KKR L P : Getting the Most from Your Growth Equity Investors

By Dave Welsh Oct 23, 2017

Entrepreneurs embarking on their early funding rounds put investors through all sorts of tests and reference checks and due diligence to find the right partner who can help shape what might be little more than an idea into a commercial enterprise. But come time for a later stage growth round and that rigor oftentimes dissipates, making it seem as though the primary factor that matters is money.

That's a mistake. Entrepreneurs owe it to themselves, their companies, their employees, and their existing investors to demand as much or more from their growth investors as from their Series A investors. In this regard, not all growth investors are equal.

Later stages aren't any easier than earlier stages and require different skills. The deciding factors in making a successful leap from $15 million in annual sales to $100 million and beyond will include, among other things: Expanding internationally, establishing a scalable sales model and process so that every deal doesn't have to go through the CFO or CEO, onboarding customers effectively and efficiently, getting more sophisticated about pricing, and building a channel structure that provides leverage and scale. These issues, and a host of others, distinguish the later stages from early stages and require specific expertise to keep momentum building.

Entrepreneurs, however, have been conditioned not to expect much from growth investors outside of capital, especially now that there are more options than ever via mutual funds, private equity firms, early-stage firms reaching into later stages, hedge funds, corporates, and sovereign wealth funds, etc. Overall, entrepreneurs should ask if their investors are looking for market returns or company returns? Entrepreneurs deserve the latter.

Here's what to look for in a growth investor:

1. Experience: Is the track record there for building companies beyond early stages? Has an investor been through economic cycles before? The good times won't always last and that's when an experienced partner is needed most.
2. Additive capabilities: What else does this investor bring to you besides money? Can they advise on global expansion, provide operational or capital markets support, or offer a path to new customers, among other things? KKR, for example, has more than 100 portfolio companies with a combined IT spend of $7 billion annually.
3. Deep network: Personnel needs at later stages will be different and more numerous from those at the earlier stages. A value-add investor should be able to tap into a wide range of individuals for executive hires, board members and advisers.

Ask for references and case studies and do informal background checks. As an entrepreneur, you owe it to yourself to get more out of your growth investors than just money.

The views expressed reflect the current views of the writer as of the date hereof and neither the writer nor KKR undertakes to advise you of any changes in the views expressed herein. Opinions or statements regarding current events or trends are based on current conditions and are subject to change without notice. The views expressed herein may not be reflected in the strategies and products that KKR offers or invests, including strategies and products to which the writer provides assistance with or on behalf of KKR. It should not be assumed that the writer has made or will make recommendations in the future that are consistent with the views expressed herein, or use any or all of the analyses described herein. Further, KKR and its affiliates may have positions (long or short) or engage in securities transactions that are not consistent with the information and views expressed in this document.