Can a sheet of paper become a high-tech peripheral? French start-up Kayantis raised €2 million earlier this year because it believes so. And because Microsoft agrees.
Kayantis is one of the start-up companies Microsoft France favoured in the first phase of its support programme IDEES - Initiative pour le développement économique des éditeurs de logiciels et des start-up (Business support programme for software developers and start-ups).
The programme was launched in October 2005, not long after Microsoft founder Bill Gates paid a visit to the French president Jacques Chirac. But rather than being a political sop, this program is technologically focused and business-driven, according to the man who inspired it, former venture capitalist and über blogger Julien Codorniou.
“IDEES supports French software start-ups that opt to develop their products on Microsoft platforms,” explains 28-year-old Codorniou, who runs the programme for Microsoft. In the first year, 25 companies were selected in a beauty parade of 220 candidates, and the programme has been renewed for 2006-2007 with 350 companies applying.
Overcoming barriers to entry
The aim of IDEES is to help ventures in the transition phase from start-up to small but profitable companies. “Start-ups have to overcome huge barriers of entry to get to the IT manager of large companies or organisations in France,” says Codorniou. “In the US, IT managers will try new products, while in Europe the mentality is still, “nobody will blame you for choosing IBM”.
As an example of the success of IDEES, he cites Skyrecon, a data protection company that builds solutions on Kernel programming and artificial intelligence. It was able to sell a security-sensitive software platform to French insurer Groupama only two years after being founded.
The founder of another business that has received support, Pascal Lorne of the mobile instant-messaging company Miyowa, says: “Being part of IDEES enabled us to double our revenues over the year.” In this time, the company has launched its messaging service with seven mobile operators, most recently with the Singapore operator Starhub.
According to Codorniou, “From Microsoft’s perspective the single success of Miyowa has already paid for the program for two years.” So now other Microsoft subsidiaries are following suit. Microsoft UK and Germany are preparing to launch their versions of IDEES and the Chinese and Indian business units are looking at implementing similar schemes.
VCs are drawn into the scheme
Co-marketing is not the only thing Microsoft offers to its elite band of start-ups. Its Technology Centre in Paris has a space for them to test their applications.
IDEES does not provide capital for start-ups, but it is opening the doors of venture capitalists. Microsoft France is currently working with 20 VC firms that have bought into about half of the companies. The software giant used to have its own VC division. It did not perform well and was axed in 1999.
Microsoft’s support is evidently comforting to independentVCs. Voluntis, a patient-relationships software start-up selected by IDEES, raised €700,000 in August from business angels and VC firm Cap Decisif. Miyowa raised €3 million at the beginning of September.
“During the due diligence process, the VCs tested our partnership with Microsoft,” says Lorne. “They are given a map showing where Microsoft intends to develop new technology internally (Read: do not invest!) and where it opts for partnerships. This view of the future competitive landscape is a key element in the VC decision process.”
So what is Microsoft getting out of IDEES?
However, this begs the questions of Microsoft’s objectives in founding IDEES. As Vincent Dupourqué, manager of Robosoft, another IDEES start-up, observes: “Some investors worry about the power balance between us and Microsoft. They also question the company’s motives”.
Kayantis’ scheme for turning a regular sheet of A4 into electronic paper provides some clues. The technology involves laser printing a frame on the paper that allows an optical pen to plot its position and feed the data through to a handwriting recognition program. Before teaming up with Kayantis, Microsoft did not have an in-house project that envisaged turning a simple sheet of paper into a peripheral. So Kayantis has opened up the possibility of an accelerated route to market in a field where Microsoft was not even on the starting blocks.
The second incentive is to build new ecosystems on its platforms. “It is strategic because Micrsoft does not sell directly but through vendors. Ninety-five percent of our revenues come from partnerships,” says Codorniou. “So for us it is critical that our partners do well.”
Growing the start-ups is synonymous with growing Microsoft’s market share. Therefore, the selection process is joined at the hip with Microsoft’s in-house product strategy. For example, Codorniou is now looking for companies that are developing innovative applications for Office and Vista.
Among the first 25 start-ups selected many were developing software-as-a-service solutions, like Sidetrade in electronic payments, and KD, in online travel and expense management. Others are in mobile applications like Sparus, which is in mobile servers; Aliantiz, which is developing VoIP over WIFI as a single platform for cellular networks; and Fingermind, which is developing a multi-standard protocol for a graphical user interface on mobile devices.
Enterprise software is also well-represented with companies like Excentive, which is developing variable compensation software for human resources department, Advestigo and Sinequa. And naturally there are web applications like MusicMe, Boonty and Kewego.
In a further development, IDEES has started to look at universities as a source of start-ups, helping the Institut National de Recherche en Informatique et en Automatique to spin off Robosoft, a specialist in industrial robotics. IDEES has signed a contract with the incubator Paris Développement also, and is looking to form partnerships with other incubators.
Receive the Funding Newswire each Tuesday, our Policy Bulletin each Thursday, and news about bridging Europe’s east-west innovation gap twice a month in The Widening. 
