Kennet V, a high-growth technology fund launched by technology investor Kennet Partners and Edmond de Rothschild Private Equity, has raised €223 million (£200 million) in funding.
Investors from Japan, China and the rest of Asia have backed the fund, which is looking for opportunities in the European Software as a Service (SaaS) market.
British Patient Capital, the long-term investment arm of British Business Bank, has also invested €57 million in the €223 million fund.
The firm is targeting “must-have” SaaS solutions in areas such as legal, compliance and accounting, many of which fall into the description of financial automation.
The fund has already made four investments and has more in the pipeline in what it describes as “boot-strapped” and “capital efficient” businesses.
Kennet V’s investments to date include companies such as Eloomi, a cloud-based performance management and learning management system and Codility, a remote-first platform for hiring software engineers.
Kennet invests in established, high-growth technology companies which are founder-owned and built without significant external capital.
Typically, investment from Kennet is the first external funding which companies receive and is primarily used to support international expansion, enabling companies to develop a SaaS business model.
Previous fund investments include Receipt Bank, the leading pre-accounting tool for accountants and bookkeepers; Nuxeo, a leading content services platform; and Rimilia, a financial automation software platform as well as numerous exited companies.
The fund, Kennet V, will have a 10-year lifespan, with investments being made over the first five years in the business-to-business sectors, before earning its money back over the remaining period.
Kennet managing director Hillel Zidel said the fund is investing in businesses with three core elements to them: they are customer-centric with low turnover in clients, they have been built to a level of scale without the reliance of outside investors, and they have founders who will use Kennet’s “money as wisely as they have used their own money”.
Zidel said: “We like the founders to sleep well at night.”Kennet has an advisory board, many of whom are former senior leaders of SaaS businesses, who can help to mentor and advise some of the investee business and may take places on the board.
Zidel said often these kinds of “boot-strapped” businesses have not had the time, expertise or capital to know how to expand into larger international markets such as the US or known when to appoint senior management figures such as a CFO.
Fellow managing director Michael Elias stressed Kennet is a growth capital firm, not a venture capital or a buy-out business and is flexible what size equity stake it takes in businesses along as it is “meaningful”.
He added the fund’s capital would be used for growth and expansion, particularly in areas of sales and marketing for the investee businesses which have demonstrated a resilience to turbulence such as Covid-19.
Interestingly, valuations for the kind of private SaaS businesses have not changed materially since the beginning of 2020 and the outbreak of Covid, according to Kennet.
Elias said valuations in the public markets for SaaS businesses, particularly in the US, had been very strong and seem to have rebounded from the lows of the first quarter.
Kennet is a long-established investor in European technology with offices in the UK and US, managing cumulatively over $1 billion in assets. It does not quote publicly a target rate of return for its funds