In a world of unprecedented innovation and technology advancements, demand for growth capital is soaring, says Phil Guinand, partner and head of Permira Growth Opportunities.
What are you looking for in the management team of a growth company? Conversely, what are they looking for in Permira?
The three most important things that we look for in a growth company are the team’s vision, passion and integrity. We look for hungry management teams that have a clear strategy for how they want to turn their disruptive business into a global platform.
On our side, we bring decades of experience and the vast office network and resources of Permira to help them achieve that growth. Permira itself has been a real growth story over the years, and so we have a great deal in common with those management teams as they strive to achieve their ambitions.
How do you assess some of those ‘softer’ factors, such as passion and integrity?
We are very thoughtful about where we deploy our capital, because our partners, employees and investors depend on us to be exceptional stewards. Who you partner with says as much about you as anything else. To that point, we analyse things like management teams’ prior experience and track records, as well as a company’s reputation with its employees. All of this is critically important given that we are ultimately in the business of backing people.
Though the worst of the pandemic is seemingly behind us, we continue to live in uncertain times. How are growth businesses being impacted by the macro environment, and what can an experienced investor bring to the table in that regard?
We’re spending a lot of time concentrating on how we can support businesses against the current backdrop of macro events. We have a deep and experienced team of investors who have been through previous recessions, including the dotcom bubble, the financial crisis and covid-19.
We also have a real breadth of knowledge given the geographical reach of the firm, which brings a lot in terms of perspective. But, right now, the situation is particularly complicated. Inflation is at the highest levels we have seen in almost 40 years, there is massive supply chain disruption, and a crisis in Eastern Europe is being felt around the globe.
In addition to bringing our own experience to bear, we are looking for experienced leadership teams in order to weather these challenging times. Those management teams then also have a lot they can learn from one another. For example, in February, we held an ad hoc forum for our CEOs so they could collectively discuss how they were handling the conditions.
When it comes to the fundamentals of the business itself, you describe yourselves as product led. What does that mean and why is that your primary focus?
If you have a great product led by a high-quality management team, then it really comes down to go-to-market and execution – letting people around the world know that the product exists and that it meets their needs. It could be a product that is well known in Europe and needs more exposure in North America, for example, or vice versa. We are often helping something regional become global.
In fact, in many ways, Permira itself is a product-led business. We started out in European private equity in 1985, when the asset class was brand new, and later took that product and enhanced it, opening offices in New York in the early 2000s and then in Hong Kong and Menlo Park, California, in 2008. We also launched a credit business, and then five years ago launched our minority growth strategy. When we say product led, that is what we mean. We are looking for management teams that are thinking about how they can expand their products and ultimately expand their business.
What else would mark out a potential growth capital target as a Permira Growth Opportunities company? What are some of your top priorities?
I would reiterate the importance of product. If you don’t have a great product, then everything else becomes exponentially more difficult to do.
We are looking for disruptive business models. We see the world as divided into incumbents and disrupters: the disrupters are usually growing faster than the incumbents, albeit the incumbents have scale. So, we are looking for disruptive business models that we believe can become global platforms over time. We like large end markets and businesses solving massive pain points. The team should be able to articulate what a company does and the problem it addresses, simply and succinctly.
We are big advocates of the mantra, “Stay humble, stay hungry.” It is a mentality we live by as a firm, and which we also look for in the teams we back.
Finally, we look for visionaries with big ideas. For example, when we first met Sebastian Siemiatkowski, chief executive of Klarna, in 2015, the business was valued at more than $2 billion and was the leading alternative payments platform in the Nordic region and Germany. Sebastian had a vision of it becoming the leading alternative payments platform in the world. Fast forward to 2022 and he has achieved his ambition: the business is now valued at more than $50 billion and growth is accelerating. We find that vision and that passion really exciting.
Which sectors are generating the most interesting growth opportunities for Permira right now?
We are thematic investors. We have spent a lot of time in fintech: the Permira funds previously invested in an e-commerce software company, Magento, which included a large payments business, and so we started to look at other companies doing similar things. That led to us partnering with Klarna. We then continued to go deeper into the fintech sector, recently partnering with Carta and GoCardless. That is an example of us identifying sectors that we believe are going to produce longterm winners and then going super deep into those markets.
Another example would be the cloud transition, which has created an incredibly large security challenge and therefore an incredibly large end market. We recently backed a company called Sysdig, a leading cloud security provider. That is a business providing a best-in-class solution to a problem in an area where we see a very large need.
What are some of the primary levers you employ when it comes to adding value and driving future growth?
International expansion is key. If you were to ask the CEOs of our funds’ portfolio companies why they chose to partner with us, European companies’ desire to expand further into North America – and, indeed, North American businesses wanting to expand further into Europe – would be the number one response. In addition to internationalisation, go-to-market is critical. These companies start with an idea, then they build a product around it. The next step is to get it out in the world for potential customers to see it. We have a lot of expertise in that area.
We also have an extensive network that we bring to bear, but as I alluded to previously, one of the most powerful
networks we can tap into is our own portfolio. The businesses we back are typically doing something pretty unique in their own market, but the challenges they face are universal. They are trying to hire at scale, for example, and are putting the systems and processes that are necessary to become a market leader in place. These are the growing pains of success.
We run a series of conferences across our portfolio, including for CEOs, CFOs and CTOs, in order to allow our leaders to share experiences and talk about the problems they are facing. We are very focused on transporting that knowledge across the portfolio in a highly intentional way.
What makes growth capital the place to be for investors?
Permira is all about growth. We provide buyout growth capital, growth capital credit and minority growth capital. The reason why there is such a focus on this part of the market is that there has been an explosion of fast-growing companies in technology. That is simply because it is more efficient and straightforward to build a business today compared to even a decade ago. Back then, you’d have to go out and raise $50 million to $100 million. It would take years to build a team, and most likely on your own infrastructure.
Today, you can raise $5 million to $10 million, use cloud infrastructure, operate with a core team plus virtual employees, and leverage third-party providers to accelerate your growth.
Against that backdrop, the supply of growth capital is still lagging the demand from these innovative, highgrowth, high-potential companies. We expect that trend to continue, and accelerate, going forward.