Plattner's play

Hasso Plattner is an influential man. The co-founder and chairman of Walldorf, Germany-based software giant SAP is one of the most successful entrepreneurs his country has produced. Though based in California, Plattner spends a fair amount of his time back home, where he takes a keen interest in the country's current economic plight.

Plattner's conviction is that Germany must change its approach to technology if it is to recover its economic prowess of old. Specifically, he argues, more effective ways are required to commercialise the wealth of worldclass intellectual property that is still being created in Europe's largest economy.

Visit the website of Hasso Plattner Ventures (HPV), the investment platform Plattner set up in the autumn of 2005, and you will get a clear sense of what he believes is at stake. On a page titled “Challenge”, the site reads: “Germany currently suffers from an economic crisis that is due to cyclical as well as structural causes. This crisis can only be solved through innovations especially within the high technology sector. There is no lack of ideas in this country. However, what we need is more venture capital.

It's a special atmosphere, people are getting infected with the entrepreneurial disease

Eran Davidson

“Also, there is no sufficient supply of know-how and expertise in terms of a continuous coaching for founders. We therefore urgently need an infrastructure that not only boosts innovations at their beginning but also supports them along their entire way into the market and to the customer.”

HPV was established specifically to put in place part of the infrastructure that Plattner laments as missing.

With just €50 million of capital currently at the firm's disposal, the project's rationale may seem ambitious. However, if a number of successful technology businesses do emerge from it, a positive ripple effect is indeed likely – not least because Plattner's personal involvement has already added something of a halo effect to the venture and guarantees visibility going forward.

Plattner has staked a sizeable chunk of his personal fortune on HPV's success, having put up 80 percent of the fund's resources. Another key sponsor is CMEA Ventures, a San Francisco-based venture capital firm with $800 million under management. In addition to capital, CMEA is contributing due diligence expertise and detailed knowledge of the US technology scene to HPV's activities.

The firm, which is based in Potsdam near Berlin, also has a close relationship with InvestitionsBank des Landes Brandenburg (ILB), a state-owned investment bank also based in Potsdam with close contacts to business owners and entrepreneurs.

Running HPV's day-to-day activities is Eran Davidson, an Israeli venture capitalist who moved his family to Potsdam last year to head up the project.

Davidson says he signed up in part because he was attracted to working in an environment with untapped potential where, unlike in the US and Israel, competent VCs were not yet two a penny. The quality of the intellectual property coming out of German universities, research institutes and corporations was another important factor

“There clearly are challenges in Germany, but there are also big opportunities,” Davidson says. “It sounds pretentious, but what we are trying to do is to change the course of history of German entrepreneurialism.”

In explaining the challenges, Davidson mainly touches on cultural issues rather than tax or regulatory obstacles. “Germany is still a riskaverse society, which totally contradicts entrepreneurialism. We see it even in students, many of whom are seeking safe jobs. And the entrepreneurs also tend to think on a small scale and are content to operate within their nice and convenient local market.”

So far, HPV has completed four initial investments of approximately €1 million each in stakes of up to 30 percent in early stage software companies. Up to €4 million can be put into any one deal. None of the portfolio companies had any prior institutional backing but, thanks to various forms of public funding, had developed commercially viable technologies. Some of them were already generating revenues prior to HPV coming in, working with a number of customers in Germany.

According to Davidson, the all-important question facing these businesses now is, can they establish themselves in the global market: “We won't invest in businesses that are targeting Germany only.”

To help the investments grow, HPV provides advice and hands-on support in areas such as business development, marketing and financial management. The firm has set up two service companies to work with the portfolio. One specialises in software design; the other offers marketing services. The firm uses part of its management fee income to fund the service companies; it does not run them as profit centres in their own right.

Another area in which the portfolio companies are likely to benefit from HPV's involvement is recruitment. 500 metres from the firm's headquarters is the Hasso Plattner Institute for Software Systems Engineering (HPI), a part of Potsdam university with close links to industry and other academic institutions where currently 480 students are studying for a range of IT-related degrees. Says Davidson: “Some of HPI's students have joined our portfolio companies, others are setting up their own businesses. It's a special atmosphere, people are getting infected with the entrepreneurial disease.”

Closely involved in passing on the bug is Plattner himself. Says Davidson: “Hasso is larger than life, every hour with him a new idea comes up. In looking at any software programme, he has the ability to jump from micro- to macro-issues in seconds, very few people can do that. He's the most important investor in the fund and the spirit behind it.”

It is still early days for HPV. But given the protagonists involved, it is a project worth keeping an eye on.