GP Profile: HPE Growth sets the stage for next fundraise

In July 2021, Manfred Krikke and Tim van Delden took up their new roles as co-managing partners at Amsterdam-headquartered HPE Growth, with co-founder Hans van Ierland taking up a new position as chairman.

Both Krikke and van Delden have previous experience in private equity and venture capital in the US. Prior to founding HPE Growth in 2008, van Delden spent more than a decade with New York-headquartered General Atlantic. Before joining HPE in 2014, Krikke was a founding partner of TPG Ventures.

Krikke and Van Delden's new roles are intended to pave the way for the GP's future expansion, which will include expanding its investment team and the firm's mandate as a whole. "Growing is about the speed and the number of transactions we can do in parallel, and how much portfolio work we can handle," van Delden says. "We are building up our IR and operational capabilities, bringing in dedicated people to build out the LP base regularly and to ensure a high level of information flow, going beyond information that comes in waves during fundraising."

"Our growth and our new roles are a natural evolution of what we were already doing in the team, but now with a more formal mandate from the partnership," adds Krikke. "In our hiring, we want to have a good international team, and we are now seeking people with Nordic experience. Our cultural background fits really well there and we like investments in that area."

The GP has offices in Amsterdam and Düsseldorf, serving its core DACH and Benelux markets, although the firm has a mandate to invest across Europe. Future areas of expansion are also likely to include the UK.

"We have operating backgrounds ourselves and want to be 'hands on but not hands in'," says Krikke. "But that relationship-building takes time, so we don't want our senior level team to have too many board seats – for example, three to five is workable, but eight is difficult. Growing our team is also about the senior level staff we have for board involvement."

HPE takes a board seat each time it invests, meaning that its team needs to have the capacity for these roles, as well as other ongoing portfolio and investment work. The firm plans to increase its 17-strong investment team to 20 people in 2022.

Fundraising plans
A fundraise will be the next step in the firm's continued development. "We are expecting to launch a fundraise in early Q4 2021," says van Delden. "Prior to 2014, we had a broader definition for our technology investments, but now we focus exclusively on fintech, software, digital health and consumer internet. Our next fund will continue the strategy of HPE Digital II."

The GP raised its first fund for institutional investors a decade ago, with a final close for the vehicle in May 2011 on EUR 156m. Its second fund held a first close in Q4 2015 on EUR 100m, followed by a final close in Q1 2017 on EUR 193.3m. A EUR 50m co-investment account brought the total available for Fund II to EUR 243.3m. 

The firm expects to see increased LP interest in its technology-focused strategy compared with its previous vehicles, Krikke says: "Although technology growth in Europe was not necessarily front and centre as a category in LPs' minds when we raised our last fund, a lot more LPs have shown an interest in participating in the growth of European technology. It makes sense for us to expand our LP base internationally with our remit growing to cover northern Europe."

This potential LP base expansion reflects the shift seen in the technology sector in the US and Europe as a whole, Krikke notes: "Five to 10 years ago, many people felt that technology was synonymous with Silicon Valley. Many US LPs felt they would focus on the US to get their technology exposure. But the development of the ecosystem means the capital needs of companies have grown. Technology has also really penetrated all economies globally and all industries, so it is no longer just a Silicon Valley game."

The competitive nature of the US market means that there are high barriers to entry, Krikke says; but the European ecosystem is at an earlier and less abundantly funded stage: "The entry price is high in the US; you can get in at a lower valuation with less capital in Europe. So many people are now starting to think that it is a better risk-adjusted investment to back Europe."

HPE therefore expects to have a greater number of US LPs in HPE III, as well as global funds that tend to invest tickets of EUR 40m upwards.

HPE tends to make three or four investments per year and expects its third fund to make 9-12 platform investments in its next fund, as opposed to the eight or nine made from each of its previous flagship vehicles.

A developing portfolio
While HPE is looking to new platform investments with its next fund, its more mature portfolio has continued to develop. The GP announced a EUR 160m continuation vehicle for payments platform PPro in June 2021, as reported. HPE first invested in PPro in 2014, providing growth capital for a minority stake in the company. The company raised its latest funding round in January 2021, when Eurazeo, Wellington Management and Sprints Capital Management led a USD 180m investment in PPro at a valuation of more than USD 1bn.

"Covid drove companies like PPro into a dynamic growth environment, as you can see from PPro's fundraising," says van Delden. "In a hyper-growth environment, management wants to drive this growth story and raise capital, although some investors need to get out, which is the opposite of what management wants. Through the continuation fund, although the underlying investors are changing, HPE is remaining as a partner and an entrepreneur, without destroying value or momentum."

The vehicle therefore afforded LPs the option to commit to PPro's future growth, or to cash out; those who realised their investment have seen returns of 8x money.

While structuring a GP-led deal can be challenging for a high-growth company, the timing was right for the PPro deal, van Delden says: "A continuation vehicle needs time for the due diligence process, plus an election period where existing LPs can decide whether to sell or stay in – it's hard to find a window where a hyper-growth company is on an even level of growth to have the time to do this." PPro's latest funding round assisted with the process, van Delden says: "We had good pricing references and could use due diligence material from fundraising to run a very fast process to fit the criteria we needed."

Although the GP identified e-ticketing platform Tiqets and fitness equipment and software startup eGym as potentially being vulnerable to the effects of coronavirus lockdowns, the majority of the GP's portfolio was insulated against the pandemic, Krikke says: "When we invest in a company, we focus on attracting world class management teams, so the companies we had been invested in for a year or two benefited from having really strong management teams with well thought-out plans and they could execute these very efficiently."

However, companies in affected sectors did manage well through the pandemic, says Krikke. "For instance, eGym has kept revenue up and did manage costs down after taking a cautionary view, so they are now more profitable than before and well-positioned to grow well."

Integrating ESG
Part of the firm's growth will involve the continued development of its approach to ESG. "In the last three years, we have incorporated the belief that technology is not just a necessary part of doing business, but it is also a potential solution to social and environmental problems," says Krikke. "We aim to invest in positive technologies that are part of the solution. We try to identify companies that have the potential to have a positive effect. We look at resource efficiency, but we also try to minimise the potential negative use of technology – some software platforms are intended for positive use, but can be hijacked."

HPE currently publishes a quarterly ESG review and a yearly impact report. In addition to identifying areas where technology can have an impact from an ESG perspective, the GP intends to partner increasingly with LPs that have a significant interest in ESG.

"We have already issued two annual impact reports where we have identified KPIs, and we want to publish this publicly in future," says van Delden. "We are also thinking about putting some ESG elements into our carried interest and KPIs at fund levels – you need a trigger point where you make this culture consequential, and as our existing LPs are also seeing these trends on their side, it makes sense to do it."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Send to  

• Topics
• GPs
• Benelux
• Technology
• Venture
• In Profile