Sunday, 18 August 2019

A VC who worked on Microsoft's $8.5 billion acquisition of Skype says it provided a valuable lesson about why the best startups are 'bought not sold'

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Paul Murphy is a partner at VC fund Northzone in London. He worked at Microsoft during its $8.5 billion acquisition of Skype.
That experience, alongside helping to realize the fund's exit from Spotify during its IPO last year, helped shape his vision for what makes the best companies.
"The best businesses are bought not sold," Murphy told Business Insider in an interview.
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Microsoft's acquisition of Skype was one of its biggest acquisitions of the past decade, and for Paul Murphy, who worked on the deal, it was a sign of the best practices for a business.

The $8.5 billion acquisition came about as part of an irreconcilable moment for Microsoft. Despite being one of the biggest companies on the planet, with billions on its balance sheet and thousands of employees, it could not create a product as good or successful as Skype, forcing the acquisition.

This was a lightbulb moment for Murphy who spent eight years at Microsoft and is now a general partner at Stockholm-headquartered VC fund Northzone.

"It taught me that the best companies are bought, not sold," he told Business Insider in an interview. "They had a business model that couldn't be replicated, even by Microsoft, and I take the same approach to investing, I want to invest in companies that are one of a kind."

Murphy served as chief of staff to Kurt DelBene, president of Microsoft Office, at the time of the Skype deal. He created presentation slides, speeches, and analyses to help get the deal signed off by the board and sat in on high-level meetings as part of the acquisition.

Satya Nadella

Skype had an established customer base, good user experience, great software and a strong software team which made it an essential purchase for Microsoft — even at something of a premium. The same can be said of Spotify, according to Murphy, which went public last year having fundamentally changed the music industry.

The company was part of Northzone's portfolio until 2018 and now serves as an example of a business model that refused to copy others to succeed. Everyone from Apple to Jay-Z's Tidal has now tried to move into the streaming market as consumers move away from owning music.

That disruption and ambitious thinking is key for Murphy, who was formerly CEO and cofounder of games company Dots. "I came to invest in Europe to work with crazy ambitious founders who want to build companies that are going to lead globally," Murphy said.

He says that his investment in Berlin-based electric scooter firm Tier is a good example of a business which takes the right kind of risk.

"These guys are one of those companies where you're still taking a leap of faith, but they have everything they need to succeed," Murphy added. "Instead of trying to make just a few cities profitable, they are taking the riskier approach, competing with incumbents and beating them by focussing on unit economics and execution, aiming for a global leadership position."

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