SAP Ventures Sets Its Sights on a New Fund and Internal Expansion as It Balances Strategic and Financial Investing

SAP Ventures is not your typical corporate venture investor.

It views its parent company, SAP AG, as an LP rather than a corporate benefactor and raises funds instead of submitting budgets. Its six investing directors get carried interest, as they would if they were partners on Sand Hill Road.

More surprising, portfolio companies are almost as likely to be sold to competitor Oracle as to SAP. In the past six years, four SAP Ventures companies have merged with the mother ship, including Virsa Systems. Three have been snatched up by Oracle, says Managing Director Nino Marakovic.

It is no shock then that Marakovic emphasizes his organization’s independence as much as its strategic ties. One existential goal is to expose SAP to disruptive startups and technologies that could impact its business. Another is to bring in financial returns.

Marakovic said in an interview this week that he is already thinking of raising a new fund from his sole LP. SAP Ventures is half way though SAP Ventures Fund I, a $353 million fund it announced in January 2011. A similarly sized new fund is likely within 24 months, he says.

With it will come expansion. SAP Ventures is likely to add to its investment team this year and possibly again in 2013 and 2014. This could lead to positions in places such as India, where the organization doesn’t yet have an office.

Marakovic says returns have been good. The goal is to be a top quartile fund, and the organization is, he says. “But SAP is not in this for financial returns only,” he adds. “Part of my job is to provide a signal to SAP of what’s going on in the market.”

Because of this, SAP Ventures is largely focused on expansion and late stage investing with about 75% of its attention going to enterprise investments. “Late stage is a more natural fit.” Products are more developed.

About two-thirds of portfolio companies strike relationships with SAP AG. These take several forms. Some companies have co-development or co-marketing agreements. Some generate go-to-market arrangements involving the SAP sales force.

About 10% will win SAP as a customer, including, Marakovic hopes, Marin Software, which SAP Ventures supported as part of a $30 million financing this year. A few are acquired. Again, Marakovic has his fingers crossed for Marin.

He says SAP Ventures’ enterprise focus includes software as a service, cloud, mobility, big data and the consumerization of IT. In SaaS, Marakovic looks for best of breed companies, and one area of interest is online marketing, where he expects consolidation among tools makers. Marin is one investment in the space. OpenX is another. SAP participated in a $20 million funding last year.

Marakovic is quick to claim the risk-reward equation in venture could favor later stage bets. One could argue late stage deals are high priced now, but looking ahead at the emerging 10-year fund cycle, returns could favor later stage, he says.

Don’t expect valuations to remain as high as they currently are through the next 10 years, he adds.

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