Q&A WITH ALEX KING, DIRECTOR, KENNET VENTURE PARTNERS
Kennet Venture Partners is a technology-focused VC, operating out of London and Silicon Valley. The firm has $280 million under management, split across two funds. Kennet I was raised in 1997 and invested through to 2000. There have been six successful exits to date; with notable portfolio companies including Paragon Software, Altitun and Cramer Systems.
Kennet II, a $205m fund, was raised in 2000 and investments to date include Exony, Clearswift, Aarohi Communications and Volantis Systems.
Alex King is a Director of Kennet Venture Partners. Prior to joining Kennet, Alex was a Consultant with Spectrum Strategy Consultants, a leading provider of business strategy advice to international telecoms, internet and media companies.
Alex holds an MSc from the London School of Economics and an MA from the University of Cambridge.
We met up with Alex to discuss Kennet Venture Partners, what makes a successful entrepreneur, and the skills corporate executives need if they want to run a VC-backed growth business.
What makes Kennet Venture Partners different to other VCs operating within the TMT space?
I think there are a number of key factors that differentiate Kennet. Firstly, we work closely with top tier management teams from day one, helping to develop the business even before we invest. Secondly, as an investor we are very active. So, for example, each portfolio company has two Kennet staff working with it. This approach enables us to contribute both in terms of formal Board activity, but also through business development, hiring, customer and partner introductions, and so on. Finally, we are well positioned to help European firms, such as Cramer Systems, expand into the States - and US firms to come over here. There are very few VCs who are genuinely transatlantic.
Kennet I was one of the top performing funds in Europe. Tell us about it?
In terms of cash-on-cash returns, which has to be the real measure of success, Kennet I was very successful. 18 companies were invested in from 1998-2000 and we have achieved 6 successful exits to date. This was a $75 million fund, investing up to $6m in early-stage businesses. Exits include Swedish tunable laser company Altitun which was acquired by ADC for $940 million in May 2000, and Paragon Software which was acquired by Phone.com (now Openwave) in March 2000 for $540 million.
Kennet II is a $205 million fund that was raised in 2000. This fund invests in more substantial companies (typically $5-50m in revenues). The business model in these companies is proven so they are often into profit (or at break-even) and will have shipped product and ensured a market position. Kennet II has 4 active investments including contact centre software firm, Exony, content security software firm, Clearswift, storage semiconductor company, Aarohi Communications, and content delivery software company, Volantis Systems.
How does Kennet source its deal flow?
We focus on successful companies which have never before raised institutional capital. As a result we have a very proactive, resource intensive deal sourcing process. Opportunities are primarily sourced through industry networking - both within the entrepreneurial and corporate technology communities - and by contacting interesting companies directly.
The deal cycle is now much longer, typically 12-36 months, but our fundamental approach remains the same: we are relationship-driven investors and there must be a strong bond with the management team before we invest. We also look for entrepreneurs who want to bring in a value-added investor rather than a passive financial partner.
What qualities do you look for in a successful entrepreneur?
The first requirement is a real passion for what they are doing, a belief in the product, and the benefit it provides to the customer. Many companies start as a services business - enabling the entrepreneur to understand customer needs in great detail. Over time these companies are able to develop products and solutions based on real customer demand.
Good entrepreneurs, therefore, understand customer 'pain points', and are able to build a company that can solve these problems. For example, as a result of working closely with its customers, Exony has developed software which enables large enterprises to drastically reduce the cost of operating contact centres by automating traditional manual business processes.
Secondly, the entrepreneur must have the desire to build a really big, successful business. An investor's return is entirely dependent upon the scale of success that the lead entrepreneur wants to achieve. What constitutes real wealth and achievement varies by individual, and is often defined by personality and cultural conditioning.
Thirdly, successful entrepreneurs tend to recognise their own strengths and weaknesses, and will hire complementary teams around them to grow the business.
What if an entrepreneur has 'failed' in the past?
Successful, ambitious entrepreneurs have almost always 'failed' at some point. Most will learn at least as much from their mistakes as they will from their successes. If these lessons can be applied for future benefit, then the occasional failure can become a very powerful asset. The critical issue for us would be to understand the reasons for failure - for example, whether it was a market timing issue or problems with execution.
If you are hiring an executive from a large corporate background as a CEO into one of your portfolio companies, what key attributes do you look for?
The first point is to look for broad commercial experience. Many MNCs ask their executives to specialise early. What we require, however, is someone who understands the whole commercial operation. My advice to anyone in a corporate whose future career plan is to manage an early-stage or start-up business, is to gain as much broad-based experience now as they can, encompassing both sales and technical functions.
Secondly, it is essential that whoever comes in takes full P&L responsibility and personal ownership for ensuring that targets are set and achieved. He or she must be capable of driving the team to achieve those targets.
Thirdly, we look for executives who have created a strategy, rather than merely executed a pre-defined programme. Therefore, the individual must be creative as well as execution focused.
Fourthly, we require a different skillset dependent upon the stage within the business lifecycle that the company has reached. A serial entrepreneur is ideal to kick start a company, whereas more substantial and mature companies usually require professional corporate management experience, as a different set of challenges will need to be addressed.
Finally, we look for an executive who has been successful in real market conditions. Success gained within the 'bubble' is unlikely to represent a fully accurate indicator of performance within these more challenging market conditions.
To find out more about Kennet Venture Partners visit www.kennetventures.com. Alex King can be contacted at aking@kennetventures.com or +44 (0) 20 7968 3821.
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