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KKR looks off the beaten path for tech growth

KKR's Next Generation Technology Growth Fund II has already made an investment in a cybersecurity company KnowBe4, based in Tampa Bay, Florida.

KKR & Co plans to use capital from its just-raised tech growth fund to find companies outside traditional tech hubs like Silicon Valley and Boston, according to Dave Welsh, partner and head of technology growth equity at the firm.

KKR & Co this week closed Next Generation Technology Growth Fund II on $2.2 billion for investments in technology businesses in North America, Europe and Israel.

The fund, which closed on January 15, will make 18 to 20 investments in companies based outside of traditional technology hubs, Welsh said. “What we are seeing is a lot of the talent moving outside of these tech hubs. There is also so much more engineering talent graduating schools throughout America: in the Midwest, in the Southeast,” Welsh said. “In Europe, the tech hub was traditionally the UK. Now you see tons of companies started in Berlin, Paris, or in the Nordic region.”

KKR already found opportunity outside the usual hunting grounds for tech growth. The firm’s first investment out of its new fund came in June in cybersecurity training company KnowBe4, based in Tampa Bay, Florida.

In February 2019, KKR invested from its prior tech growth fund in Rochester, Michigan’s OneStream Software, a provider of cloud and on-premise corporate performance management (CPM) solutions.

The firm also is assessing companies on whether their business model is resilient to a potential economic downturn, Welsh said.

The new fund is the successor to the fund Next Generation Technology Growth Fund (NGT I), which closed on $714 million, in December 2016.

Just like the first fund, NGT II will make majority and minority investments greater than $50 million in equity in thematically targeted areas, such as enterprise software, cybersecurity, internet and digital media, fintech, and tech-enabled and data services.

“We are looking at broad trends in enterprise software: vertical solutions, evolution of other industries disrupted by technology. Security, privacy and fraud continues to be a big area of investments,” Welsh said.

Action Item: Check out KKR’s form ADV here.