Kreos Capital closes Fund V on €400m hard-cap

The growth capital debt fund beat its €350m target to close on the hard-cap with around 20 investors.

Kreos Capital has closed its over-subscribed fifth fund on the €400 million hard-cap, the firm said. 

The new fund continues the manager’s existing strategy of making uncovenanted loans to high-growth European and Israeli companies, though the increased size means that the firm will increase the upper end of its lending from €20 million to €30 million tickets. 

This is likely to expand the number of later-stage growth companies that it includes in its portfolio, said Marten Vading (pictured), one of Kreos’ co-founders and a general partner in the firm. 

Kreos lends €1 million-€30 million to high-growth sponsor-backed companies. It structures most loans with no or few covenants to give its borrowers the flexibility to grow. Most would not qualify for typical cashflow lending as they are investing to expand. 

Kreos closed Fund IV on €240 million in 2013. 

The new fund has a 10-year lifetime and a five-year investment period. Kreos can recycle capital in its funds and makes three-year loans so amortisation payments and principal repayments on loans made in the early stages of the investment period can be redeployed into new loans. 

Kreos targets net IRRs of around 15 percent by charging borrowers a cash margin and taking various warrants to give it exposure to equity upside. Recent exits include Israeli power software firm SolarEdge which listed on NASDAQ in March 2015. 

Investors in the unlevered fund include a roughly equal mix of US and European investors and include pension funds, endowments, insurance companies and two substantial family offices. Around 70 percent of the investors re-upped their commitments from the previous fund, Kreos partner and chief operating officer Simon Hirtzel told PDI

The larger vehicle means that Kreos has expanded its team. The six partners will be joined by a new senior hire this year and the manager has recruited at analyst and associate level as well as promoting existing staff. 

Fund IV made its final commitment in December 2015 and the final close on Fund V was executed shortly before the end of the year. The firm managed the timing to allow dealflow to continue uninterrupted and was important as the team saw dealflow accelerate in the second half of 2015. 

Asked about the impact of wider market volatility on their business, Vading said the firm had come through two market crashes and had always been able to find high-growth borrowers to back even in the most adverse market conditions. 

“Kreos V is a continuation of our growth and dedication to the European and Israeli growth ecosystem over the last 18 years. As the largest and most established growth debt provider in Europe and Israel, we are excited to take the next step and continue to support portfolio companies and their equity investors with flexible loan structures,” said Vading in a statement. 

Azla Advisors acted as placement advisor for Fund V, while Goodwin Procter provided Kreos with legal advice on the fundraising. 

Kreos has invested over €1.4 billion in over 400 companies over the last 18 years.