The KKR exec heading a new $2.2 billion investing push in fast-growing tech companies says he's looking far beyond Silicon Valley because valuations there can get crazy
Businessman Henry R. Kravis arrives for meeting with U.S. President-elect Donald Trump at Trump Tower in New York
- Private equity firm KKR just raised $2.2 billion to invest in fast-growing tech companies and it will now hunt for deals in regions far beyond Silicon Valley.
- Dave Welsh, a KKR exec leading its technology media and telecom growth equity unit, said that it would seek investments in areas such as Florida, the greater Washington, D.C., area and Atlanta, as well as the Rocky Mountain region in Colorado and other regions throughout the Midwest.
- The willingness to go far and wide points to how competition for the best investments across the private equity spectrum is getting stiffer, and more PE firms are getting creative with how they deploy their capital - seeking smaller, including minority, investments.
- Just last year, Blackstone recruited one of the top executives at the growth equity firm General Atlantic, to launch a new fund for the firm, called Blackstone Growth Equity. There, Jon Korngold is raising a fund with hopes of raising as much as $4 billion.
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One might expect a private-equity firm that just raised billions of dollars to invest in fast-growing technology companies to focus on the highest-profile tech hubs for prospective targets.
Silicon Valley and Boston, for instance, are where engineers first created the tech giants that manage our computers, social media networks, and Internet.
But KKR - a PE shop with more than $208 billion in assets under management - is now equipped with $2.2 billion devoted specifically for fast-growing tech, and is hunting for investments in other places.
Dave Welsh, head of KKR's technology, media, and telecom growth-equity unit, said the firm will explore investment opportunities in areas such as Florida, the greater Washington, D.C., area and Atlanta, as well as the Rocky Mountain region in Colorado and other regions throughout the Midwest.
"We're finding opportunities in geographies that haven't historically been the most obvious tech hubs," said Welsh, in an interview with Business Insider.
"We are very geographically agnostic ... we're going where it takes to find companies," he said.
The willingness to go far and wide points to how competition for the best investments across the private-equity spectrum is getting stiffer, and more PE firms are getting creative with how they deploy their capital, seeking smaller, including minority, investments.
That includes the growth-equity investments KKR is seeking to make targeting fast-growing technology companies. KKR said it would write checks as small as $50 million, though it is willing to go larger.
Just last year, Blackstone recruited one of the top executives at the growth equity firm General Atlantic, to launch a new fund for the firm, called Blackstone Growth Equity. There, Jon Korngold is raising a fund with hopes of raising as much as $4 billion.
While KKR's growth-equity division has a few tech portfolio companies in the Bay Area, Welsh said that most of the companies it has invested in are not in Northern California because of the fierce competition for talent there, as well as valuations that "can get crazy."
"We have found there are other geographies in the US that have increasingly become interesting places to find technology, and we're traveling to where the opportunity may be," he said.
While KKR will focus on areas throughout North America to deploy its $2.2. billion - raised from a mix of institutional investors and wealthy individuals - it is also targeting geographies abroad in Europe and Israel, according to the firm.
Welsh joined KKR in 2016 from Adams Street Partners to focus on growth-equity investing and works on a team alongside 19 investment professionals.
He attributed KKR's geographic focus to two factors: one, that as tech entrepreneurs age, they are moving to non-city communities to raise families, and that as engineering takes off, more and more universities are becoming significant players in producing graduates whose skills are suited for technology.
"A lot of engineering talent has been produced out of the main regions," said Welsh, noting that the academic field of schools with respected tech-geared programs have expanded from the top three: University of California, Berkeley, MIT and Stanford.
"Now, every major university has big engineering programs," said Welsh. "Any city that has a major university or two around it can have good tech talent."
In February KKR announced an undisclosed investment in the Rochester, Michigan-based software company, OneStream Software, which is used at mid-size to large companies to manage corporate performance. Then, in March, it announced it would invest in Tampa Bay, Florida-based cybersecurity startup KnowBe4 with a minority stake.
Welsh pointed to University of Michigan, Michigan State, and Oakland University as schools that pumped engineering talent into the Michigan market near OneStream. Meanwhile, schools such as University of South Florida, Florida State, and University of Tampa were all in proximity to KnowBe4.
At the same time, private-equity investment dollars have been pouring in from large investors, such as pension funds, sovereign wealth funds, and wealthy individuals, with the number of unused investor dollars in the PE industry ballooning into the trillions.
As KKR seeks to deploy its $2.2 billion, Welsh said that he would double down on finding companies whose business models would be resilient during a recession.
That determination can range from an analysis of a business's customer base, and whether they will continue spending during a downturn, to more subjective assessments, like how willing management might be to adjust and make changes if sales dropped for a period of time.
"We try to get to know them two or three years before we invest and to know what they want to do with the business and make sure we align and build something meaningful," Welsh said.
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