“Raising $1bn is never easy.”
And so Germany-based software provider SAP’s decision to commit $651m to its affiliated corporate venturing unit’s second direct investment fund, on top of $405m to SAP Ventures’ fund of venture capital funds earlier this year is worth looking at as this week’s Big Deal analysis.
The obvious answer to why SAP has committed so much is that after 16 years’ dealmaking, its corporate venturing has delivered “top quartile” returns, according to Nino Marakovic chief executive of SAP Ventures.
While these returns are unlikely to be much more than a rounding error for a company with a record $21.8bn in annual revenues and nearly $3.5bn in short-term and cash assets on its books at the end of last year, it is still useful to show positive financial return on investment when asking for more money to manage.
Founded in 1997, SAP Ventures has invested in more than 125 companies across five continents but set up its first dedicated fund of $353m in 2011, whose portfolio has primarily been in the US and has included LinkedIn, Endeca, OpenX, DocuSign, Fitbit and Box.
In what Marakovic said had been a “dramatic year for us”, SAP Ventures is planning its 13th exit event this calendar year with the planned flotation of France-based Criteo on the Nasdaq stock exchange.
Five of SAP Ventures’ other portfolio companies have completed their initial public offerings this year, including Criteo’s advertising technology peers Marin Software and Tremor Video, Control4, Just Dial and Violin Memory.
Seven of its portfolio companies were acquired: Aepona, Apriso, Datria, ExactTarget, Ignite, ScaleIO and Voxeo.
Described on LinkedIn by those who have worked with him, Marakovic is regarded as “contemplative and serious” and able to “anticipate trends to target companies with the potential to maximize returns”.
Switching from investment banking in the 1990s to venture capital in 2000 to corporate venturing in 2006 was certainly prescient for Marakovic and others in his team and has been rewarded by strong commitment from SAP as well as spectacular views from SAP Ventures’ office in Palo Alto hills overlooking the NASA space centre.
But unlike most corporate venturing units that seem unaware or unable to use the power of marketing and communication to drive internal support and external dealflow, SAP Ventures seems to have taken the lessons of the good entrepreneurial VCs and investment bankers to heart.
As every employee and vice-president at an investment bank quickly realises, let alone VCs who start raising their next fund the moment the last one closes, you are there to sell and most have crib sheets for what to say to remain on-message and close a deal or commitment.
SAP Ventures has honed its marketing messages over the past few years to a handful of key phrases, such as corporate venturing adds another “arrow” (meaning strategic and value-added support to entrepreneurs) to the “quiver” beyond cash and its global reach through its partners in Europe and China and SAP’s offices around the world as “innovation can happen anywhere”.
Marakovic’s quotes include: “We represent a new breed of venture capital fund. VCs that raise money from people with no added-value is antiquated. We are in a unique position of being independent and yet having unparalleled access to one of the world’s largest global ecosystems of enterprise customers and partners.
“As a result, we help entrepreneurs tap into proven approaches for customer acquisition and international expansion, such as helping ExactTarget and DocuSign go into Europe and LinkedIn in India. They get the best of both worlds — an unmatched mix of independent funding and the relationships of an enterprise powerhouse.”
Silicon Valley-based VCs are currently spending time and money hiring journalists to create content to push out on social media but most corporate venturing units appear wedded to a former idea that VCs don’t need to communicate but have to retain a mystique, even while top-performing Sequoia sponsors TechCrunch’s Disrupt conference to create a platform for its partners to talk to hundreds of entrepreneurs directly and thousands more in press articles.
As the power of AngelList’s venture syndicate tool becomes clear for how it is likely to disrupt venture investing, by creating each ability for individual followers of top dealmakers to invest alongside them in deals, the reputation of star people at firms is becoming critical and Google Ventures’ Kevin Rose has topped AngelList’s syndicate list with 325 backers who have committed capacity of $1,446,000 to support his investments.
In the battle for hearts and minds, corporate venturers still split into two camps: – one side nit-picking over whether X or Y counts as a “true” corporate venture because their money and investment on their parent’s behalf is “different” from another’s cash (as more than one said in New York last month) and those that understand the future is about communicating effectively what you have achieved, what you want to do and how you add value to the world.
SAP has chosen the latter approach and the results are there for all to see.