- On Wednesday, Sapphire Ventures announced its fourth fund with $1.4 billion in commitments.
- The fund spun out of enterprise software giant SAP in 2011 as SAP Ventures but changed its name in 2014 to further distance itself from its corporate backer.
- Corporate venture capital has a reputation among founders as simply a pipeline for mergers and acquisitions for larger companies instead of building support, financially and otherwise, that traditional VCs offer.
- Sapphire Ventures managing director and CEO Nino Marakovic told Business Insider that the fund's structure is the "best of both worlds," although he had to build trust with founders early on who were skeptical of the corporate venture structure.
- As of Wednesday, the firm has backed hundreds of startups and been a part of 55 separate exits, including 21 public offerings, what Marakovic called a "proof point" that the firm is not just a pipeline for acquisitions.
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Corporate venture capital has gotten something of a reputation among Silicon Valley's elite founders.
Once an easy introduction to potential customers and thousands of users, the funds were quickly seen as a ruse for larger companies to snatch up smaller competitors with buckets of funding. Corporate venture fell out of favor, just like MySpace and hoverboards. Silicon Valley was over it.
Nino Marakovic saw the writing on the wall when he joined SAP to lead its own corporate venture initiative in 2006 as CEO and managing director.
"Corporate venture has a tainted history, and that didn't resonate as much with others as it did for us," Marakovic told Business Insider.
Now, more than a decade later, Marakovic oversees Sapphire Ventures, the result of his crucial decision to spin out of SAP in 2011. On Wednesday, the firm announced its fourth fund as an independent venture firm with more than $1.4 billion in commitments - from SAP and outside investors - to invest in everything from enterprise software to music and sports, Marakovic said.
"There was always this idea that we created this new thing as the industry was changing," Marakovic said. "It's the best of both worlds. You have the best of operating structure but also the value add and presence of a large, multinational corporation in SAP."
Out from under the corporate shadow
Marakovic said a wholly separate fund wasn't an easy sell inside or outside the company in its earliest days, but he eventually convinced leadership to let him lead SAP Ventures in 2011.
"We spun out because we wanted to be structured to succeed and build a sustainable business that keeps partners engaged and interested," Marakovic said. But the fund's name was still off-putting to many entrepreneurs that he wanted to fund, he said.
"We are no means the first fund to have our origins in a corporation. That shouldn't be surprising. Corporations are playing a much bigger role in venture capital and those ecosystems have always been related. That said, we were not a corporate venture capital fund," Marakovic explained.
By 2014, Marakovic needed a new name. The team settled on Sapphire Ventures, still a wink and a nod to the firm's substantial backer but different enough to convince entrepreneurs that they wouldn't be wheeled into a preexisting pipeline of acquisitions.
As of Wednesday, the firm has backed hundreds of startups and been a part of 55 separate exits, including 21 public offerings.
"We needed those proof points to put up on the board," Marakovic said.
Working for market share instead of buying it
The new fund will adhere to what Marakovic says is a tried and true strategy for Sapphire Ventures. Instead of backing a specific kind of founder or focusing entirely on a single industry, the firm backs everything from enterprise software to music startups that are what he calls "companies of consequence." Those are the companies that typically have the pick of investors, some of which can promise hundreds of millions of dollars in funding.
"There are still some mega rounds that we will not want to participate in because of the valuation or maturity of the company," Marakovic said. "You look at the current events unfolding, there's this idea that you can just king winners with tons of capital and that doesn't work."
The fund will continue to focus on writing growth-stage checks, typically between Series B and Series D, of up to $100 million.
"Our size is conditioned upon targeting returns," Marakovic said. "Anyone can go out there and have crappy returns to buy market share, but that's not the way to do it. We called that long-term greedy. We have earned the right to earn capital for our LPs."