Kreos Insights February 12 2019

Looking back, looking forward

Mårten Vading looks back on the last 20 years of Kreos within the European and Israeli growth ecosystem. We have reached the 20-year anniversary of Kreos Capital – what a fantastic journey we have been fortunate to experience together with the European Growth ecosystem! When we launched in 1998 (the same year as Google was incorporated) there weren’t any debt solutions for life science and technology oriented growth businesses in Europe. In fact, the whole growth capital industry was still in its early phases. We were pioneering, educating and building the growth debt market as entrepreneurs ourselves. There were many lessons learnt and slowly the entire ecosystem of growth companies and investors has reached significant scale. Today, innovation, technology and growth is not only a niche segment. It is a reality for all industries as we are transforming business models and the society we live in. We funded our first company, Inside Secure in France, in Q4 1998. It was a €1m asset backed lease/loan structure and the company had hardly any revenues. Today, Inside is publicly listed. Similarly, Kreos has grown as a fund and currently deploys some €250-300m per annum, addressing growth companies in all stages, industries and geographies in Europe and Israel with a suite of products. Most of our capital is addressing mid and late stage growth where we provide €10-50m+ facilities to companies with double and triple digit revenues but we also help companies in earlier phases, where we provide smaller facilities to businesses with single digit million revenues. We did our first healthcare deal in early 2000 and today we invest significant amounts into this sector and it currently totals almost one third of our portfolio. It has not been an uninterrupted journey for the European and Israeli growth industry over 20 years even though the overall direction has been strong and consistent. It started with the Telecoms, IT and Internet revolution in the second half of the 90’s, which cumulated in the early 00’s market frenzy, where almost every business with a “.com” name has its valuation was raised to the skies, companies such as Ericsson and Nokia dominated their respective markets, internet consultants were valued at €3-4m per head (yes, the number of employees was the valuation metric!) and electro-optical component companies were priceless. It all burst in the IT and telecoms crash and 2001-2003 were very “cold” years for the industry. This short cycle was the “early adoption” learning phase of the European growth ecosystem. It was an isolated event, specific to IT and telecoms. At Kreos, we continued to support and finance growth companies during these challenging years, accumulating experience and iterating our model to evolve into the next phase and in 2004 (the same year as Google IPO’d and Facebook was founded) we raised Kreos II. In the next stage, we experienced more solid business models and technologies that better matched the underlying demand. Still, the average company we funded had only single digit million revenues. Many models were hardware oriented and growth financing was required not only for product development but also for capex investments in IT server parks, labs and fabs. Over time, the businesses we financed evolved into more software and consumer oriented as well as fabless and labless models. Kreos III started investing in 2007. Apple introduced the iPhone, and Netflix launched streaming media the same year (Kreos had already financed the “Netflix of Europe”, the merger between Video Island and LoveFilm, in 2005 and 2006, which are today part of Amazon). The European growth industry had by now matured into a significant and established market. Kreos’s “average” portfolio company had meaningful double digit million revenues and we were addressing growth companies in all industries – software, services, hardware, semiconductor, retail, media, fintech, communications, mobile, healthcare, B2B, B2C etc. At the same time, we had to manage through an unprecedented, broad financial crisis, initiated by the Lehman crash in 2008. The years 2009-2010 were characterised by paralysed financial markets, when liquidity, financings and M&A as well as IPO activity dried up. We continued to work very hard with our existing portfolio companies as well as financing strong businesses with the right models. By now, we had gained more than 10 years of experience through different market cycles and given that we are a partner-led business with an agile organisation, have a dedicated focus on growth businesses, and are 100% equity backed with no leverage, we could act as a stable financial partner in the market and at the same time generate attractive returns for our investors. One of several good examples of our long-term portfolio support, and persistent work during this time period, is the 10-year journey with Heptagon and its eventual billion $ exit in 2017, which generated substantial returns for the equity investors and for Kreos III. Kreos IV was launched in 2012 (the same year as Facebook IPO’ed). The asset class “Private Debt” had by now started to establish itself in a more mainstream way in Europe. Growth financings were no longer linked to product development or large capex investments but rather focused on market expansion and working capital investments. Software licensing models had switched to subscription and services models. Kreos financed its first triple digit million revenue company, SolarEdge, that listed and exited as another $ billion+ company. Kreos financed several mature and strongly growing digital consumer and e-commerce models such as Bookatable, Treatwell, Gett, Smava, Westwing and Mister Spex, and helped generate an additional $ billion exit from Delivery Hero. With the launch of Kreos V in 2016, Kreos continued its mission of providing flexible growth debt solutions for high growth companies in all sectors throughout Europe and Israel. The model has evolved from early stage to late stage growth, as well as a broadening of use cases, addressing working capital, growth capital, acquisition financing, roll-ups, pre-IPO financings, and now also helping publicly listed growth companies with an alternative financing solution. One illustrative transaction is Pharming, when we led a €40m acquisition financing (with a combination of amortising loan, bullet loan and convertible) for the listed company to enable it to buy-back its US rights from licensee Valeant. It serves as a good example of the variety of situations we support and the breadth of solutions we offer today, but it also highlights the network effect of having executed more than 500 growth transactions over the last 20 years as the management team was well known to Kreos from a former company we had already funded in 2005. Today, the average revenue of our portfolio companies at time of financing is around €50m, illustrating the evolution of our model as well as the maturity of the growth industry in Europe and Israel – quite a change over the last 20 years. We are humbly excited to be part of this value-creating ecosystem and look forward to next 20 years – the main growth is yet to come!

Kreos Insights February 12 2019

Interview: Asaf Peled, Founder & CEO, Minute Media

Asaf is the Founder and Chief Executive Officer of Minute Media, parent company of 90min, 12up, DBLTAP and Mental Floss. Founded in late 2011, Minute Media Minute Media is a global, digital, sports media company, powered by socially driven content created by the fans, for the fans. It has grown to be one of the world’s fastest growing media platforms with over 100m monthly unique users worldwide and has expanded the brand throughout Europe, North America, South America and Asia. Asaf is involved in all aspects of Minute Media’s growth and operations, from product development to marketing and content. Previously, Asaf spent four years with Cisco’s Corporate Development team, driving acquisitions and investments with a focus on the Israeli tech arena. Prior to Cisco, Asaf was technology investor with Evergreen Ventures in Tel Aviv as well as with Apax Partners in California. Asaf has an M.B.A. from The Wharton School at University of Pennsylvania and a dual B.A. degree in Law & Economics from Tel Aviv University.   We first began working together towards the end of 2013 - just 2 years after Minute Media was established. Over the past 5 years, Minute Media has grown exponentially on a global scale, and recently brought total fundraising to an impressive $77m to date. Could you share some background on how you have built Minute Media over the last 7 years? We’ve scaled MM over the last 7 years based on three drivers: 1. Use of technology (unlike our competitors in traditional publishers that lack tech); 2. Using fans to create content, replacing traditional journalists.: this has driven cost down and engagement up; 3. Going global from day one, while most of our competitors are local by nature.   What have been your main challenges so far in the Minute Media growth journey? The main challenges we have faced so far have been building and maintaining a core culture integrating technology and media DNAs under one roof.   What have been your key learning experiences so far? In building and growing a company, nothing is more important than picking the right partners for the marathon: co-founders, management, investors; right choices at the start help scale later on.   You recently announced the strategic acquisition of Mental Floss, an award-winning media brand to assist Minute Media’s growth. What will be your biggest drivers of growth going forward? Over the last couple of years we’ve turned our tech publishing platform from B2C-focused to one that powers a growing number of integrated publishing partners; On the B2C front, we now own 5 great brands (90min, 12up, DBLTAP, floor8, Mental Floss) and are planning to continue to grow through acquisitions; on the B2B front, we have 50 integrated partners including the likes of Pro7, Turner, FanDuel, Hearst and USA Today - we plan to double that number every year going forward.   What advice would you offer other growth companies about how they finance their business? Go for moderate rather than mega rounds, allowing intense focus on building a business the right way without over-reliance on external capital; identifying the right moment to start using debt to accelerate growth; establish an operation that has the capacity to generate significant EBITA margins in the long run rather than just relying on top line growth.  

Kreos Insights February 12 2019

Interview: Boaz Dinte, General Partner, Qumra Capital

Boaz is one of Israel’s veteran technology VC investors with 20+ years of investment experience. He co-founded Qumra Capital, Israel’s pioneer Late Stage Growth fund with $250m AuM in 2014. Prior to Qumra, Boaz served as Managing Partner of Evergreen Venture Partners from 2004, and a General Partner from 1996, where he also led its activities together with Erez Shachar, Qumra’s co-founder. At Qumra, Boaz is a board member in the following companies: JFrog, Signals Analytics, AppsFlyer & MinuteMedia. Previously he served on the board of some of Evergreen’s most significant exits including Exalink (acquired by Comverse), P-cube (acquired by Cisco), Dune Networks (acquired by Broadcom), Aeroscout (acquired by Stanley Black & Decker), Metalink (IPO), BigBand (IPO), AVT (IPO) and Envara (acquired by Intel). Boaz combines deep-dive analysis and strategic business thinking, and prior to Evergreen was Director of Business Development and Marketing of M-Systems (NASDAQ: FLSH) where he built and scaled the sales and marketing infrastructure in Europe and Asia. Before M-Systems, he was a senior consultant at POC, one of Israel’s leading management consulting firms, working with many of Israel’s leading technology companies.   Qumra has a great reputation and recently closed your second fund at $150m – congratulations! Can you tell us a little about Qumra II? Qumra II follows the successful deployment of Qumra which includes an exciting portfolio of hyper growth companies. Qumra II employs the same strategy of investing in late stage companies (proven market fit and recurring revenues) that are led by exceptionally ambitious and visionary teams. We look for management teams with the passion and ability to transform businesses into global market-leading companies. You have successfully invested in a number of companies since founding Qumra in 2014: tell us about your current investment focus. We are sector agnostic, meaning we don’t focus on a specific vertical, but the companies we invest in should all be mature with a recurring sales model. It is interesting to note that we do have high representation of B2C companies in our portfolio like Fiverr (online freelance market place), Minute Media (sports publishing), Sweet Inn (hospitality) and Talkspace (on line therapy). Can you tell us about what sort of Growth companies you are investing in? Our relationship with the companies we invest in begins way ahead of the actual investment. We make it a point to develop a relationship with founders and to follow up as they grow their businesses. We know that just as we choose our investments, they choose their investors and we believe it has to feel right. By the time an investment is on the table, we have the background and history that helps us understand how they will tackle the future challenges. We especially like companies that are transforming large traditional markets and disrupting their business model in order to meet shifting consumer demands. For instance, TalkSpace, Qumra II’s first investment. It’s a text-based therapy platform that has made therapy affordable and accessible. Users are assigned a fully licensed therapist and can message them at any time, while the therapist usually gets back to them within a few minutes and at the most a few hours. Users are no longer tied to a specific time during the week or need to make office visits. We love it.   What are your thoughts on the state of the Israeli growth stage ecosystem in the next 5-10 years? The Israeli growth market has seen a huge evolution in the past 5 years. Qumra was Israel’s first dedicated late stage capital provider at the time when annual amount invested in such companies capped at~ $300m. Just four years later, late stage investment peaked at $1.6bn While impressive, this amount is still below the percentage of late-stage investments allocated to the States. There are currently 50+ privately held Israeli companies with revenues exceeding $30m and growing rapidly that are able to reach meaningful IPOs and M&As and I believe that, with each major exit, this market will continue to significantly grow.   You are one of the veteran Israeli technology investors in the industry, I’m sure there are plenty of stories: any favourite moments in particular? As a founder, I love coming in each morning to our office in Tel Aviv and seeing that the vision of a late stage fund that will fill the gap of growth capital materialised into $250m in two funds dedicated to late stage companies. We have got a great team in place and a supportive LP base. We have been so busy meeting with companies we have only recently had the time to renovate the office from which we started the initial fund-raise. And the new warm look of our office symbolises who we are. A home to exceptional companies.  

Kreos Insights February 6 2019

Kreos Capital has launched €700m ($800m) Kreos Capital VI

Kreos is celebrating 20 years as the European and Israeli growth debt market leader In sync with celebrating Kreos Capital's 20-year anniversary, Kreos has launched its latest, and to date largest growth debt fund, EUR 700 million (USD 800 million) Kreos Capital VI, reinforcing its commitment to the European and Israeli growth ecosystem. Kreos VI has been oversubscribed, reflecting Kreos's successful 20-year track-record and strong market position, experienced and stable organization, and continuous evolution of its growth debt model to support high-growth companies and their equity investors with tailored and non-dilutive financing solutions.Kreos VI has already started to deploy capital in January 2019 and Kreos expects to commit some EUR 250-300 million per annum over the coming years.Kreos VI is the largest growth debt fund in Europe and Israel, and Kreos can execute growth financings of more than EUR 50 million (USD 60 million) in single transactions with additional follow-on funding as the company develops - and can lend significantly higher amounts in combination with its fund investors.Kreos has reached a new milestone of a total of USD 2 billion of raised fund capital from 50 top-tier institutional investors making it the leading independent specialist lender for high growth companies in Europe and Israel, covering all industries within technology and healthcare, and having committed EUR 2.3 billion (USD 2.7 billion) in 540 growth debt transactions in Europe and Israel over the last 20 years.Kreos has continued to expand its LP base of top-tier institutional investors including a wide range of sovereign wealth funds, university endowments, foundations, corporate and public pension funds, insurance companies, supranational funds, family offices and asset managers from Europe, the US and Asia.Kreos is committed to continue investing in and developing the growth lending ecosystem and expanding its team, announcing a number of promotions with the launch of Kreos VI. Mårten Vading, co-founder and General Partner of Kreos, said: "Over the last 20 years, we have continuously evolved our alternative and complementary growth capital model to cover all industries and stages of a company's development, from entry-level growth, via mid-stage, through late-stage and into pre-exit/pre-IPO as well as financing publicly-listed growth companies. Our extensive experience from a broad range oftransactionsthrough three market cycles combined with our structuring flexibility and funding capability, enable Kreos to act as a stable one-stop-shop partner for complementary growth capital structured as non-dilutive debt facilities." Raoul Stein, co-founder and General Partner of Kreos, continued: "Kreos's long-term commitment to the European and Israeli growth market is now reinforced with the launch of our new flagship fund Kreos VI, where we are very grateful to welcome existing as well as new top-tier global fund investors. Our fund platform's stable and supportive investor base is a key value in our offering and is also highlighting Kreos's successful performance over two decades." Kreos has committed more than EUR 2.3 billion in 540 transactions over the last 20 years and Kreos's current and past portfolio of high-growth companies within technology and healthcare includes Pharming (AMS: PHARM), Delivery Hero (FRA: DHER), Westwing (FRA: WEW), Abivax (EPA: ABVX), SolarEdge (NASDAQ: SEDG), Heptagon (ams AG, SWX: AMS), Bonesupport (STO: BONEX), Kiadis (AMS: KDS), Nicox (EPA: COX), LoveFilm (Amazon,NASDAQ: AMZN), Bookatable (Michelin, EPA: ML), Mister Spex, Minute Media, Zerto, EarlySense, Puls, Riskified, Dreamlines, SoundCloud, Smava, Docplanner, Biocatch, and Currency Cloud. Kreos tailors its facilities and the terms to each situation to allow for maximum value creation and capital efficiency for the growth company and its investors. Kreos's financing is typically used as additional expansion capital and a complement to equity to drive incremental value in the underlying business, increasing the enterprise valuation. The capital can support organic growth via product and marketing investments as well as non-organic acquisitions or roll-up strategies. Within healthcare, it can also facilitate the successful completion of key clinical or market launch milestones. It can also be used for debt refinancing, to free up working capital, cover seasonality in earnings or merely strengthen the balance sheet and operating flexibility in relation to customer, partner, equity, pre-IPO or M&A negotiations, where incremental value creation can be significant. It is a tailored and flexible solution, while at the same time lowering the cost of the total financing, creating less dilution, avoiding any strategic agenda, control rights or further complexity in the shareholder structure, and increasing the return for management and investors. Ross Ahlgren, co-founder and General Partner of Kreos, said: "Kreos believes that each situation and company is unique and we provide tailored, risk-based financing, where we focus on value-drivers in the business. Companies that prioritize value-creating growth over near-term profitability are typically not in the market for traditional bank lending and need a more bespoke product with greater flexibility. Kreos has a dynamic approach to risk and can offer scalable debt facilities without financial covenants or other constraints that could limit the effectiveness of the financing and/or the value-creation and growth of a company. With Kreos VI, we can provide significant individual growth capital facilities and continue our mission to support the European and Israeli technology and healthcare growth ecosystem with innovative financing solutions." Kreos has developed its model over the last 20 years and today it does a substantial amount of follow-on facilities as the portfolio companies grow into later stages, where Kreos can provide significant amounts, tailored to match the evolving financing requirements, and implemented in a fast and efficient process. In some situations, the financing relationship with a company can last for more than 10 years. Kreos does not utilize Fund Leverage and is 100% financed by equity from its long-term institutional Limited Partners, which gives Kreos the ability to act as a flexible and stable financing partner through all stages of a company's development and independent of the state of the macroeconomic environment. With the launch of Kreos VI, Kreos is also announcing the promotions of several key individuals, reflecting their dedication and successful work over the past years. Sean Dunne has been promoted to Partner; Chris Church, Jack Diamond and Cian O'Driscoll have been promoted to Vice President; Matteo Avramov Giulivi and Melissa Donohoe have been promoted to Associate; and Tim Fenwick and Krishnan Patel have been promoted to Senior Analyst. Kreos also announces the recent hires of Alex Garbedian as an Analyst, as well as Marcela Siddall as Finance Director. For the Kreos VI fund raising, Azla Advisors, led by Managing Director David Waxman, served as global placement advisor (with the support of FINRA member Growth Capital Services for US placement), with Tom Beaudoin and Greg Barclay of Goodwin Procter serving as lead counsel to Kreos Capital. About Kreos Capital   Kreos Capital is the leading provider of growth-debt financing to high-growth companies in Europe and Israel with revenues up to EUR 300 million. Since 1998, as the pioneer growth debt provider across Europe and Israel, Kreos has completed 540 transactions and committed more than EUR 2.3 billion in 15 different countries. Kreos is dedicated to supporting management teams and their equity investors with flexible loan structures for all stages of a growthcompany's development and to address the needs for growth capital, working capital, acquisition financings, lower mid-market buy-outs, roll-up strategies, banks re-financings as well as pre- and post-IPO financings. Kreos's most recent fund, EUR 700 million Kreos VI, was launched in January 2019. The Kreos global team has extensive debt financing, management and equity investing experience, covering the markets in Europe and Israel from its locations in London, Tel-Aviv and Stockholm.  For more information on Kreos Capital: Simon Hirtzel, General Partner and Source: www.prnewswire.comImage:

Kreos Insights February 6 2019

Private Debt Investor Exclusive: Kreos closes latest growth debt fund on €700m

The 20-year-old firm beat the €600m target for its sixth vehicle and says it is seeing strong interest from investors keen to move beyond their core private debt allocations. Kreos Capital, a London-based growth debt fund manager focused on Europe and Israel, has started investing its €700 million Fund VI, having beaten the target set by the fund by a €100 million margin. The fund, which took around six months to raise, is significantly larger than the predecessor Fund V, which closed on €400 million in January 2016. Funds III and IV raised €200 million and €230 million respectively. Now in its 20th year of operation, over which time it has committed more than €2.3 billion to 540 deals, Kreos says it is seeing a strong deal pipeline from which it expects t commit around €250 million to €300 million annually, selecting about one in ten of the deals introduced from its network of European equity sponsors. The prior fund was deployed in just three years, compared with four years of the funds before that. Kreos supports growth deals involving private equity sponsors and invests between €2 million and €50 million per deal, with the average ticket size just under €10 million. The firm's two main target sectors are IT and healthcare, with deals diversified by stage and country. Between a third and a half of the firms investments are re-ups into existing portfolio companies. The latest fund includes a range of sovereign wealth funds, university endowments, foundations, pensions, insurers, supranational funds, family offices and asset managers. Kreos declined to identify any individual LPs. Placement agent Azla Advisors helped raise the fund, which has a "low-teens" target IRR. General partner Aris Constantinides told PDI that the larger LPs, which had watched the development of the business, were investing for the first time now it could support €100 million tickets. He said many had built up their core private debt allocations and were now looking for strategies to provide alpha. Commenting on the resilience of Kreos's model in any weakening of the market conditions, general partner and chief operating officer Simon Hirtzel said: "We have been through two down cycles before and we know that alongside crisis there are also opportunities when funding becomes scarce." The firm does not typically include covenants on its deals. "The key for us is providing operational flexibility" says general partner Ross Ahlgren. "Covenants are important where you have PIK, bullets or non-amortisation for many years. But our deals amortise and we give management flexibility so they are not constrained. The best covenant is cash, and we get paid back on a monthly basis." The size of the Kreos team has increased by half since the start of its prior fund three years ago and recently made its first internal promotion up to partner, with Sean Dunne making the step up from principal having joined the firm six years ago from Lloyds Banking group. Source: www.privatedebtinvestor.comImage:

Kreos Insights January 2 2019

Kreos Capital promotes eight in Investment Team

We are delighted to announce the promotion of 8 team members here at Kreos, effective as of 1st January 2019. Sean Dunne, promoted to: Partner As Partner, Sean oversees the entire deal life cycle, including identifying new leads, assessing potential deals, and performing investment analysis, as well as post-investment monitoring. Read Sean's full bio here. Chris Church, promoted to: Vice President As Vice President, Chris supports the General Partners and Principals in the entire deal life cycle, including assessing potential deals and performing investment analysis, as well as post investment monitoring. Read Chris's full bio here. Jack Diamond, promoted to: Vice President As Vice President, Jack supports the Partners and Principals in the entire deal life cycle including assessing potential deals and performing investment analysis, as well as post investment monitoring. Read Jack's full bio here. Cian O'Driscoll, promoted to: Vice President As Vice President, Cian supports the General Partners and Principals in the entire deal life cycle including assessing potential deals and performing investment analysis, as well as post-investment monitoring. Read Cian’s full bio here. Matteo Avramov Giulivi, promoted to: Associate As Associate, Matteo supports the Partners, Principals, and VPs with all aspects of the deal life cycle including pre-investment analysis and post-investment monitoring. Read Matteo’s full bio here. Melissa Donohoe, promoted to: Associate As Associate, Melissa supports the Partners, Principals, and VPs with all aspects of the deal life cycle including pre-investment analysis and post-investment monitoring. Read Melissa’s full bio here. Tim Fenwick, promoted to: Senior Analyst As Senior Analyst, Tim supports all aspects of the deal life cycle including pre-investment analysis and post-investment monitoring.  Read Tim’s full bio here. Krishnan Patel, promoted to: Senior Analyst As Senior Analyst, Krishnan supports all aspects of the deal life cycle including pre-investment analysis and post-investment monitoring. Read Krishnan’s full bio here. They are part of the dedicated 10-people investment team (led by Aris Constantinides) investing in leading high-growth companies across Europe and Israel. In 2018, Kreos made 44 new investments including: Tiqets, The NetherlandsCredit Benchmark, UKDocplanner, PolandClicktale, IsraelAbivax, FranceEarlySense, Israel