Kreos Capital today announced that it has secured €120 million for its new growth debt fund, Kreos Capital IV. The firm plans to raise €200 million for the new fund in 2012, enabling it to invest more than €500 million over the next five years.
Kreos Capital is the largest European growth debt fund for growing technology companies. Since its founding in 1998, it has granted $1.2 billion worth of loans. Kreos has been active in Israel for more than a decade, and has granted $250 million in loans to 74 start-ups, including Celltick Ltd., PrimeSense Inc., Eternity Networks Ltd., Kontera Ltd., Valens Semiconductor Ltd., and Wilocity Ltd.
"The Israeli venture capital market is very disturbing. There are not many players, and I fear that there will be damage to the local ecosystem," says Kreos partner Raoul Stein, who is responsible for the Israeli market, in an exclusive interview with "Globes". "We have seen a significant fall in the number of companies that are active in semiconductors and life sciences. These were the fields in which the Israeli market had a relative advantage. On the other hand, there are interesting opportunities in the Internet field."
"Most of our new investors are US insurance companies, as well as a few family-run businesses," Stein added. "The largest investor in the fund is a European government institution. We knew that this would be a difficult period in which to raise funds, but we have been active for more than a decade. We are the largest fund in Europe and in Israel, and we have proven that we can also survive through the rough periods and achieve good yields. I think that this has played to our advantage." Stein joined Kreos in 1999, after working for Apax Partners in Israel, when it was a venture fund.
Stein says that Kreos's success in raising capital in the current climate is a major achievement, especially since the biggest investor in the €260 million Kreos III Fund, raised in May 2007, was Merrill Lynch. After Bank of America Inc. (NYSE: BAC) acquired Merrill Lynch in 2009, it sold its commitment to Kreos for €150 million in a secondary deal to the other investors PineBridge Investments LLC (formerly an AIG Inc. (NYSE: AIG) unit), Harbourvest Partners, Paul Capital, SVB Financial Group (Silicon Valley Bank). Merrill Lynch recently sold the balance of its commitment to one of the new investors in the Kreos IV Fund.
"Globes": What proportion of the Kreos IV Fund will be invested in Israel?
Stein: "We have no fixed allocation. On the basis of past experience, I can say that 25% of the fund will be invested in Israeli companies, 40% in British companies, and 30% in continental European countries. In Israel, in contrast to other countries, we invest in earlier stage companies."
Stein says that he is seeing a change in how Israeli entrepreneurs and investors use the loan instrument. "I think that entrepreneurs and investors have become smarter. It's possible that before, they overused the debt instrument. A venture loan is good for a company that wants to make a change in magnitude or launch a new product, but not for financing operations. In the past few years, we've realized that this tool is not suitable for every company and every stage in Israel."
Stein says, "What makes Kreos unique is that we know that even successful companies encounter obstacles. In contrast to firms that no longer operate in Israel, we don’t pull the rug out from under a troubled company. We come to their aid, and intervene if necessary. For example, investors in one of our companies abandoned it, and we help it raise a professional chairman. The company restructured and it's now in great shape. We're not afraid."
Published by Globes [online], Israel business news - www.globes-online.com - on January 23, 2012
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