Global investment powerhouse, KKR, has announced the final close of its third tech growth fund, the KKR Next Generation Technology Growth Fund III, with approximately $3 billion in capital commitments. Notably, $400 million of this amount came from KKR’s own employees. The team, comprising over 35 investors focusing on growth-stage companies in North America, Europe, Israel, and the APAC region, has been raising funds since early last year.
Key Takeaway
KKR has closed its third tech growth fund, raising approximately $3 billion, with $400 million contributed by its employees. The fund focuses on minority and majority ownership positions in growth-stage companies, primarily in the software and cybersecurity sectors. KKR’s previous funds have generated impressive returns, and the firm continues to target companies with strong long-term growth prospects.
Success Stories and Investment Strategy
KKR’s previous tech growth fund, sized at $711 million, has achieved an impressive net internal rate of return (IRR) of 26.6% and has already delivered more returns to investors than their initial investments. The firm’s second fund, a $2.2 billion vehicle closed in 2019, shows a net IRR of approximately 18%. Notable successful investments by KKR include cybersecurity firm Darktrace, digital-identity software company ForgeRock, and ride-hailing platform Lyft.
The tech growth group at KKR focuses primarily on minority transactions, although it typically invests one-third of its capital in majority ownership positions. The fund focuses on companies with strong long-term growth prospects, typically at an earlier stage than those targeted by KKR’s larger buyout funds. The firm typically provides funding ranging from $50 million to $250 million, while its larger funds issue checks of $500 million or more.
Investment Criteria and Sector Focus
KKR’s ideal portfolio companies are already generating substantial revenue, with an average holding period of four to five years. Two-thirds of the group’s portfolio companies have previously raised venture or institutional backing, while the remaining third typically comprises bootstrapped companies or those that raised smaller amounts from friends and family.
In terms of sector focus, 70% of KKR’s tech growth fund’s capital will continue to flow into software companies, with a particular emphasis on cybersecurity firms. The remaining investments fall under the “internet” category. Notable companies in KKR’s portfolio include big data analytics firm Optimal+, tour-booking platform GetYourGuide, and cloud integration software company Jitterbit.
