SAP Ventures has raised $1 billion in the past year to invest in enterprise startups and entrepreneurs.
SAP Ventures is the independent venture arm of legacy enterprise software provider SAP. It is structured like traditional venture capital firms, but a vast majority of the capital comes from SAP. This latest raise brings its total capital under management to a massive $1.4 billion.
VentureBeat sat down with managing partner Nino Marakovic to learn more about the fund, this raise, and how it fits into SAP’s corporate mission.
“We want to partner with the best entrepreneurs, with the most innovative, disruptive companies,” Marakovic said. “If we get it right and we are addressing big markets that are growing fast, sooner or later it will become relevant to SAP.”
$350 million was raised as part of SAP Ventures’ first fund in 2011. $405 million is for a fund of funds that will invest in early stage venture capital firms and in one or two accelerator programs. The bulk of the capital — $650 million — is earmarked for “growth” stage companies that are raising their third or fourth rounds of institutional financing. SAP also hired a 10-person development team so it could support portfolio companies as a strategic partner.
“Our loss ratio is historically less because we invest later, when the product-market fit is already established,” Marakovic said. “We invest post-pivot. There are still plenty of risks, but these companies are a little more baked, and the prices we pay reflect that.”
It can be hard for massive incumbent organizations like SAP to stay on top of cutting edge technology. Since 1996, SAP has made 130 investments on five continents. SAP Ventures became its own entity in 2011. Notable investments include RedHat, LinkedIn, WebEx, and ExactTarget.
Investing is part of the company’s strategy to stay competitive.
As Marakovic said, “it gives a bird’s eye view into where the innovation comes from.”
“The pace of innovation is so fast in the IT industry that if you don’t keep track of it and disrupt yourself, sooner or later you will go out of business,” he said. “There are new competitors every year trying to take your business away. If someone comes up with a 100x faster mousetrap, they can kick your butt.”
SAP typically invests between $5 million and $20 million and can follow-on with larger rounds later. It prefers to lead the fundraising rounds and take a board seat so it can actively assist the companies and vice versa.
“We are taking the best of both worlds — the traditional venture capital structure with the ecosystem of a corporation,” Marakovic said. “Entrepreneurs who join our family can leverage SAP’s resources and network, and potentially partner. This makes us quite unique.”