The Take: With Tighter Purses, VCs Look Kindly on Startups with Customers

What’s News

The days of easy money for startups are waning. In the first quarter of this year, investor funding commitments were down 19% from the prior quarter, the largest percentage decline in nearly eight years, according to analytics firm CB Insights.

Inflation and rising interest rates have made money more expensive. Investors are telling startups to reduce spending to ensure that they can survive if they cannot raise more money over the next two years. That has led many in the tech space to lay off employees or reduce non-essential spending.

SAP’s Take

With the focus now on producing real business value, programs that offer immediate access to customers are more desirable to startups that need to succeed. The SAP.iO program helps new, innovative business-to-business (B2B) companies scale and grow. With access to customers and the ability to scale, startups can be more confident in securing their next round of funding.

These B2B workhorse startups are less likely to ever capture the attention of the consumer. But their ambitions are similar: to become big and successfully build better products to help their customers thrive.

“Startups are seeing the value of working with SAP,” said Alexa Gorman, senior vice president of SAP.iO, “because of the access to our customer base that we’re able to give them globally and different markets across all industries.”

Most of the participating startups are headed by founders that have deep industry expertise and have decided to make a leap out of the corporate world and launch something based on their experiences.

“What I’ve seen are VCs [venture capitalists] that are not willing to take huge bets on an unproven new way to solve the challenge that businesses are facing today,” Gorman said. “A lot of companies are being founded with customers or with a target list of potential customers before they even launch.”

SAP.iO selects startups that already have seed funding, with the sweet spot having received Series A or Series B funds. They usually have their first corporate customers, a team in place, “and they’re ready to scale, and that’s where we can help them,” Gorman said.

“They fit where we see customer demand for solutions that we don’t necessarily have in our portfolio,” Gorman explained. “So, the companies that we work with are going to be future SAP partners.”

The program typically runs from six to eight weeks and offers these young companies mentoring, technical resources, and access to large potential customers. It’s a fast track to becoming an SAP partner, not only by live introduction but also through the SAP Store and its much larger SAP customer base. The program ends with a Demo Day, during which each member of the cohort presents itself to VCs.

Many SAP customers have participated in the program by helping to select the startup participants. With corporate customers participating from start to finish, the SAP.iO program startups have been successful. In the five years that the program has been in place, only three percent of the startups have gone out of business.

Ilaina Jonas, Senior Director of Global Media Relations, SAP
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