Ask any current HBS student with a background or interest in venture capital this simple question: “What is the best-performing venture capital fund in the world?”
Likely answers include Sequoia, Accel, NEA, Greylock or Andreessen Horowitz – each a smart pick. Yet, a quick look at CB Insights’ list of the top VC funds with the most exits in the last three years will show one firm right near the top that you likely have not heard of: Sapphire Ventures.
Elizabeth “Beezer” Clarkson: Managing Sapphire’s Fund Investments
For Elizabeth “Beezer” Clarkson (HBS MBA Class of 2000), a Managing Director at Sapphire Ventures and recurring visitor to HBS, this quiet but successful approach is just fine. Clarkson helps lead Sapphire’s fund investments internationally as well as their indirect venture investments, a relatively unique branch for a VC growth fund.
“It’s not every day that a growth fund launches a separate vehicle to invest in venture funds,” Clarkson says. “That’s precisely what happened four years ago. Sapphire Ventures, which at the time only managed a growth fund, raised and launched a separate vehicle focused on investing in early-stage venture funds. That’s when I joined, to run this vehicle.”
Today, Beezer leads Sapphire Ventures’ investment activities focused on investing in early-stage venture firms in the U.S., Europe and Israel, including August Capital, Amplify Partners and Data Collective.
Why is Sapphire so relatively unknown?
Perhaps it’s because the firm was founded in 1996 as SAP Ventures—the corporate venture arm of the German-based enterprise software and database technology giant. Sapphire became independent of SAP in 2011 – even while SAP remains its only limited partner – and rebranded as Sapphire Ventures in 2014. Despite having invested in roughly 130 companies resulting in over $30 billion in exits, Sapphire’s performance is not common knowledge.
For Beezer and other recent Harvard MBAs who have joined Sapphire, helping manage a strong, unique, under-the-radar firm is very appealing.
7 IPOs for Sapphire in 2014-15
Led by eight Managing Directors, including Beezer, Sapphire’s unique approach has paid off. The firm has leveraged its direct/indirect investments and SAP roots to become a juggernaut in the enterprise technology sector. Coming off a down year for tech IPOs in 2015, the firm still emerged with seven recent portfolio IPOs including Box (2015), Apigee (2015), Five9 (2014), OnDeck Capital (2014) and Imprivata (2014), among others. Another of their portfolio companies, Nutanix, recently filed for a potential 2016 IPO.
In the early 2013-to-mid-2015 period, of the top 100 venture capital exits, Sapphire invested in 10 of them. For a mid-stage VC fund (B-round investments or later) that’s considerably smaller than its top-ranked counterparts (with less than $1.5 billion under management), this performance is eyebrow-raising. Their no-nonsense approach is clearly paying off.
“Building a massive marketing machine just isn’t in our DNA or aligned with the type of firm we’re seeking to build,” says Nino Marakovic, Sapphire’s CEO and Managing Director. “We are intensely focused on our investments and driving results.”
Tom Chavez, CEO of Sapphire portfolio company, Krux, and a Harvard alum explains: “Nino and Sapphire are super-astute, no-nonsense, no-BS investors who don’t get caught up on matters of ideology or conventional wisdom,” says Chavez. “They help me and my management group in much more substantive ways.”
Rajeev Dham and Max Wessel: Helping Sapphire Companies Disrupt Their Way to the Top
For Rajeev Dham, a Sapphire Vice President and Harvard MBA Class of 2013, market disruption is what really stands out about the investments he’s helped Sapphire make.
“Every investment I’ve made has been a market-disruptor,” says Dham. “My first investment was Nutanix, one of the fastest-growing technology infrastructure companies of all time. Others include companies like Localytics, Krux and Qubit, which are at the forefront of providing one-to-one visibility into consumers across channels in order to improve their overall customer experience.”
Clarkson and Dham are joined at Sapphire by Max Wessel (HBS MBA Class of 2011), a Vice President on Sapphire’s Marketing Development team. Wessel joined Sapphire from SAP, where he served as VP of Innovation Strategy. He previously served as a senior fellow at The Forum for Growth and Innovation, Professor Clayton Christensen’s HBS think-tank, and continues to write today for numerous publications, including The Harvard Business Review.
In fact, one of Wessel’s notable articles was a 2012 HBR piece he co-authored with Christensen entitled Surviving Disruption, which features points and conclusions that are as salient as ever in 2016 for him and his HBS colleagues at Sapphire.
Dham summarizes the Sapphire investment approach: “We tend to aim pretty high with companies that are taking on or re-shaping huge
markets with the teams to execute on these opportunities.”
Wessel, Dham and Clarkson are quite pleased though not surprised with Sapphire’s success in recent years.
“Thankfully, the primary reasons I originally joined Sapphire – the focus on later stage and the high caliber of individuals – have proven out,” Dham says.
Keys to Sapphire’s Under-the-Radar Success
Of the 1,000+ VC and growth funds, how is it that Sapphire has found its way right at the head of the pack of top-performers?
HBS Professor and VC expert Paul Gompers provides a clue. In his extensive writings about the benefits of specialization in venture capital, he states, “Increasing firm specialization enhances firm performance.” Gompers explains one reason for this is related to the firm’s ability to better exploit the timing of intra-sector shifts and market segment changes.
This point is quite relevant to Sapphire’s success. While VC specialization is not unique to Sapphire, the firm has excelled in its unique ability to recognize and capitalize on key enterprise dynamics. Marakovic and Clarkson point to three enterprise market developments it has focused on as examples, including: Consumerization of IT (e.g., LinkedIn, Square, Localytics), Horizontal/Vertical SaaS (e.g., Docusign, ExactTarget, Five9, Socrata, IEX) and Business Intelligence/Analytics (e.g., Looker, Alteryx, Jaspersoft).
While Sapphire continues to push forward with new investments – including most recently with Livongo Health – Clarkson reflects on how her HBS experience shaped her current success with Sapphire.
“I was fortunate enough to have Dean Noria (then Professor Noria) as my LEAD professor and Professor Frei as my TOM professor,” Clarkson says. “From them, I learned nuances of leadership and decision-making as well as the power of logical thinking and operational efficacy. These are lessons I leverage every day as investor.”
Indeed, as Sapphire’s deal flow continues to expand along with the firm’s reputation for success, Clarkson, Dham and Wessel seem to be applying these lessons quite effectively.
Philip Levinson is an HKS alum and a Venture Advisor to Learn Capital. He has been a contributor to The Harbus since 2011, profiling a number of successful HBS-founded high-tech companies, including CloudFlare, Rent the Runway and ThredUp.
Established in 1937, The Harbus News Corporation is the independent student news publisher of Harvard Business School.