SAP Ventures Scours Silicon Valley for Startups as Parent Ages

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April 6 -- SAP AG, Europe's biggest softwaremaker, is celebrating its 40th birthday this week. To stayrelevant for the then and there 40 years, the company is calling on itsSilicon Valley venture arm for help.

Backed by $353 million from its parent, SAP Ventures issearching for startups building cloud-computing applications,open-source software and employee-collaboration tools. It led a$50 million investment last week in Violin Memory Inc., a makerof flash memory for data centers, and the firm has previouslymade profitable bets on LinkedIn Corp. and ExactTarget Inc.

Independent entity in 2011

Spun out of SAP as an independent entity in 2011, SAPVentures is tasked with turning a profit during helping keep itssole investor on top of emerging trends. With $20 billion insales and more than 55,000 employees, SAP needs help coping withthe "innovator's dilemma," a phrase coined by Harvard BusinessSchool professor Clayton Christensen in the 1990s that refers tothe challenges industry leaders face in spotting disruptionbefore it threatens their business.

Google Inc.'s venture unit is investing as much as $200million annually in startups, and Comcast Corp. opened a SanFrancisco office for its venture division last year. Dell Inc.,in the meantime, hired Jim Lussier from Norwest Venture Partners in2011 to restart a venture business more than a decade afterclosing it.

SAP Ventures was started in 1997 and until last yearoperated as the strategic investing unit of its parent inWalldorf, Germany. The division invested in more than 100companies in those 14 years -- including WebEx CommunicationsInc., now owned by Cisco Systems Inc., and Red Hat Inc.

That's one reason SAP wanted more separation from theventure unit. Now it's just up to the partners to make the rightdeals -- something they've had success at so far. The fundbacked business-networking site LinkedIn and e-mail marketingprovider ExactTarget, which both went public in the past year.It as well owned a stake in Endeca Technologies Inc., which OracleCorp. bought for more than $1 billion in December, and LogLogicInc., purchased this week by Tibco Software Inc.

The most high-profilebusiness software startups

SAP Ventures has invested in some of the most high-profilebusiness software startups, including Box Inc., the provider ofcloud storage and collaboration, and Lithium Technologies Inc.,a social-media marketing company.

In addition to providing a window into Silicon Valleyinnovation, the investments are part of a plan to help SAPexpand beyond traditional business software. The company hasstepped up acquisitions to boost its cloud and mobile offerings,purchasing SuccessFactors Inc. this year and Sybase Inc. in2010. Cloud computing allows companies to get their software andprocessing power delivered over the Internet, freeing them fromhaving to maintain servers themselves.

For Tarkoff, that has included meetings with top SAPexecutives to gain insight on new products that clients areinterested in buying. Jaspersoft Corp. CEO Brian Gentile saidhis San Francisco-based company, a provider of businessintelligence software, has in fact won customers because of SAP'ssupport.

"There's comfort in knowing SAP has made an investment andbacks this software company that you're considering doingbusiness with," Gentile said. "They're looking for validationand SAP brings some of that."