One of the bigger news items this week was the announcement of the NetWeaver fund. This story was initially broken by Matt Marshall at Silicon Beat, to which I responded with some questions I wanted answers to:
A lot of questions comes to mind. If one of the driving components of the $100mm fund is to foster increased investment by other VCs in NetWeaver-related technologies and service offerings, why base the business in Newtown Square? Where does that leave SAP Ventures? Does the non-traditional structure and PA location imply Shai Agassi or one of his team wants to handle this effort personally?
The fund was officially announced at Sapphire and, as I promised, one of my tasks was to track down the answers to my questions and dig a little deeper. Along the way, I also got the chance to get a better understanding of the current SAP Ventures initiatives and how they will compliment the new fund.
- Who is running the NetWeaver fund? -- The NetWeaver fund is being run Zia Yusuf, EVP of the Platform Ecosystem, and Werner Brandt, CFO and member of the Executive Board; with significant input from Shai Agassi.
- What role will SAP Ventures have in the new fund? -- Lisa Reeves and the SAP Ventures team won't be actively involved in the fund but I did get the sense that Lisa and her team were open to collaborating. I hope that's the reality as it would be foolish to completely demarcate the two entities given the deep domain expertise of the SAP Ventures team. In point of fact, the Virsa deal (a SAP Ventures company that was acquired by SAP) was highlighted by the executive team as the blueprint for NetWeaver fund deals.
- Why isn't the NetWeaver fund part of SAP Ventures? -- The simplest answer is focus. SAP wants to foster growth in the ISV community building on NetWeaver. Although I couldn't get any of the parties involved to come out and admit it, I frankly view this fund as a potential feeder stream for SAP M&A as they look to fill in white space as NetWeaver/ESA evolves. Every deal the NetWeaver fund invests in will have an SAP-centric goal in mind; that differs from SAP Ventures.
- So, you're saying SAP Ventures isn't mandated to do "SAP friendly" deals? -- Absolutely not. Having known plenty of captive venture firms, SAP Ventures has always been somewhat unique in that Ventures doesn't have a corporate mandate that guides their deals. Lisa Reeves, who was kind enough to carve out some time for me yesterday, pointed to Ping Identity and Red Hat as deals that didn't have a ton of obvious synergy with SAP at the time of the investments, but have both turned out to be worthwhile decisions.
- Does the NetWeaver fund differ in other ways from SAP Ventures? -- Yes, SAP Ventures does not lead investments, but participates alongside other VCs. They also do not sit on their portfolio companies' boards formally [although they do play active roles as observers, as I can attest from conversations with several Venture-backed company executives this week]. NetWeaver will lead rounds potentially, and are earmarking investments of "up to $5mm" which is larger than the $2-$3mm investments SAP Ventures typically makes.
Other thoughts from my Ventures and NetWeaver discussions:
1) SAP Ventures is looking abroad for innovation, in new markets like India. Lisa Reeves is just one of many VCs I've talked to who espouse the broad opportunities and innovation taking place in India right now. Lisa painted a picture of energetic, focused startups generating $4-$5mm in revenues PROFITABLY out of the gates. She also pointed to India's importance to SAP, as it's the 3rd largest developer community within SAP (behind the U.S. and Germany). Vinnie Mirchandani has also taken several trips there in recent months and he echoed Lisa's enthusiasm. Both contend there's a tireless work ethic pervasive there that, sadly, is no longer indicative of American corporate culture on the whole.
2) As an investor, I have no issues with the $125mm fund, particularly if it helps drive more ISVs for NetWeaver. But the strategy was not without its skeptics, two criticisms in particular are worth exploring further.
*** One software vendor, who has had difficulties becoming a full-fledged partner with SAP, suggested that the company would be better served allocating a portion of that $125mm on streamlining the partnership process. Although SAP appears to be much better at partnering than it was five years ago (and the Certified NetWeaver program is bearing fruit), in a platform-centric world we're moving too, SAP should leave no stone unturned relative to improving partner relations.
*** During the press and analyst briefing, someone asked (paraphrasing), "If SAP already has 400+ ISVs building on NetWeaver, why does it need a VC fund to stimulate the market?" My take on this issue is...because 400+ isn't enough. Undoubtedly there are going to be processes and component innovations that can't be solved within SAP directly and better to create a financial ecosystem to help foster those developments to potentially create a platform-lockin of good talent.
All in all, I think both venture arms can have success. The notion that they will compete against one another seems odd given how often VCs collaborate in every deal. If SAP Ventures and the NetWeaver fund maintain their focus, never the twain shall meet most likely.
Note: At the time of this writing, I/and or funds I maintain discretionary control over, maintained a long equity position in SAP.
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