PAYING UP FOR CYBERSECURITY
Good morning, Term Sheet readers.
KKR has made a minority investment in cybersecurity startup KnowBe4 in a deal that values the firm at more than $800 million. KKR is making an initial commitment of up to $50 million in KnowBe4, according to sources with knowledge of the transaction, with plans for an additional investment in the company already in the works.
The deal is being made through KKR’s $711 million Next Generation Technology Growth Fund, which targets investments in software, security, digital media and information technology. KKR is teaming on the deal with cybersecurity-focused venture capital firm and frequent collaborator TenEleven Ventures.
The funds are expected to aid Tampa Bay, Florida-based KnowBe4’s ongoing international expansion and the development of its cybersecurity training platform, which helps companies combat phishing and other data breaches. The deal also represents KKR and TenEleven’s latest venture into the realm of cybersecurity—following previous investments in companies like software firm Cylance, which was acquired by BlackBerry for $1.4 billion in November, and artificial intelligence firm Darktrace, whose most recent funding round in September valued it at $1.65 billion.
“It was really clear to us that you have a [cybersecurity] market that is growing at a very high rate,” KKR director Stephen Shanley told Fortune. Shanley noted that while spending on cybersecurity solutions globally now approaches $50 billion a year, the number of cyber attacks and breaches continues to rise—with more than 90% of breaches caused by human errors such as “employees clicking on phishing links that they shouldn’t have.”
I’ve written before about private equity's ever-growing appetite for cybersecurity. (Remember Thoma Bravo’s mega-deal in which it acquired software security firm Veracode for $950 million in cash?) According to Pitchbook, private equity firms had completed more cybersecurity deals in the U.S. and Europe in 2018 than in any other recent full year.
Private equity deal activity in the tech sector has tripled since 2010. So what are some of the factors at play that make tech companies attractive targets? Last year, I spoke with Hugh MacArthur, Bain's head of private equity, who shed some light around private equity's increasing interest in tech. He said that tech in the U.S. has been the largest sector for PE investment for the last three years, and approximately half of the deals are in software.
"A lot of the tech sector businesses have some attractive growth characteristics," he told Term Sheet at the time. "They are new economy businesses able to drive technological change and are on growth curves that support the very high multiples that we're seeing in the marketplace right now."
That said, private equity is interested in tech companies while everyone is willing to pay high multiples for these companies. This won’t last forever.
WEEKEND READING: I asked Term Sheet readers to submit their all-time favorite business features (profiles of companies or business leaders). Here is what they sent:
Jack: I'd like to nominate "The Ballad of Richard Jay Corman" by Carol Loomis. It's a great American story: he built a business empire out corporate castoffs and hustle, facing personal crises and his own end with bravery and humor. Pure pluck, and hardly anyone knows of him.
Jacob: I wanted to share the below profile on David Zalik, the founder & CEO of Greensky, a public ($400M revenue / $175M EBITDA) POS loan approval platform largely used in home improvement financing.I found this interesting both due to its background on an underappreciated company (albeit one facing new challenges from incumbents like AmEx) and on a CEO who is more “heads down, do the work”-oriented than some of his flashier / high-profile Silicon Valley peers. Hope you enjoy the read as well.
Gregg: This Fortune article (“Inside The Deal That Made Bill Gates $350,000,000”) is by far the most intriguing I’ve ever read. Woven into the story is my personal hero — Eff Martin, a friend and colleague. He once said, “Yes, I took Microsoft public and that was a very good thing.” Indeed! The world of high tech finance was never the same again after that day.
THE LATEST FROM FORTUNE...
• Saks Takes Back Fifth Avenue (by Phil Wahba)
• HBO's CEO and Hitmaker Richard Plepler Leaving Cable Network Following AT&T Merger (by Brian Raftery)
• Drug Companies Have Big R&D Expenses and Still Make Large Profits (by Erik Sherman)
• Why Amazon May Pay No Federal Income Taxes This Year (by Rey Mashayekhi)
Private equity investors worry about managers overpaying for deals. Some Uber, Lyft drivers to get stock in IPOs. Uber is in advanced talks to buy Mideast rival Careem for $3 billion. Tax law gives Wall Street a break when buying private jets. The MBA myth and the cult of the CEO.
• Chehaoduo Group, a China-based platform for integrated automotive retail services in the used car sector, will raise $1.5 billion from SoftBank Vision Fund.
• Danke Apartment, a China-based apartment management company, raised $500 million in Series C funding at a valuation over $2 billion. Tiger Global Management and Ant Financial co-led the round.
• Jobcase, a Cambridge, Mass.-based operator of a platform for the blue-collar-oriented workforce, raised $100 million in funding. Providence Strategic Growth led the round.
• Bandier, a New York City-based activewear retailer, raised $34.4 million in funding. Investors include C Ventures and Eurazeo Brands.
• Socure, a New York City-based provider of identity verification and fraud prevention services, raised $30 million in Series C funding. Scale Venture Partners led the round, and was joined by investors including Commerce Ventures, Flint Capital, Two Sigma Ventures, Synchrony and Sorenson Capital.
• Hortau, a Canada-based provider of precision irrigation management services for commercial agriculture., raised $20 million in funding. Investors include Export Development Canada, Fonds de solidarité FTQ, Avrio Ventures LP II, Advantage Capital Agribusiness Partners LP, BDC Capital Inc and Capital régional et coopératif Desjardins.
• Ceros, a New York and London-based professional content creation platform, raised $14 million in Series C funding. Greenspring Associates led the round, and was joined by investors including Grotech Ventures, CNF Investments, Sigma Prime Ventures, StarVest Partners, Greycroft and Silicon Valley Bank.
• Odaseva, a France-based cloud data management platform for businesses, raised $11.7 million in Series A funding. Partech led the round, and was joined by investors including Salesforce Ventures and Serena.
• Beam, a compliance technology platform, raised $9 million in funding. Investors include Greycroft Partners, Canaan, Broadhaven, Conversion Capital, Plug and Play and Slow Ventures.
• Mintigo, a San Mateo, Calif. and Israel-based B2B customer intelligence platform for marketing and sales teams, raised $7 million in funding. Glilot Capital Partners and JAL Ventures led the round.
• Curv, a digital asset wallet company, raised $6.5 million in funding. Team8 and Digital Currency Group co-led the round, and was joined by investors including Flybridge Capital, Jump Capital, Monex Group, and Liberty City Ventures.
• Kindred, a company that brings together communities of creators, platforms and brands, raised $3 million in funding. Primary Venture Partners led the round.
• Beanfields, a Los Angeles-based maker of healthy chips, raised Series B funding of an undisclosed amount. PowerPlant Ventures led the round, and was joined by investors including NRV and Western Technology Investment.
HEALTH AND LIFE SCIENCES DEALS
• Maze Therapeutics, a Redwood City, Calif.-based research and development services company in the field of genetic modifier therapeutics, raised $191 million in funding. Third Rock Ventures and ARCH Venture Partners co-led the round, and were joined by investors including GV, Foresite Capital, Casdin Capital and Alexandria Venture Investments.
• StemoniX Inc, a Minnesota-based biotech company, raised $14.4 million in Series B funding. Brightstone Venture Capital led the round, and was joined by investors including Crescent Ridge Partners, SEED San Diego, Alumni Ventures Group, Keshif Ventures and Mayo Clinic.
• Sight Diagnostics Ltd, an Israel-based provider of diagnostic testing, raised $10 million in funding, from Longliv Ventures.
PRIVATE EQUITY DEALS
• Argonaut Private Equity made an investment in Mammoth Carbon Products, a Houston-based pipeline distribution company. Financial terms weren't disclosed.
• Frostkrone, a portfolio company of EMERAM Capital Partners, acquired Rite Stuff Foods Inc, a specialty potato product maker. Financial terms weren't disclosed.
• Vance Street Capital acquired Measurand Group, a designer and manufacturer of geotechnical instrumentation used to monitor the deformation of soil and structures. Financial terms weren't disclosed.
• Futu Holdings, a Hong Kong-based online brokerage, plans to raise $120 million in an offering 10.9 million ADSs priced between $10 to $12 (25% insider). It posted revenue of $103.6 million and profit of $17.7 million in 2018. Tencent backs the firm. Goldman Sachs, UBS Investment Bank and Credit Suisse are underwriters. It plans to list on the Nasdaq as “FHL.” Read more.
• Luckin Coffee, a Chinese coffee unicorn, has reportedly selected Credit Suisse, Goldman Sachs, and Morgan Stanley to work on a 2019 U.S. IPO. Read more.
FIRMS + FUNDS
• Human Ventures, a New York-based investment firm, raised $50 million for its new fund.
• Tim Chae has been promoted to general partner at 500 Startups.