Enterprise software giant SAP has made a significant bet on artificial intelligence with the acquisition of Prior Labs, a German startup founded just 18 months ago. The deal, announced on Monday pending regulatory approval, includes a planned investment of €1 billion (approximately $1.16 billion) over four years to turn the startup into a dedicated AI lab focused on structured data — the tables and databases that underpin enterprise operations.
While SAP did not disclose the exact acquisition price, sources familiar with the matter told Pathfounders that the deal is a healthy exit, primarily in cash, with well over half a billion dollars paid upfront to the founders Frank Hutter, Noah Hollmann, and Sauraj Gambhir. The trio launched Prior Labs in early 2025 with a mission to develop tabular foundation models (TFMs) — AI models specifically designed to make predictions from data stored in tables and databases. This approach is seen as a more natural fit for enterprise needs than large language models, which often struggle with structured, relational data.
Why SAP Needs Prior Labs
SAP's core software products — used for accounting, human resources, procurement, and expense management — rely heavily on database-driven data. The company has long recognized that the greatest untapped opportunity in enterprise AI lies not in mimicking human language, but in understanding the structured data that powers business processes. SAP CTO Philipp Herzig stated that the company had already developed its own foundational model, SAP-RPT-1, a relational pretrained transformer, but the acquisition of Prior Labs provides a significant shortcut to advanced TFM capabilities.
The move comes at a time when SAP's stock has experienced a notable decline in 2026, partly due to the so-called 'SaaSpocalypse' — a market shift that has pressured many software-as-a-service companies. CFO Dominik Asam noted in January that the key is how quickly SAP can integrate these technologies into its R&D portfolio to maintain economies of scale advantage. The acquisition is a direct response to both competitive pressures and the rapid evolution of agentic AI, where autonomous software agents interact with enterprise systems.
Prior Labs Technology and Traction
Prior Labs' TabPFN model series has gained substantial traction among developers. The startup's open-source models have been downloaded over three million times, reflecting strong demand for AI that can handle tabular data. The models are designed to be efficient and accurate, often outperforming traditional machine learning techniques on small to medium-sized datasets. This makes them particularly valuable for enterprises that have vast amounts of structured data but lack the resources to train large deep learning models.
The founders expressed enthusiasm about the deal, noting that SAP has committed to maintaining the open-source versions of their models. In a press release, SAP promised that Prior Labs will operate as an independent unit to preserve research velocity, while benefitting from SAP's long-term investment and direct pathway to productization through SAP AI Core, SAP Business Data Cloud, and the agentic layer called Joule. The goal is to create TFMs that can not only grab data from tables, but also combine it with natural language reasoning and domain-specific knowledge.
Agentic AI and SAP's Strict Policies
While SAP invests in its own AI capabilities, it is simultaneously taking a defensive stance on agentic AI. The company has updated its API policy to explicitly prohibit AI agents from accessing its products through its APIs unless they are part of 'SAP-endorsed architectures.' This includes its own Joule Agents, still in beta, which allow customers to create custom agents. Additionally, Nvidia announced in March that SAP's Joule supports Nvidia's Agent Toolkit, enabling the deployment of OpenClaw agents via NemoClaw — a security-focused method. Therefore, NemoClaw agents are authorized, while other agent technologies like OpenClaw are blocked.
This approach contrasts sharply with that of Salesforce, another incumbent affected by the SaaSpocalypse. Salesforce has adopted a more open strategy with its Headless 360 architecture, allowing enterprises to choose their own agents, including OpenClaw. SAP's stricter policy reflects its desire to control the ecosystem and ensure security and reliability, but it also risks alienating customers who prefer flexibility.
Prior Labs in Context of SAP's Broader AI Strategy
SAP has not been idle in the AI race. In 2023, the company backed OpenAI rival Anthropic, as well as European AI startups Aleph Alpha and Cohere, which have since announced plans to merge into a 'global AI powerhouse.' These investments were primarily focused on large language models, but the acquisition of Prior Labs signals a pivot toward more practical, data-centric AI. The move also positions SAP against competitors like Microsoft and Snowflake, which are also investing in AI for structured data.
The startup itself had raised approximately $9.3 million in a pre-seed round in February 2025 led by Balderton Capital. This was more than competitor Neuralk-AI but far less than Fundamental, which emerged from stealth with a $255 million Series A in the same month. Balderton partner James Wise called the acquisition 'one of Germany's biggest ever venture outcomes.' SAP's stock has ticked slightly upward following the announcement, suggesting investor approval.
The Prior Labs acquisition is also a strategic coup for Germany's tech ecosystem. Founder Frank Hutter celebrated the deal on social media, expressing hope that Prior Labs can become a 'globally-leading frontier AI lab for structured data — in Europe, in the open.' The lab will remain in Freiburg, Germany, and continue to release open-source models, potentially attracting more talent and investment to the region.
As enterprises increasingly seek AI that can understand their existing data without requiring massive migrations or retraining, tabular foundation models offer a compelling solution. SAP's $1.16 billion bet on Prior Labs could reshape how businesses interact with their data, moving beyond traditional business intelligence toward predictive analytics driven by specialized AI. The coming months will reveal how quickly SAP can integrate Prior Labs' technology into its products and whether its restrictive agent policy becomes a competitive advantage or a hindrance.
Source: TechCrunch News