Kreos Insights

Kreos V Growth Debt Fund Launched

By 22/02/2016June 4th, 2021No Comments

Kreos has been providing debt for growth companies in Europe and Israel since 1998, deploying over €1.4bn in more than 400 transactions, and today we cover the full range of growth situations. Our latest €400m Kreos V Growth Debt fund is continuing this journey and reinforcing our commitment to the European and Israeli growth ecosystem.

Kreos V is backed 100% by equity from global top-tier institutions with a long-term perspective, which gives us the ability to act as a flexible and stable financing partner through all stages of a company’s development and across the whole range of the macroeconomic cycle.

We expect to invest approximately €150-200m per annum from Kreos V in an estimated 100 companies over the coming years. Kreos V was significantly oversubscribed and is the largest growth debt fund in Europe and Israel and also one of the larger growth capital funds dedicated to this region. Kreos V has already closed its first commitments to several high-growth companies in Europe and Israel.

Kreos growth debt is a complementary financing to equity and it is an additional tool for both management teams and equity investors to optimise the capital structure and the value creation of a growth company. Fundamentally, Kreos debt is less dilutive than equity but it also comes with the benefit of not setting a valuation of the company, while providing more expansion capital, together with the equity, for further growth.

Kreos growth debt can be successfully deployed right from early-stage companies – before profitability – through to later-stage growth companies with more than €200m in revenues. A typical transaction can be a €5-10m commitment to a company with €15-50m of revenues, but Kreos also frequently deploys larger ticket sizes (typically up to €30m) in later stages as well as working with more entry-level financings, where we try to be a long-term partner that can scale the financing structure as a company grows.

Kreos debt can be used in many ways throughout a company’s life cycle. For example, as well as working capital/expansion capital (often used to reach an inflection point in valuation without having to raise external equity financing, which would typically also require setting new valuations, resetting exit horizons, and bringing on new board members), Kreos supports acquisitions or roll-up strategies, refinancing of existing debt, as well as pre-IPO or pre-M&A financing, and even post-IPO financings.

Throughout the last 18 years, Kreos has continuously operated in 15 jurisdictions. In addition to our operational base in the UK, we also have local offices in important markets such as Israel and Northern Europe. Every country we invest in offers its own opportunities and challenges and over the years we have cemented relationships and tested systems in each local market to make sure we operate most efficiently according to the specific local market structure. Even if growth companies are founded/headquartered in a certain country, they are by definition very international: they sell their products and services globally, they have assets and employees in several jurisdictions, and they are normally not dependent on a single market. It is therefore important for Kreos to master many local markets with an international platform in order to serve these kinds of companies optimally.

At Kreos, we focus on both consumer and business markets across multiple industries including Services, Software, Internet, Mobile, Fintech, Retail, Hardware, Communications and Life science companies. Like any growth investor, Kreos is looking for world-class management teams and scalable business models with strong unit economics and/or technology. Kreos also values our long-term relationships with equity funds highly, and we provide our financing alongside a network of investors across Europe and Israel who we have worked with and known well for many years.

Kreos believes that each situation and company is unique and we provide tailored, risk-based financing. Kreos growth debt is complementary to equity and less dilutive for management teams and investors. At the same time, since companies that prioritise fast growth typically do not have a track record of steady profits, they recognise that they are not in the market for traditional bank lending and need a more bespoke product with greater flexibility and therefore also different pricing. Exit-driven return components are both a part of Kreos’s risk-based pricing and support our ability to offer debt financing without financial covenants or other constraints that could limit the effectiveness of the financing and/or the growth of a company. Another very important effect is that they align us with the management team and equity investors in a common desire for value creation, and also allow Kreos to work closely with the companies both in good times and when there are more challenges.

Such a dynamic approach to risk might not be possible for a regulated bank, or for leveraged funds which have their own financial covenants to worry about, or for investment vehicles or hedge funds that don’t have a long-term committed capital base and need to act on investor redemptions and sentiment. For a growth company and its equity investors, the journey from growth stage to exit is not normally in a straight line, and it is extremely valuable to be able to count on the flexibility and longevity of a debt provider and not to have to worry about the stability of its capital structure.

With the launch of Kreos V, we are looking forward to continuing to work with all our valuable business partners and management teams for the years ahead.