How we are building Europe’s most exciting portfolio of private, fast-growth companies
Standing in front of a crowded room of shareholders, colleagues, and the leaders of our portfolio companies at Kinnevik’s Capital Markets Day back in September 2019, I was excited and a little nervous. I was about to announce the third major business pivot in Kinnevik’s long history as a successful investment firm, one focused on boosting our exposure to private and fast-growing start-ups. Previous pivots had centred around using stable cash flows and dividends from pulp and paper to invest in TMT throughout the 1990s, and then zeroing in on internet pioneers during the dotcom and 2010 era.
I spoke of our vision to become Europe’s leading listed investor in growth-stage businesses. I then unpacked our specialism of partnering with the most innovative companies that are finding new ways to make consumers’ lives better and how to grow them into digital category winners. Evolving consumer behaviours had prompted our plans to weigh the portfolio more towards fast-growth digital startups, where we see the most potential for digital transformation and ultimately the best long-term returns.
The team set to work executing upon this bold new course of action. But little did we know that other factors, external factors way beyond our control, would also be at play over the coming year. Shortly thereafter, a devastating pandemic would rip through the world, resulting in dramatic cultural, economic and political shifts. Shifts that transformed our lives, how we work, and how we communicate with others. Seemingly overnight, we saw a significant acceleration of the already rapid digitisation of many services that the team here at Kinnevik had anticipated. This digitisation of services had been a core tenant of Kinnevik’s investment thesis for years. But it has now happened in months rather than years. As a result, 2020 strongly validated our strategy and fuelled growth among our portfolio companies.
To balance our portfolio, we not only needed to expand our growth portfolio, but we also looked at our larger long-standing holdings. We proposed distributing Kinnevik’s stake in Zalando to our shareholders. Given the business’ maturity, its strong market position, and exciting forward momentum generated by rapid digitisation in retail, we felt 2021 was the right time to propose giving shareholders a direct stake in Zalando.
This is not only an important step forward in transforming our portfolio to focus on younger, largely private digital businesses, cementing our position at the centre of Europe’s digital ecosystem. It also shares tangible value with our investors, and is a way for us to thank them for their commitment.
I’m proud of our partnership with Zalando, through the company’s European expansion, it’s IPO and impressive growth. And I’m excited that we can now do the same with the next generation of digital challenger businesses. This moment in time presented an opportunity for myself and the management team to remind ourselves of the four pillars of our unique investment approach.
1. We are experts in understanding complex and fast-changing consumer behaviors, and are backing the business models that are harnessing the power of technology to address vital, everyday needs and make consumers’ lives better in the digital age.
Kinnevik’s team is made up of executives with hands-on, personal experience of founding and running challenger businesses. They’ve managed periods of dramatic changes in consumer behavior, digitisation of business models and milestone moments like acquisitions or exits. What’s more, our operating model allows our sector experts to spend significant time with the leadership of our companies as an active investor. For example, we don’t need to spend time constantly looking for numerous investments or worrying about distributing carry from individual funds. We have added some incredibly impressive leaders to our team in recent months — including Anna, Erika, Natalie and Andreas. They are all working closely with founders across disciplines from hiring, to sales, to acquisitions and new market entry.
The consumer has always been at the heart of everything we do, and we first capitalised on the shifting telecoms and media landscape in the 1980s, before applying this approach through the dotcom era as retail and services shifted online. And now a tremendous technological progress is happening at an accelerating pace, so we are backing transformative digital businesses from healthcare to e-commerce, and food to financial services.
2. We have a strong track record of building successful businesses over the long-term — looking at both our larger holdings and our newer growth portfolio.
At Kinnevik, we have been constantly focused on finding the next generation of winning businesses and working closely with them over decades of growth. We can do this because we have permanent capital, unrestricted by investment constraints and fund maturities. This makes us a well-placed partner to our businesses at every stage of their journey. It’s easy to see results with Tele2 and Zalando, but we have seen strong value creation among our younger investments too. We are already seeing a number of portfolio companies achieving astounding growth and success, which we believe will generate significant returns for our shareholders.
To pick out just a few examples, we invested in VillageMD in the autumn of 2019, and doubled down in 2020. Last year, the company partnered up with Walgreens to roll out primary care clinics, a collaboration that has prompted transformational growth. Our IRR to date for the VillageMD investment is more than 320 percent, which is all the more exciting given this is just the beginning of their growth journey as a company. In the Nordics, both Budbee and Pleo were early-stage venture bets when we first invested back in 2018. Budbee is now the Swedish market leader in last-mile logistics and is expanding throughout Europe with partners such as H&M, Asos and Zalando. Pleo, a Danish financial services company that offers smart payment cards to employees while ensuring the company remains in full control of spending, has grown from having a local Danish operation when we first invested in 2018, to one with offices in London, Berlin, Stockholm and Madrid. It has now more than 13,000 business customers across six European markets.
3. Our deeply embedded sustainability principles, particularly in climate and D&I, set us apart from other investors and will bring the greatest returns 30 years from now.
Given we’re long-term investors, it’s imperative for Kinnevik to back sustainable business models and diverse teams in order to bring the greatest returns for shareholders. We see huge risks in partnering with businesses that look at short-term gains, without thinking about the environmental, social and governance impact they are having for future generations. As a family-run business, we are deeply committed to helping the digital companies of tomorrow to create a more sustainable and resilient future. This lines up with our moral values, but we believe it will also give us an enormous commercial advantage.
In May 2020, Kinnevik set climate targets in line with the Paris Agreement to significantly reduce the greenhouse gas emissions from our own operations and portfolio. Our ambition is to develop our companies into long-term sustainable businesses and to future-proof them for a new, low-carbon economy.
In May 2019, we launched a Diversity & Inclusion Framework focused on gender equality and aimed at ensuring a company’s leadership is set up to make the best decisions. Since then, we have made decisive progress including improving our management team composition, incorporating D&I aspects into all stages of our investment process, and adding nine female directors to the Boards of our portfolio companies.
We are not paying lip-service to these values; they are deeply embedded into how we operate and we measure the impact of each investment against specific sustainability standards. And we know this will secure the firm’s success for years to come.
4. Finally, I want to draw attention to our uniqueness as a public company, which gives our shareholders access and exposure to a portfolio of the world’s most exciting private businesses.
Kinnevik offers a rare opportunity for investors, whether institutional or retail, to gain access and exposure to a portfolio of fast-growing, tech-enabled private companies. These companies have the potential to create superior returns, and Kinnevik can remain a shareholder as they move from private to public markets. Our team, network and track record are the fundamentals that enable us to maintain a very strong pipeline of exciting investment opportunities. What is particularly rewarding is that in the past year, value creation was well-distributed across most of our sectors and companies and maturity stages — a testament to our efforts to rebalance our portfolio.
When I think back to that pivotal day in 2019 when we announced our new strategy, I’m astonished by how much the world has changed and how much progress we have made since. But I’m equally convinced that we’re just at the beginning of a truly transformative era. One where technology will make consumers’ lives better and contribute to a more sustainable and inclusive future. I am thrilled to be at the helm as Kinnevik continues to back transformative digital businesses. I know that the best is yet to come.
