Venture capitalists eyeing Microsoft license program
By PETER LOFTUS
DOW JONES NEWSWIRES
PHILADELPHIA -- Inrix Inc. was one of hundreds of U.S. startup companies to receive venture-capital funding this year, and the $6.1 million it raised was a relatively small amount.
What sets Inrix apart is that its traffic-information software is based on technology licensed from industry giant Microsoft Corp. Inrix was the first startup to take part in a new Microsoft effort to make money off some of the more obscure fruits of its $6 billion research-and-development program.
The effort is called Microsoft IP Ventures, which makes available to entrepreneurs and venture capitalists various technologies developed by Microsoft researchers, some of which Microsoft has no current plans to use in its own products.
Under its agreement, Inrix pays a revenue-based royalty to Microsoft in exchange for exclusive use of traffic-analysis software that was in development at Microsoft for about three years, according to Inrix Chief Executive Bryan Mistele.
Among other technologies Microsoft is seeking to license are biometric identification cards and software that converts your photo into a cartoon image.
So far, Inrix is the only licensing deal to be announced under Microsoft IP Ventures, which started in May.
Mistele started Inrix in Microsoft's hometown of Redmond, Wash., last year after a 10-year career at Microsoft, where he was most recently general manager of the mobile-services business unit.
He says the Microsoft license program has "accelerated our development plan by several years."
What's more, it made it easier for Inrix to raise $6.1 million in VC funding this spring in a round led by August Capital and Venrock Associates, both of Menlo Park, Calif.
"It greatly simplified our fundraising, let's put it that way," Mistele says.
"From a VC point of view, being able to invest in a firm that has proven technology that's ready to go to market, as opposed to having to wait two years - it's a huge advantage."
IP Ventures is part of a broader strategy shift at Microsoft, and one that could serve VCs as a source of startup ideas.
In the past, the software maker was relatively stingy with sharing its intellectual property. But in late 2003 it began to widen access to its vast portfolio of patents, partly in response to increasing market demand.
Much of the increased licensing activity has been to mid- to large-sized companies who want to develop products that work with Microsoft software.
It also decided to design a program aimed at startups who might build their core product or service around a technology developed by Microsoft, says David Kaefer, director of business development in Microsoft's licensing group.
In many cases, the technologies were developed by Microsoft Research, its computer-science R&D organization with 700 software engineers and researchers in six laboratories around the world. IP Ventures lists nearly 20 technologies available for license.
One might wonder: if these technologies are so good, why isn't Microsoft keeping them for its own products?
Kaefer says Microsoft isn't interested in commercializing them - for now - because they don't have the potential to generate nearly as much revenue as Microsoft's core products, such as Office software or XBox gaming products.
So instead of letting a patent collect dust, Microsoft wants to "pass that off to a new company who's looking to take it the last mile," Kaefer says.
In some deals, Microsoft may retain rights to make its own product based on the licensed technology, he says.
Microsoft plans to strike royalty deals, or possibly acquire equity in the startups to which it licenses the technologies, Kaefer says. Mistele says Inrix's deal didn't include giving equity to Microsoft. Kaefer declined to comment on specific terms.
In Inrix's case, Mistele says he initially set out to build a service that gathered traffic-flow data from global-positioning-system devices mounted in trucks traveling around the country.
About four or five months after he left Microsoft last year, he says, he learned the company had been developing software designed to predict traffic conditions in various cities, using data such as scheduled events that may worsen traffic congestion.
That has been incorporated into the software, which also collects traffic-flow data from road sensors installed by local governments.
Inrix plans to market the traffic software to Web portals, government agencies, trucking-fleet operators and auto makers for use in car-navigation systems, Mistele says.
Dan Grossman, a principal with Venrock Associates, says his firm based its decision to invest in Inrix on both Microsoft's technology and Mistele's track record as an executive.
"What Microsoft provided was the basis of a very interesting platform," he says. "We think we're going to build significant value with it."
There are potential drawbacks to the license program. Mistele says Inrix's relationship with Microsoft could make Microsoft's competitors less willing to do business with Inrix.
For example, Inrix wants to sell its software to Web portals, but Google Inc. and Yahoo Inc. compete with Microsoft's MSN portal. Still, Inrix continues to explore relationships with those companies
About Inrix
Inrix’s mission is to become the leader in delivering real-time and predictive traffic information nationwide to a broad range of service providers, device manufacturers, Web sites and mobile solution providers in a hosted, business-to-business service model. Through patented technology and robust Bayesian statistical analysis developed by Microsoft Research and exclusively licensed to Inrix, the company analyzes current and future traffic conditions based on real-time traffic data, historical traffic patterns, weather, construction, special events and other variables to deliver traffic information services of unparalleled accuracy and geographic coverage. In April, 2005, Inrix completed a $6.1 million Series A funding led by Venrock Associates and August Capital. Visit Inrix at http://inrix.com.
For more information or to set up an interview with an Inrix executive, please contact:
Jim Bak, Edelman, (206) 268-2205, jim.bak@edelman.com
