April 3, 2017

Bo Ilsoe talks about the $1.3Bn Heptagon deal and NGP's unique set-up

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Mårten Vading interviews Bo for Kreos Capital's quarterly newsletter

Bo, we have known each other for many years and NGP has been around for a long time: how was the idea around launching NGP formed?

The vision behind NGP was to create a growth investor with global presence specialised on mobile. Back in 2005 when NGP was founded, not many companies had a mobile strategy or the “mobile first” mentality. Our goal was to be able to provide something unique to companies with mobile aspirations: unparalleled operational expertise in mobile, access to global markets and growth funding. Today, mobile first is mainstream and, as a growth investor, we have evolved our thinking to specialise in IoT.

NGP is unique. You are a financial growth investor without a corporate agenda, but at the same time you have Nokia has your single LP fund investor. How does this make you different in the market for your co-investors and management teams?

Yes, we are an independent financial growth investor acting like any other growth investor. Our goal is to find and fund the best companies within our themes, grow them and support them along the way to good exits. Our affiliation with Nokia can help to provide partnerships, access and insights from a global tech leader with more than 100,000 employees worldwide. We leverage both worlds in different shapes and forms.

NGP has a global focus on investments yet still you are not a very large organisation: how do you manage to operate over so many jurisdictions and time zones?

Managing one fund across the US, Europe, India and China has a lot of upside and our structure helps us provide insights and outside-in views when we analyse deals. It can also help balance local market cycles well and in a flexible manner manage our exposure to these cycles. We are a 24/7 operation and very flexible hours as well as lots of time on phones and video is required, not to forget clocking up air miles. That is all part of the model.

How do you approach exits and ensure you maximise the value potential?

Prior to investing we have conversations with the management team about their aspirations and strategy for realising value. Some companies can go public and that helps provide liquidity for investors such as us. Other companies are sold through M&A where management often continue in developing and supporting their product or service offering within the new context. Either way a continued dialogue is what we are driving throughout our work with the company. Not being prepared for exit means it mostly does not happen, or happens in a less than optimum way for investors & management.

We have had a positive momentum in the growth market for several years: what is your current view on the near and medium term prospects for the industry to maintain an environment of attractive value creation?

Great question. The record low interest rates combined with the growing technology investment sector has created a large appetite from fund investors and limited partners to back growth funds active in the technology sector.

In the near term, we will continue to see increased competitiveness across markets, which is also reflected in the pricing and valuation of companies. In the long term, I think it’s encouraging to see that entrepreneurship globally has had an enormous surge and many developed economies have realised that innovation and technology are the only ways to grow economies. Becoming an entrepreneur and striking out on your own is increasingly popular.

For investors, discipline and hard work in assessing entrepreneurs, markets and opportunities are paramount to drive upper quartile returns.

Nokia Growth Partners and Kreos Capital recently concluded a very successful billion-dollar exit by merging Heptagon, a leader in high-performance optical packaging and micro-optics, to ams, a semiconductor firm. What made Heptagon so successful and what role did the investors and debt provider play?

Heptagon is a great example of living through cycles, initially having Nokia as the main customer and surviving through the 2008 downturn, the company switched focus from camera components to broader optical and packaging solutions.

The investors helped re-finance the company through the downturn and brought in a new CEO who worked alongside the original founders to re-position the company and land new customer contracts. Kreos Capital was a core partner and understood very well how to collaborate with the investors in building up the capitalisation structure of the company in the most efficient way.

Kreos was a core partner and understood very well how to collaborate with the investors in building up the capitalisation structure.

What have you learnt from your many years as a growth investor and how do you leverage this to find another Heptagon in your portfolio?

As clichéd as it sounds, I am a firm believer that companies succeed or fail depending on the founding teams and the CEO. I would invest behind Christian Tang-Jespersen, the CEO of Heptagon, again in a heartbeat. I continue to look for powerhouse CEOs and great founding teams with bold visions and a desire to win big time. One of the key things I have learned is that a hallmark of good management is an ability to hire well, hire better than themselves, not being defensive, attract strong stakeholders, take facts for the facts they are, listen well but firmly execute their own strategy. No team is perfect but if they possess the aforementioned attributes chances for success are much increased. Luck and timing play a big part as well and good management teams tend to be more “lucky”. Further, technology investing is a people business and we at NGP are focused on conducting ourselves professionally and respectfully. We say no to investments 90% of the time. But we know and deeply respect the hard work and adversity that many entrepreneurs have to deal with.

Lastly, given your broad experience from the industry, I’m sure there are plenty of great moments and stories; anything in particular you could share?

Well, there are many… Unexpected things happen more often that they should, customers are lost, big contracts won, senior people leave, new hires show sudden great progress. Heptagon landing its first very large contract was a seminal moment. Missing an investment in a large social messaging company which was $1bn+ exit was a not so positive one. Exiting Ganji in China through a merger with 58.com, valuing Ganji at $3.2bn was clearly a highlight. But I must say that the day in day out pleasure of our job really comes from working with and seeing portfolio company CEOs grow and excel and become successful.

Lastly, picking up so many lasting friendships in the industry throughout the years have been a great pleasure.