve been doing investing for many years. But I feel like venture capitalists like yourself, that have all that operating experience background, all of those war stories and all those lessons and been in high growth companies, can add so much value. What are some of the things that you talk about with your portfolio companies to help them get over the hump?
Tamara: Well, everybody says this, to focus on product market fit, but that probably is the single biggest thing, right? Because people have a great idea, and if you can’t explain it in a way that, and I don’t want to say simplifies it, but it’s the easiest way for me to explain it, to simplify it so that people know how to take advantage of that technology. Whether it’s something really complex or something, a productivity app, which a productivity app can be very complex. Email can be really complex. We invented, started this thing called focused and unfocused. And then now we call it focused another, so it doesn’t really remove spam. It just removes maybe newsletters and things that you get a lot of, that you can set aside and look at later and the rest of your email comes in. So, it’s very focused and you can address those things first. So, simplifying it and understanding product market fit for who you’re selling to, I think is really important because that will reduce your sales cycle. If you can explain it faster and people understand how to digest the technology quicker, you will be able to get more sales done.
Scott: For sure. And there’s something, there’s a new kind of term called product led growth that I hear a lot about, which is kind of, I think it’s what you’re talking about, where people love the product. It satisfies exactly what they need, product market fit. And then people try to work in some of the viral sharing or network effects into the product. The classic example would be like, Hotmail’s little signature after someone signs their name and says, “Sent by Hotmail.” Or sent by Superhuman or whatever. And that’s product led growth. Are you seeing a lot of that stuff or investing a lot of those kinds of companies?
Tamara: We do see it. We have invested in some. I think the pandemic has made that even more important because it’s harder to get in front of top-down selling cycles. So can you find a way to… I mean, Slack is the perfect example of how they grew from the bottoms up. I’m still not convinced that will be the way we do sales forever. I think it is a great way to get in the door. Ultimately though, if you’re going to sell to a big enterprise, whether it’s JP Morgan, Chase or American Airlines or Boeing or whatever, you’ve got to have a product that meets the security requirements so that they can roll it out in a broad way. Now, smaller companies, SMB, mid-market, you’ll have a lot of luck, I think, starting at the bottom and getting growth through that viral nature. But it is kind of why Microsoft Teams has taken off as well as it has is because we have all this security. We’re an enterprise software company to start with. All the security is built in. It comes with your Office 365, M365 subscription. So it’s done really well because it really meets that high end enterprise market. I do think you can start in this viral way and do product led growth, and it’s really important to have that because that does give you that product market fit. But I think you’re still going to have the top down sale if you want the big enterprise.
Scott: Yeah. You said a bunch of things that are really, really smart there. The COVID world we’re living in, it makes it more important, but hopefully, someday we’ll get back to the regular world and enterprise sales works again. Even Office 360, that for us, we’re an SMB, but we actually use Azure. We’ve used a bunch of security features in Azure. We’re an accounting firm, so we can’t have social security numbers floating around. And so, because we have Office 360, we then went to Azure for a bunch of stuff to make our whole ecosystem a lot more secure. So like Microsoft is doing in a lot of different ways, is pretty cool.
Tamara: Yeah. And obviously, most financial services companies, and as an accounting firm, you know this, probably used Microsoft because of our heavy security and our concentration to make sure things stay safe.
Scott: Yeah. It’s amazing. Well, what are some of the, what type of company and maybe type of stage you’re looking at, at M12? What’s your target?
Tamara: Yeah. So, our sweet spot, we started out. I should say we’re a four-year-old fund. We started out leaning into series B and series C to just get the fund going and look at the technology and kind of understand where we could make the biggest impact. And the last two years, we’ve really leaned in and we’ll continue to lean in at series A. We like series A because we can get in early and we can really help that company grow, hopefully through the relationship with Microsoft. So, series A, we like to lead. I would say our sweet spot is SAS. Enterprise SAS is a good fit because we can generally really help those types of companies. But we also look at, cyber security is another big focus for us, but we look at robotics and other later stage, I should say earlier stage, technology as well. We look at everything, but our sweet spot is SAS, cyber and companies that are focused on the enterprise.
Scott: Yeah. That makes total sense. How do you, how does M12 in your specific portfolio, how do you plug them into the Microsoft machine? Is it, do they get access to sales channels and product expertise or how does it work for the startups?
Tamara: Yeah. They actually get access to everything. We have an entire portfolio development team that is based in Redmond, that’s part of M12. And when you are, when we make an investment in you and you become one of our portfolio companies, we assign you a portfolio development manager. That person’s sole job is to make sure one, Microsoft knows about your product. Maybe you can sell it into Microsoft and we’ll help you do that. Number two, how do we get you co-selling with our sales reps around the world globally. And number three, what do you need from us from an engineering and technical perspective that we can go get for you? So all three of those things, we go help them with. And it may be, hey, it’s going to be better if you integrate into teams and our sales guys understand that, and you become part of our go to market motion with the team’s group. Or maybe it’s Azure. Our Azure sales teams have a catalog of technology. Maybe it’s a cybersecurity technology or really anything that would sit on Azure that our sales guys can go out and talk to their customers about. And even a little bit of healthcare focus, retail focus. We don’t really have industry focus per se at M12, but we do look at the industries that are important to Microsoft.
Scott: Yep. Well, one of the things you talked about was that sale, your salespeople, going out to the channel. And I think maybe for some people in the audience, they don’t realize how strong. Microsoft is so dominant with IT service firms and IT resellers. It is, just you guys own that channel. So for example, we’re an SMB. We depend on our IT services firm to recommend technology to us. And by definition, they’re kind of defaulted towards Microsoft because they have such a great and deep relationship with you. So by your sales team working with a startup, they’re probably getting access to like hundreds or thousands of other resellers across the country and the globe. Right?
Tamara: Well, exactly. And we have a really concerted go to market and co-sell effort with our portfolio companies, provided that’s something that they need or they want to grow, which most of them take advantage of. Our sales force is the strongest enterprise sales force in the world.
Scott: Yeah, it’s amazing.
Tamara: Based on size, based on training, based on experience. Often people say it’s Microsoft’s reason for success. And I will agree with that. I will say that our engineering teams are also top notch. So those two things really are important. And as a portfolio company of M12, you get access to both.
Scott: Yeah. That’s really fantastic. Are there any companies that you want to highlight that have really taken advantage of the Microsoft relationship to jumpstart their growth?
Tamara: Yeah. A lot of them have. I can, just thinking about a couple of the companies that I’m on the board of, that even some of them are even newer, meaning newer to start taking advantage of Microsoft’s go to market. I’ve got a company that I just love called PandaDoc.
Scott: Oh, yeah. I love them, too. Yeah.
Tamara: Yes. They do this eSignature but total workflow management. And they started out in SMB kind of and moved up to mid-market pretty quickly. And they’ve been out and able to replace DocuSign in some of these big enterprise accounts of late, and their technology was built on the Cloud. So, it’s very new, it’s light, and the way they package it, you get unlimited transactions. So, you’re buying it by the seat. And so, it’s turned out to be a much more cost-effective solution. Once people try it, they realize it’s actually better than the other solutions in the market. They’ve really taken off. And it’s interesting because for us, we love to see companies move up market and we’ve been talking with them about, they’ve integrated into Dynamics, our CRM system. So, we’re just working with them now to be able to take advantage of that. But that’s one example of just, they’re just a perfect fit, both for SMB and now up market enterprise accounts.
Scott: Yeah. I actually remember looking at them quite a bit because they have a really nice configurable. It’s like you can use their API really easily. And so that was what really attracted me to them. So that is a really great company. And the integration of the Dynamics for people don’t know, that’s like Microsoft has a really big CRM business. What’s the first thing you’re going to do after you close an account? You’re going to send them a contract. So, the integration there makes so much sense. That’s really cool.
Tamara: Yeah. Yeah, it is fantastic. And then we have another company that I love, that I’m on the board of as well. It’s very new. We just invested in them. It’s called FortressIQ. And they kind of, I don’t know how to explain it in a simple way, but I’ll try. They kind of automate the RPA process, and they’ll probably get mad at me for the way I’m going to describe this. But if you think of it as somebody in accounts payable, accounts receivable, that they’re doing virtually the same thing over and over again. How can you automate that? They don’t generate the bot, so they’re not in the business of creating a bot, but what they are able to do is use computer vision machine learning and actually understand what the process is that can be repeated. And then they will highlight what can be repeated. They’ve got some huge customers, big enterprises that are just trying to do more automation and their technology is phenomenal. And so, they’re really taking off. So, if you think about the business of RPA, where people would go out and they’re trying to redo processes and they hire these third-party consultants that take a year or two to get you to audit, refine your processes, his does it for you. So, it understands exactly what the users are doing and it comes up with, here are the things that are repeatable, that you can go create a bot for and do that. And you can use those, that staff now in more important areas. They’re not a company that says, “Oh, you can go reduce your hiring or have less people working.” They basically said, “Just use those people in other areas where you need growth or where you need more attention. And just some of these simple processes that we can automate for you, let us take care of that.” So, they’ve been on fire, as well.
Scott: That is, the name sounded really familiar. So, I checked and they, in fact, we talked to them in December, like six months ago. I remember thinking it was really cool, because we’re still a small company, but we’ve automated a ton of the accounting stack. And so, a lot of stuff we build plugs into QuickBooks and automated transaction recognition and labeling and things like that. But that, what you’re talking about is the next frontier where you’re automating people’s workflow, that maybe no one’s ever documented ever. They just have a job. You hire them to do the job. You know the job gets done, you just don’t know how they’re actually doing it. That makes a lot, a lot of sense to me.
Tamara: Yeah. Exactly. Exactly.
Scott: Are both those series A’s or those mid stage companies, or, how did you?
Tamara: Yeah. FortressIQ is still early. That was a series A. So yeah, that was a series A. PandaDoc, we invested in as a series B, but it was, I would still say, relatively early stage. They’re kind of on fire, so they’re definitely not early stage anymore.
Scott: Yeah.
Tamara: But yeah. And some others that we have done series A, where we’ve led. One I’m also on the board of is completely different. It’s called SpyCloud. And they basically understand what’s happening on the dark web. So-
Scott: Oh, wow.
Tamara: They have technology and the ability for them to know what’s happening before everything else, before all the stuff gets out there and this security breach happens. They’ve also been a company that’s just been, had crazy growth and been able to take advantage of that space. And they’re a good example. So, people can understand it, is there’s this company Credit Karma. In fact, I think they just got bought by Intuit. You can subscribe to their service and they’ll basically protect your identity. And so, behind that is SpyCloud. So some of the technology they’re using to make sure you and I, our identity is protected, is SpyCloud. And you could actually go to their website now and just type in, they ask you for a little bit of personal information, you could type it in and it’ll tell you where your password is known on the dark web.
Scott: Yeah.
Tamara: Very cool. And I think they’ve got a long future in protecting people and their identity as a whole. Not just your password, but think about your whole identity and making sure.
Scott: Yeah. I hear you. I subscribe to something like that, too and I’m forgetting. Oh, LifeLock and it’s so, but I’m sure SpyCloud may even power LifeLock, because it is so powerful to get that little notification and be like, someone checked out your social security number. And you get a little freaked out and then you’re like, okay, let’s figure this out.
Tamara: And it’s interesting because while your social security number is critical, the issue in how they get that is usually because somebody has your password, right? Somebody has your password and they know how to get into your accounts, or they understand the makeup of your identity so they can get into your accounts. So, they’re doing a great job. They do it at the enterprise level mostly. What they’re doing is working with the likes of, think of just about any big company and making sure that the employee data doesn’t get out there as well.
Scott: Oh, that’s nice.
Tamara: They started out on the enterprise, but it’s taken off on the consumer side as well. So, they’ve got a new focus on that to start to work with companies who want to offer it as a service on the consumer side. They wouldn’t offer it themselves, but they would do it through partnerships like Credit Karma.
Scott: Yeah. That makes sense. Well, you’ve been a pleasure to talk to. You have such a great experience and now you’re at a powerhouse VC fund. Before we finish up, what is M12’s, where’s the funding come from it? What check size do you like to write? Any other background info on M12 you can share?
Tamara: Yeah. So, our funding comes from Microsoft, so on our balance sheets. That’s our only LP, if you like, if you want to look at it from that perspective. We love series A early. We want to get in early. Check size, five to 15 million. We’ve done even bigger, but that’s kind of our sweet spot in that range. Enterprise SAS seems to be a really good space for us, but we do venture outside of that a little bit. And we just got our office in India going about eight, 10 months ago. So now we have a leader there that’s helping us invest in the Indian market. We opened our India office and we opened our London office recently. So, our focus, we are expanding, going global and just adding more investors to our team and continuing to invest in those early stage startups.
Scott: I love it. Well, thank you so much for coming by. I really appreciate it. You have a great day and hopefully, we can send a few Kruze clients to M12 and you can take a look.
Tamara: Thank you so much. It was great talking with you.
Singer: (singing) So when your troubles are mounting and the tax are accounting, you go to Kruze. From Founders and Friends. It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.

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