Hermes GPE: Innovation Fund

Financing disruptive European businesses with a sustainable growth profile

Overview

Hermes GPE is an experienced global investor with an impressive 27 year track record. With offices in London, New York and Singapore, the firm has deployed $7bn to 267 funds and $3.2bn to 213 co-investments.

Hermes GPE is currently raising a £250m dedicated growth venture capital fund – Innovation Fund ‘HINF’.

Europe’s venture ecosystem has matured significantly over the past 10 years, matching US returns with thousands of companies graduating from venture to growth stage. Multiple hubs of innovation across London, Paris, Berlin, the Nordics, Barcelona, Switzerland, Israel offer unparalleled research and software engineering bases from top universities and research institutions. Despite this, and the commercial opportunity available from digital transformation across industry segments, Europe has a larger funding gap at acceleration stage than the US. Hermes GPE’s track record in the space is strong having already implemented a similar-sized growth capital programme since 2014, equivalent to a £300m fund, completing 26 investments with the target European growth strategy, performing at over 20% IRR across both fund and co-investments.

The fund will be investing in 20-25 funds and co-investments with a thematic approach to three megatrends; Digitalisation, Healthcare and education and Sustainability. Fund investments are focused on scale-up (no buyout) and co-investments target companies with minimum revenues of €5m run-rate and revenue growth >30% YoY. The pan-European strategy focuses on key geographical hubs driving innovation including London, Berlin and Stockholm. Through this strategy the fund seeks a 15-20% gross IRR.

The fund has had a Foundation Close at £100m, backed by The British Business Bank, the BT Pension Scheme and Ardian. As the Fund’s cornerstone investor, the British Business Bank has committed up to £100m in total from its Managed Funds Programme. The Innovation Fund is expected to exceed £250m at final close by 2Q 2021.

Strategy

The Opportunity:
Europe, the world’s 2nd largest global economy saw €21bn invested in European VC / growth in 2018. A strong tech ecosystem with 5.7m professional developers (more than the US’s 4.4m) has created recent unicorn exits such as Skycanner (£1.4bn acquisition) and iZettle ($2bn acquisition) which are fuelling local VC ecosystems. Over 20,000 growth capital deals have been executed over the past five years yet VC investment only constitutes 15% of total PE (vs. 31% in the US). Digital transformation across industry segments are seeing $50 trillion market segments being re-organised by disruptive challengers such as Klarna (Fintech), UiPath (Automation), Deliveroo (Retail) and Babylon (Healthcare). Hermes GPE seeks to seize on long term thematic trends which are opening up large new markets for innovative companies.

Target Investments:
Hermes GPE’s Innovation Fund’s strategy is to make investments according to the following criteria:

Funds:
–  Target Strategy:  Late venture, growth equity, scale up focused (no buyout)
–  Target Manager:  A selected mix of emerging vs. established
–  Target Sector:  Diverse mix i.e. commerce, cybersecurity, software

Co-investments:
–  Company Size:  Minimum annual run rate of €5m
–  Company Stage:  Proven product market fit and reference customers
–  Team: Experienced founder and executive team
–  Growth Profile:  YoY revenue growth >30%
–  Profitability:  Profitable or close to profitability
–  Financing Rounds: B+, investment rounds of €5-50m

Impact:
Hermes GPE are a leading proponent of ESG integration within private equity investing being an early signatory to the UN’s Principles of Responsible Investment and having consistently achieved A*/A grading.

Sustainability driven investment approach:
–  Thematic investment approach:  Drive investment opportunities with a broader positive effect on environmental, social and productivity increasing businesses, with the expectation that high growth businesses will deliver an exponential positive impact
–  Non-financial considerations:  Improve investment performance, with returns enhanced by active recognition and management of ESG issues
–  Hermes GPE ESG framework:  Ensures that material ESG risks and opportunities are identified and effectively managed, recognised by BVCA’s 2016 Responsible Investment Framework award
–  Track Record:  Throughout its investment history, Hermes GPE has remained closely aligned with all 17 UN SDGs

Indicative Pipeline

Fund: Scottish Equity Partners (€40m+)
Leading European growth investor with whom Hermes GPE enjoys a strong relationship since 2008 having committed £30m+ to five fund and £10m+ across three co-investment transactions. The manager predominantly focuses on five target sectors: internet and consumer services: software and cloud enabled services; IT services, healthcare IT, energy efficiency.

Co-Investment: ELeather (€31.5m)
The pioneer of engineered leather with a propriety clean-tech manufacturing process which combines traditional leather fibres without the use of unfriendly adhesives that can be harmful to the environment. Furthermore, the process recycles 95% of the process water, and the waste streams are converted into energy which is fed back into the process.

Co-Investment: Project Doctor (€8m)
Booking platform and management software provider for doctors, helping to automate practice’s booking process efficiency and prevent wasted appointments.

Team

  • Elias Korosis

    Partner

    8 years in growth investments with prior experience at Bridgewater and Citigroup. MSc in European Political Economy.
    Illustrative deals: iZettle, Deliveroo, Dotmatics, E-Leather.

  • Fidel Manolopoulos

    Principal

    13 years in growth investments with prior experience at Viewpoint Capital, Kennet Partners and Mojo Capital.
    Illustrative deals: Tricentis, Dovetail, DocPlanner, EasyPark.

  • Christian Mankiewicz

    Principal

    6 years in growth investments with prior experience at BVV Pension Fund. MBA from London Business School, CFA.
    Illustrative deals: Hepsiburada, E-Leather, Allegro.

Contact

 

Key Facts

Size £250m
Asset Type Fund of Funds
Geography Pan-European
Impact Technology
Target Return 20% IRR
Fund Structure Closed-Ended
Fund Term 10 years
First Close £100m
First Close Date 2Q 2020
Final Close Date 2Q 2021
Committed Capital £100m