5-Minute Interview with Damian Hahnloser and Dennis Klieber, Growth Credit Partners
Dr. Dorothy Kelso
Managing Director, SuperReturn | Chair of Trustees | Emerging Manager Champion
In this series of 5-minute interviews, I shine the spotlight on up-and-coming fund managers in private markets across the globe. All geographies. All strategies. All sectors.
Here's my conversation with Damian Hahnloser and Dennis Klieber, Co-Founders at Growth Credit Partners (“GCP”).
Quick facts about GCP:
Q: What is GCP’s investment strategy?
A: We provide private credit-style loans to European tech-enabled growth companies with ticket sizes of €20m to €100m. These are senior secured instruments with warrants/equity upside.
Q: What is driving the growth of private credit in growth stage companies in Europe?
A: We are operating in an underpenetrated, sizable and fast-growing (25%+) end-market. The aggregate value of European “unicorns” is €300bn+ and there is a significant amount of companies (1000+) in the layer below (“soonicorns”).
Credit capital is still a relatively nascent part of the overall growth funding, but the penetration of credit has been increasing. With equity valuations in the private markets correcting, the deal flow for credit investing opportunities has increased as founders are looking to avoid down-rounds and significant dilution.
Q: What sector specialism do you have and how are you differentiated from others in this space?
A: We are exclusively focused on tech-enabled companies. Within technology, we are sector agnostic but instead focus on business models that make sense from a credit/downside protection perspective. We like business models with recurring revenues, proven unit economics, a clear value proposition and competitive moat. We also provide asset-backed loans to companies with hard assets which can provide collateral. We shy away from industries and situations when revenue is more unpredictable (e.g. biotechnology, quick commerce, deep tech etc.).
Q: What are some of the deals and exits you have done?
A: We have invested €180m across 4 deals on deal-by-deal basis. These include deals in sectors ranging from education technology, digital advertising, logistics technology to payments. We already had our first full exit and realized 24% gross IRR purely on contractual terms thanks to an early repayment.
Q: How do you source deals?
A: We have an extensive and diverse sourcing network of European growth companies. The vast majority of our deals are sourced actively and directly through proprietary and personal relationships and do not come through venture capital shareholders or bank intermediaries.
We typically work directly with the founders given our focus to provide more bespoke structures that better fit the entrepreneurs. We also regularly get founder referrals who introduce us to their peers who are raising new capital. We selectively work with trusted boutique advisors who specialize in the European technology lending market.
Q: What hands-on expertise do you have?
A: Growth lending is a relatively new asset class. We have complementary experience in cross-asset class investing and an extensive track record in adjacent areas having invested more than $5bn. Our toolkit has been honed in Private Equity, Private Credit, Special Situations and Public Equity (Blackstone, Centerbridge, Lone Star, GIC and PrimeStone). Charlotte Henderson, our COO/General Counsel, has significant experience across fund structuring and legal execution (All Seas Capital, Ashmore and Sullivan & Cromwell).
Q: What is the team’s history?
A: We are the founders of GCP having known each other since pre-university days. The senior team is complemented by Charlotte Henderson who brings 20+ years of legal experience and is our COO/General Counsel. We also have an Associate supporting us on the deal underwriting and execution. We will expand the team across investing and operations roles to allow for our deployment targets and thorough portfolio monitoring.
Q: How do you see your business scaling?
A: We have deployed €180m across 4 transactions on a deal-by-deal basis. We intend to execute 3-5 deals per year (ticket sizes of €20m – €100m) out of our first commingled fund. We are operating in an underserved market and growth credit is a structurally growing asset class with strong value proposition in all market environments. We aim to be the go-to fund for European technology companies requiring sizable and flexible credit solutions.
Q: What are the key ingredients of your success?
A: We are 100% dedicated and focused on providing credit capital to European tech-enabled growth companies (it’s even in our name and we are doing exactly what it says on the tin!).
Our focus and natural network among the European founder universe give us differentiated access to best-in-class deals. We are agnostic about how a business has been funded on the equity side (bootstrapped, VC, angels, family offices) and we typically work directly with the founders. Doing 3-5 deals per year enables us to build strong relationships, get to know our companies in detail and support the entrepreneurs on their growth journey.
We are experienced investors with a fundamental underwriting skillset given our prior experience in Private Equity, Private Credit, Special Situations and Public Equity. This allows us to underwrite, price and structure deals with an embedded focus on downside protection while also being able to underwrite the equity upside. The risk/reward of our deals is differentiated due to the fundamental underwriting and bespoke deal structuring as well as driven by the lack of capital and dedicated competition within our market segment.
Q: How do you fit ESG and impact into your growth lending strategy?
A: We specifically aim to identify growth companies that can offer attractive returns while thriving in a world that is growing in its ESG awareness and implementation. Our borrower universe of European growth companies has often been founded with a strong ESG mindset.
We think there is significant impact from our investments. Our loans mostly constitute primary capital (not cashing out previous investors) that helps businesses grow and supports employment. Our borrowers have impactful missions, such as reducing the CO2 footprint of ecommerce, making quality education available to everyone, and supporting small businesses. Our capital supports their missions.
Q: What’s the biggest challenge you have had to overcome?
A: Growth lending is a relatively new asset class. People are usually familiar with growth equity (primary equity growth capital), venture debt (smaller tickets, rigid structures, VC-led) and LBO lending (sponsor required, proceeds used for buy-outs and recaps). Growth lending sits in between as we provide primary growth capital in the form of sizable and flexible credit solutions. LPs are becoming more familiar with our large and fast-growing part of the market and attractive risk/reward.
Q: What valuable lessons have you learnt that helps drive your approach?
A: If you are building something that is interesting, innovative and really needed or filling a market gap (like our capital), people you have worked with in the past are willing to support you along the journey. In particular, we very are grateful for the support we have received from our former mentors at Blackstone and GIC who have invested with us and are supporting us strategically.
We feel the same way about the entrepreneurs we back. It’s the businesses they run and problems they solve that make us excited about supporting their growth.
Q: What advice would you like to share with our readers?
A: Invest in people, embrace calculated risks, and focus on long-term value creation – growth is driven by vision and disciplined execution.
#privatequity #venturecapital #privatecredit #innovation #investing #entrepreneurship #europe #tech
Absolutely agree with this approach! Investing in people and having a clear vision are crucial for sustainable growth. What strategies do you find most effective for balancing risk and long-term value?
CEO of GIG Inc.
4 个月Great read.