SAP Ventures to invest 15-20% of corpus in Indian companies

SAP Ventures, an independent venture capital (VC) fund affiliated to global technology firm SAP, is planning to invest 15-20 per cent of its corpus in India.

SAP Ventures had formed its first fund with a corpus of $353 million to fund technology companies in 2011. The German software firm formed its venture arm in 1996, and used to fund technology companies from its balance sheet till 2011.

“The fund is in the deployment stage and we intend to deploy 15-20 per cent of the capital in India. Our goal is to generate superior financial returns, and our corporate partners also benefit from the exposure to innovative and disruptive companies and trends,” Jai Das, managing director of SAP Ventures, told Business Standard.

SAP Ventures has invested in four companies in India — iYogi; One 97Communication; Just Dial and NewGen. The company's investment in India accounts for 15 per cent of the total deployed capital of the core fund, which it started deploying last year.

The company invests in the range of $5 million to $15 million in companies that are in the mid and late stage with a revenue of around $10 million. So far, it has invested in about 100 companies across five continents, the majority of these being in the US.

The VC fund is planning to deploy the entire corpus of $353 million over three years. However, the company feels the various regulations proposed by the Indian government, including the General Anti-Avoidance Rule (GAAR), might impact the pace of its investment plans in the country.

The government, in the proposed Direct Taxes Code, seeks to address the issues relating to tax avoidance and evasion through GAAR in addition to various transaction-specific special anti-avoidance provisions.

“With the proposed tax regulation and GAAR (now deferred by a year), we doubt we can invest more in India,” added Das.

SAP Ventures, which was planning to set up office in India, has decided to put its plan on hold for now. “We were planning to open an office here. But now, because of the regulatory issues and risks from the regulatory issues and /risks that are developing, we are having thoughts. We are a global fund, and instead of making investments in India despite the regulatory challenges, I can invest in some other country,” he added.

According to experts, many VC funds are waiting to see how the regulatory issues pan out and how these will be implemented.

They are trying to understand the ramifications before going full stream with their India investment plans.

Apart from the core fund of $353 million, SAP Ventures has raised $155 million to foster and support an ecosystem of entrepreneurs and investors focused on the development of real-time applications. The new fund is focused on early and seed-stage investments.

“We are adopting a new strategy in the new fund, which is a fund of funds, wherein we will invest in other funds that invest in early and seed-stage companies,” added Das. The company is in talks with a couple of India-focused small and seed-stage funds to invest in them.

About the company’s exit plans from India, Das said, “One of our portfolio companies, Just Dial, has filed for an IPO. Our time horizon for an exit is typically four to five years. Since we invest in late stage companies, we look at 4x to 5x returns.”