KKR, a global investment powerhouse, tells TechCrunch exclusively that it just held a final close of its third and latest tech growth fund — KKR Next Generation Technology Growth Fund III — with roughly $3 billion in capital commitments, $400 million of which came from KKR’s own employees.
The team, which includes more than 35 investors focused on growth-stage companies in North America, Europe and Israel, with another dozen focused on the APAC region, has been raising the fund since early last year.
According to a regulatory filing, the group’s first, tech growth fund, sized at $711 million, boasts an IRR net of the firm’s fees of 26.6% currently, including realized and unrealized gains. It has already returned more to investors than the capital they committed. Its second effort, a $2.2 billion vehicle closed in 2019, has mostly unrealized gains and shows a roughly 18% net IRR.
Some of the outfit’s past bets include Darktrace, the cybersecurity firm that went public in London in 2021, ForgeRock, a digital-identity software company that went public in the U.S. in 2021, and Lyft, which went public in 2019. Another bet, OneStream, which builds software tools and services designed for chief financial officers, reportedly tapped Morgan Stanley in late 2021 to lead preparations for a stock market launch but the company remains privately held.
If the newest fund was a challenge to close from its mix of backers, including sovereign wealth funds, public pension plans, insurance companies, endowments, and private wealth platforms, fund head Dave Welsh doesn’t say so explicitly, though in conversation earlier this week, he sounded relieved to be done with this latest fundraise. “Not to be too Pollyanna-ish about our own hand here, but we’re super glad we’ve got a new fund and we’re not out raising right now. I think it’s tough,” he said.
KKR’s tech growth group focuses predominantly on minority transactions, but typically plugs one third of its capital into majority ownership positions. (OneStream, based in Rochester, Michigan, is one example of the latter scenario. KKR bought up most of the young company back in 2019.)
Unsurprisingly, Welsh says the focus is on companies with “really strong growth prospects for the long term,” and at an earlier stage of the businesses’ life than might interest KKR’s much bigger buyout funds. A typical check might range from $50 million to $250 million, for example, where the firm’s even larger funds are usually writing checks of $500 million or more.
The ideal holding period is four to five years, though Welsh says the team can be flexible. Ideal targets are already generating tens of millions of dollars in revenue by the time KKR gets involved. Welsh further estimates that two thirds of the group’s portfolio companies have raised venture or institutional backing previously, with the rest looking more like a traditional PE target, meaning they’ve bootstrapped their way to success or raised small amounts of funding from friends and family.
As for areas of focus going forward, Welsh suggests the mix to date will likely remain the same, with 70% of his unit’s capital flowing to software companies, and largely cybersecurity companies, where the opportunity is ever changing. The rest of its bets he refers to as “internet.”
