Is Microsoft Behind SCOs $50 Million Cash Infusion?

UPDATED: Despite denials from SCO and BayStar, questions are raised about whether Microsoft had a role in the investment.

Hot on the heels of The SCO Groups announcement that BayStar Capital has invested $50 million in the company, questions are being raised about whether Microsoft Corp. may have had a role in that investment.

As an investment firm, BayStar leads, creates and participates in a number of PIPEs (Private Investments in Public Equity). Many of these deals involve investment money from other companies, including Microsoft, sources said.

But Bob McGrath, a spokesman for BayStar, disputed that claim, telling eWeek on Friday that BayStar had examined its records and could find no side-by-side PIPE or other investments that it had participated in along with Microsoft.

"Microsoft is also not an investor in this particular transaction. BayStar either leads, creates or is a major participant in private investments in public companies, also known as PIPEs, and has made 44 such investments so far this year.

"They invest their own capital as well as put deals together that involve other investors but, again, this specific deal did not include Microsoft," he said.

McGrath also pointed eWEEK to a BayStar White Paper on PIPEs published in October 2002, which lists both Microsoft and Vulcan Ventures, Inc., the investment firm of Microsoft co-founder Paul G. Allen, as being among the top ten PIPE investors since 1995.

That, McGrath said, could explain why people were assuming that Microsoft was an investment partner alongside BayStar, but he was unable to say if Vulcan was such a partner.

SCO spokesman Blake Stowell echoed those sentiments, telling eWeek on Friday that Microsoft was not an investor in SCO through this deal. "There are only two investors in this deal: BayStar Capital and the Royal Bank of Canada.

"I think people will try and come to the conclusion that Microsoft is somehow involved in this deal, but I can tell you with great certainty that Microsoft was not involved with this investment," he said.

But people in the open-source community are far from convinced. They cite the myriad of investment holding and other companies that firms like Microsoft can hide behind when making investments.

"There are many ways to hide the money trail. Something still smells funny. An angel has landed for SCO but whos string is attached?" one questioned.

Others cite Microsofts move earlier this year to license the Unix source code and patent from SCO in a deal believed to be worth many millions of dollars as evidence of the Redmond software titans desire to fund SCOs ongoing legal actions against IBM, SGI and corporate Linux users. Microsoft has repeatedly denied those claims, saying it was simply respecting SCOs intellectual property.


Another open-source player, who asked not to be identified, told eWEEK that the $50 million investment into SCO was surprising to him as "SCO is not a good growth company and is in fact on life-support. A solid company thats been in business as long as SCO has should be making its money from product/services and not donations and lawsuits.

"I had to look at BayStar to see why they would do this and the only thing that makes sense is the PIPE program. Someone has a vested interest in seeing SCO continue and lo and behold, there is Microsoft listed as a BayStar PIPE customer," he said.

But BayStars McGrath again stressed that Microsoft was not an investor in this deal. But he did point out that the fact that Microsoft had done business with SCO was seen as a positive when BayStar was looking at SCO as a potential good business and good investment.

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