SAP SE is doubling down on its role as venture capitalist, committing another $1-billion (U.S.) to invest in startups and early-stage venture firms.
Through its Sapphire Ventures, SAP will plow $700-million into startups and $300-million indirectly via stakes in a dozen venture firms worldwide.
The push by the enterprise software company is part of a large and growing movement by established companies to partner with startups early rather than compete against them when it's too late. Corporate venture groups put $72.5-billion into startups last year – a high not matched since 2000, according to data from industry tracker Global Corporate Venturing Analytics. While many new entrants invest for strategic reasons, other tech players such as Sapphire are motivated by the promise of strong returns.
"We've always been financially oriented," Sapphire managing director Nino Marakovic said. "True results take time."
Sapphire is starting to reap rewards from some of its long-term bets; Fitbit Inc., Box Inc. and Square Inc. went public in 2015. Sapphire Ventures was among the top-performing corporate investors in the information technology sector with 23 exits since 2011 totalling more than $8.2-billion, according to Global Corporate Venturing Analytics.
"They've had a phenomenal success rate," said GCVA editor-in-chief James Mawson. "They've had good performance, and they've been thoughtful about how they've set it up and who they've hired."
Sapphire specializes in enterprise technologies because that's what it knows best and can provide the most help. The 27-person team has offices in Palo Alto, Calif., and London and plans to expand to San Francisco, Berlin and possibly New York. It has $2.4-billion under management.
"We don't have a relationship with 3,000 consumers to convince them to download the next Snapchat, but we know enterprise customers – that's where our expertise is," Mr. Marakovic said.
Along with providing cash, Sapphire sometimes acts as an early customer to portfolio companies and introduces them to SAP customers and partners. Mr. Marakovic said although Sapphire has good relations with SAP's mergers and acquisitions group, the fund runs independently of the mothership's ambitions and has sold more portfolio companies to IBM and Oracle Corp. than to SAP. SAP has acquired Sapphire portfolio companies, including Right Hemisphere, whose 3-D design software lets engineers see materials and costs as they build on screen, and Virsa Systems, now part of SAP's risk and compliance software.
Said Mr. Marakovic: "We don't wear an SAP badge."
Still, with SAP as the sole investor in the fund, Mr. Marakovic and his team work with directors at the company's headquarters in Walldorf, Germany.
"We have a very close information relationship," said SAP chief financial officer Luka Mucic, who serves as Mr. Marakovic's conduit to SAP's board. The California investors also work closely with SAP's top product development executive and director Bernd Leukert.
Sapphire Ventures scouts about 1,000 potential deals a year and ends up investing in about 10, Mr. Mucic said.
"The starting point of the engagement is never the strategic interest of SAP," he said, but that can form over time. "We start thinking as they go ahead with their investment, 'We should flex our sensor system a bit to see what's going on in this space.'" SAP has built technology from portfolio companies into its products, resold it or worked on sales deals with startups. Sapphire invests in areas including cloud computing, mobile applications, data analysis, financial technology and industrial internet applications – all areas where SAP competes.
Sapphire has competition from other active corporate investors in technology. SAP rival Salesforce.com's venture group, which invests solely for strategic reasons, has participated in 134 deals totalling $8.4-billion from January, 2011, through August, 2016, compared with Sapphire's 85 deals totalling $3.4-billion, according to GCVA data.
Hits and Misses
And Sapphire, like all venture firms, has passed on opportunities to invest in early companies that ultimately became huge.
Mr. Marakovic said he passed on Twitter Inc. because he wasn't confident it could turn usage into revenue and passed on Twilio Inc. because he felt the valuation at the time was too high.
"The big plays often aren't obvious at the beginning," he said, adding Sapphire ultimately invested in LinkedIn Corp., which was acquired this year by Microsoft Corp., but at a later stage and at a much higher valuation than the initial pitch.
In part to avoid missing such future deals, SAP made investments in VC firms August Capital, Data Collective, Point Nine Capital and nine others in the United States, Europe and Israel. Mr. Marakovic said those firms benefit from SAP's business relationships and occasionally make introductions to Sapphire Ventures partners for potential direct investments, as was the case with Integral Ad Science and Looker Data Sciences.
"We have an arguably unfair first peek with a set of companies," Mr. Marakovic said. "I think we will take advantage of this more over the next 12 to 18 months."