Technology is rightly regarded as one of the promised lands of innovation, since this is where much of tomorrow's world is shaped. Brimming with start-ups and highly creative SMEs, this field is also an attractive investment sector for private equity, as financing needs are high and growth prospects are often attractive. But how can we sift through this complex universe of many different players and outcomes that can be reversed? A partner of Edmond de Rothschild Private Equity, Kennet has been successfully supporting technology innovation for nearly three decades. This performance is based on a growth capital strategy that fosters the long-term expansion of companies specialising in creating and marketing cutting-edge software.
Devising tomorrow's world
Innovation has always been part of Edmond de Rothschild's DNA, whether it's the Bank's ability to develop new financial solutions for its clients or finance ideas that will transform our lifestyles. "As committed investors, we are constantly seeking to identify tomorrow's challenges in order to support those responding with innovative approaches, particularly in the areas of SME growth, the environment and technology," explains Johnny El Hachem, CEO of Edmond de Rothschild Private Equity, who continues: "This vision is reflected in the various partnerships we form with industry experts, through which we can put into practice the 'bold builders of the future' slogan so dear to our Bank's founding family."
Sharing a vision
While innovation and technology are at the heart of Kennet's business model, the collaboration created in 2018 between this private equity expert and Banque Edmond de Rothschild is primarily based on shared values and convictions – plus aligned interests, naturally, which are essential when jointly investing alongside clients.
Founded in London in 1997, the investment company Kennet has from the outset focused on the opportunities afforded by new technologies. This is why it now also has offices in the US, in California, just a stone's throw from the big players in Silicon Valley. It invests in companies offering Software-as-a-Service (SaaS) solutions on the B2B market. Its goal is to offer client companies "critical" innovative technology solutions to limit their costs and increase productivity. The software offered by the companies supported covers a very wide scope of activity, from compliance to human resources management, cybersecurity and sales functions. However, they have several common aims, starting with offering products built exclusively around the needs of their end customers (customer-centric) and usually focused on day-to-day business management.
Supporting value creation
"The growth potential of SaaS companies is considerable. This is especially true when their technology solutions help to ensure the longevity of their customers' business model. As an investor, our aim is to work with these technology providers at a given stage of their maturity to help them reach a milestone: firstly, by offering them the means to expand their marketing scope, and secondly to invest in research and development, which drives value creation," says Hillel Zidel, Managing Director at Kennet in London. To do this, Kennet's investment team primarily focuses on bootstrapped companies (businesses that have demonstrated their ability to grow without external financing), as they have strong fundamentals. "We engage with technology companies that have reached a critical point in their development and require capital and governance support. In addition to growth prospects, the companies supported must also be able to serve a large customer base, have strong retention capability and above all be ready to seize opportunities for international expansion. Having a foothold on each side of the Atlantic is key to facilitating the conquest of new markets thanks to our European and US contacts. By favouring a growth capital approach rather than venture capital, we also minimise risk and act to preserve committed assets," adds Hillel Zidel.
By enabling these companies to bolster their structure in their growth phase, Kennet has already allowed many companies to grow while repositioning themselves relative to the competition and consolidating their management teams. The success stories to its credit include the French company Nuxeo, whose enterprise content management (ECM) platform allows organisations to manage complex digital content on a large scale. One of the key elements of the support provided by Kennet and its partners is enabling it to complete its geographical expansion and accelerate its growth by winning a number of major global clients, notably in financial services. Also worthy of mention is the US company Prolexic Technologies, an IT security provider offering cloud-based cyber defence solutions, which boasted annual growth of over 45% one year after two fundraising rounds led by Kennet.
The new prospects of artificial intelligence
As artificial intelligence (AI) moves into innovation and technology, new investment opportunities are opening up across the board for Kennet. "The advent of AI is disrupting the world, as the industrial revolution did in its era. We are clearly witnessing a paradigm shift here, along with the dangers and opportunities this entails, such as certain jobs or trades dying out and new ones emerging. While generative AI is pushing the limits of the imagination in a staggering way, we remain cautious on companies that are exclusively involved in this technology, as they present some volatility risk. However, the integration of generative AI into SaaS solutions is very promising, as this innovation multiplies the opportunities to win new consumers, new customers and new markets. This technology also now makes it possible to aspire to an unprecedented degree of efficiency. Our next challenge will therefore be to not allow ourselves to be swept along by fads, instead maintaining the utmost vigilance in terms of investment selection, risk control and analysing fundamentals," concludes Hillel Zidel.
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