That all depends on what “invest” means.

We do invest. We don’t invest. Which is it? Believe it or not, it does depend on how you define “invest.”

We don’t invest in startups in the traditional venture capital way. At least not any more. But we do aggressively invest our resources, programs, people, and, of course, technologies in startup companies worldwide, and  we work proactively with leading venture capitalists to enable innovation and accelerate the software ecosystem. In fact, this has been my charter since joining Microsoft almost five years ago. Having lived and worked in Silicon Valley for almost 30 years—spending my formative years at Apple, helping to found NeXT, and then a series of startups and large corporate partnerships—I actually sought out Microsoft. Based on the shift in technology taking place around XML, open standards and Microsoft’s efforts around .Net, I believed Microsoft could be the  best partner for entrepreneurs and early stage companies in the venture community.

In this first “Edge of the Valley” column, my aim is to clarify Microsoft’s position: We are heavily investing in startups. We’re open for business and care passionately about entrepreneurs and their commitment to changing the world. In fact, during the last three or four years, we’ve had hundreds of extremely successful engagements helping startups drive their shareholder and end customer value. The reality and leverage of the Microsoft partner ecosystem is amazing—96% of Microsoft’s revenue is driven through our partners, and for every $1 of our revenue, our partners make $7 to $8. We know venture-backed startups are fundamental to Microsoft’s long-term success.

VC Model Today

VCs bank on hitting a home run, and the top funds manage to hit one out of the park every five to 10 years. That world, however, is changing. VC funds today expect 90% or more of their “exits” will be through acquisition, where returns are very, very good, but not  out of the park. For a company to go public today, the market requires about a $250-million market capitalization—perhaps five to 10 times forward-looking revenue. That’s a vast departure from the go-go days when companies were going public without revenue, with seemingly just a business plan and a prayer.

So where does that leave entrepreneurs and startups? Perhaps, feverishly trying to monetize their businesses, build a "brand," reduce cost of sales, and  outlast their competitors. And we can think of no better way (or time) than to leverage our technology and platform. Here’s why.

What Microsoft Means by Investing

At the core, we are a software platform  company. We do well when others build on our platform. Successful startups spur disruptive innovation and create unique end customer value propositions. We see our role as guiding entrepreneurs and venture capitalists about where our platform assets can be best applied, and helping them plug into our partner ecosystem—it’s all about leveraging our tools and platforms, and  our marketing channels.

From Shanghai to Silicon Valley, the playing field is being leveled. Venture capital and the best practices of Silicon Valley are going global. Leading VC firms are putting people on the ground in places like China, India, Israel, and the United Kingdom. They are going where the talent is and market opportunities are growing.

Likewise, with our global scale, we can help startups better monetize their businesses through our existing worldwide channels. We made a sizable investment in this very area four years ago by building out a division around Developer and Platform Evangelism (DPE)—recognizing innovative developers as our most critical audience and greatest asset. It has since transformed itself into a division of more than 1,000 people who are focused on ISVs and developers in 90 countries.

The World has Changed...

...But so many things remain the same. Venture capital is still a boutique, hands-on business, and corporations like Microsoft still have a fiduciary responsibility to expand their markets and return shareholder value. There’s a symbiotic relationship between high-return, high-risk investing and  partnering with large, go-to-market partners with global footprints. And it results in successful outcomes of either standalone public companies or acquisition. So what’s changed? It’s happening at an accelerated pace.

Stimulating Opportunity at the Edge of the Network

As we see it, the VC community and entrepreneurs need to do three things to be successful. They must pick a customer pain point, define an end-to-end customer value proposition, and select a platform partner who can help them gain competitive advantage.

We prefer you pick our platform. In many instances we can offer significant lift with our partner channel—reducing your cost of sales and marketing, and giving you breadth and presence. By engaging with us to understand where we can be helpful, you’ll also learn what we’re doing and where our initiatives lie so you can take advantage of them, avoid them, or choose to compete. All are fair game. Two of the three we really like. And if you choose to compete with us, that’s great too; competition is a good thing for creating customer value.

Empowering Success

Through our Emerging Business Team (EBT), our mission since the late 90s has been to foster an ecosystem of successful software companies that offer exciting, highly innovative solutions that take advantage of the Microsoft platform assets. The EBT operates with the same characteristics and methodology as a VC firm. We talk to and filter literally thousands of companies each year and work closely with hundreds at any one time. We make customer and financing introductions for them, help them navigate our organization, facilitate their use of Microsoft platform technology via early adopter programs, and encourage and drive joint sales and marketing efforts. It’s a comprehensive technology-and-business approach that creates strategic relationships with these leading-edge companies and their financiers.

We’re serious. We spend more than a quarter billion dollars on platform evangelism for technical enablement every year—not including the billions we spend on our partner sales and marketing programs.

Through Microsoft's “Empower” program for ISVs, launched two-and-a-half years ago, we’re providing an “on-ramp” for early-stage ISVs, helping them accelerate the development and delivery of new solutions. Our ultimate goal is to create and deliver focused support to the millions of software developers around the globe who share a commitment to providing customers with high-performance, affordable and leading-edge technologies—any time, any where and on any device.

With our many programs and resources and extensive partner ecosystems, many recent articles suggest that Microsoft is considered one of the best partners and friends to the startup, entrepreneur, and VC community. We even have our own reality-TV-like show called Channel 9, which creates direct transparency into the Microsoft developer community, the largest developer community in the industry.

Bottom Line, We Invest in Startups

So to answer the question, we should  invest in startups and we do . Why? One word: Innovation. Our business model and end customers thrive when others innovate on our platform. It’s tremendously gratifying to enable so many smart companies achieve success for themselves and their customers.

Dan'l Lewin is corporate vice president of .Net Business Development at Microsoft. He is located in Silicon Valley.