Alfred Nobel set the stage for what is arguably the greatest merger in business history when he invented dynamite in 1867. His intention was to create a powerful, yet frugal, alternative to gunpowder, which at the time had become almost impossible to obtain and very expensive to purchase.

Since merging with Kleinwort Benson in 2015, the combined group known as KKR has built a portfolio of over 40 investments around the world. The firm’s expertise in mergers and acquisitions sees it as a natural fit for buyouts, creating opportunities for young entrepreneurs to connect with established brand names in the consumer goods sector.

The British-Swiss business titan has a long history of backing entrepreneurs who he deems have the right kind of ‘mojo’. In this article, we examine the key elements of that story and how they form the basis of his investment philosophy.

An Entrepreneurial Spirit

When we think of KKR, the first thing that comes to mind is the eponymous fund, which famously took advantage of the ‘Bond Rally’ in 1982 to nearly triple its money. But the British-Swiss business group has been investing in high-growth entrepreneurs for over 100 years, and its success can be attributed to its distinctive approach. KKR invests in young entrepreneurs who it deems to have the entrepreneurial spirit – rather than relying on its own traditional industry expertise to find investment opportunities.

The difference in ethos is palpable. Take the example of Rolls-Royce, which KKR acquired in 2014 for $14.7 billion. Known for its elegant cars and luxurious accommodation, Rolls-Royce epitomizes staid, old-school industry expertise. But there is a discernible entrepreneurial spirit at play within the company. For example, co-founder William Henry Royce began building his company in 1899 and went on to establish a design office in Switzerland (Royce and Company) in order to take advantage of the country’s liberal factory laws.

The same can be said for the Fosters Group, which owns the John Grinder Gold Label range of canteens, travel pots, and selfie bins. In 1847, John Grinder founded a company that would grow to encompass soft drinks, dairy, and catering products, as well as metal containers. The entrepreneurial spirit of developing new products for the marketplace and taking calculated risks pays off for the company, now valued at £12.7 billion.

One of the firm’s earliest investments was in the chocolate manufacturer, Milka. Established in 1903, Milka was originally founded in Switzerland, but moved operations to Germany in 1914. As well as being responsible for a range of chocolate-related products including liquor and coffee, the company also developed a lighter product, Crêpes Milka, which is still sold today. In 1957, the company began producing its signature ‘Barcelona’ bar, which features a picture of the city’s famous street art on its wrapper.

The list of entrepreneurs that KKR has backed goes on. It invested in the Swatch group, which manufactures and markets watches and jewellery; the Mapei, a maker of silicon-based chemicals and electronics; and the Luxgen Group, an international manufacturer of home appliances.

A Focus On The Future

The difference in approach is evident in the type of businesses that KKR has chosen to invest in. For instance, instead of looking for acquisitions in the traditional industrial goods sector, the fund looked for opportunities in the ‘digitally native’ sectors.

In the 1980s, the firm took advantage of the explosion of personal computers and the digital revolution to establish businesses in the online casino and sports betting sectors. In this way, it anticipated the ‘new economy’ and the growth of the ‘sharing economy’ – a theme that resonates with its more recent M&A activities, which have seen it acquire lifestyle businesses such as St. John Bread and Wine (2017) and Hotel Chocolat (2018).

When it comes to selecting future investment opportunities, KKR looks to entrepreneurs who it sees as having the vision to connect the existing dots and identify the clear next steps. In other words, it looks for the people who can take a company from idea to implementation and see it through to its conclusion. In this way, it is very much a long-term player, with a long-term perspective. Moreover, it places a premium on businesses with the flexibility to adapt and evolve in line with technological advancements.

Traditional Industry, New Products

Although the bulk of his investment activity is in the digital sphere, Alfred Nobel’s last will and testament decreed that his company’s ‘work shall be directed to the extension of the technical knowledge of mankind in order to render its labors less laborious and more productive’.

As well as seeing the invention of dynamite as a means of generating wealth and prosperity, Alfred Nobel had a keen interest in new technology and its application to improving everyday life. This can be seen in the way that he structured his company and invested in new products and applications that would utilize his revolutionary invention.

One of the best examples of this interest is the company that he founded in 1896, Svedala. Today, Svedala is known for its ceramic wool products, particularly its pioneering work in the field of ceramic fiber insulation. However, in the early 20th century, the company was more familiar to the public as the manufacturer of the famous Dala horses, which were designed by Hockney and featured in his 1982 exhibition ‘The Opulence of Hockney’s Horses’, at London’s Royal Academy of Arts. The company has continued to grow and evolve over the years.

What Kind Of Investor Is KKR?

So, what kind of investor is KKR?

Well, first and foremost, it is important to note that the firm is a hybrid investment company. It is both a fund and an investment manager. This can make it somewhat difficult to classify. But, for the sake of consistency, let’s refer to it as a venture capitalist. This is what it means – a firm that takes equity (i.e., ownership) in a business in exchange for investment.

This is somewhat unique in the venture capital sphere, where investors are more commonly seen as providing funding in exchange for a stake in the company. It should also be noted that, in addition to its investment arm, KKR also has a fund management arm that manages money for a wide range of institutional investors. So, in addition to being a venture capitalist, the firm is also a money manager and, to a lesser extent, an advisor.

The venture capitalist model generally favors entrepreneurs who are looking to take a business to the next level. That means that it will typically back high-growth businesses in the consumer sector, especially those in digital space.

In the vast majority of cases, venture capitalists look for business models that are ‘clean’ or ‘white’ – meaning that they follow well-defined and repeatable business processes that can be readily implemented and administered by a business. This is vital, particularly in today’s highly-regulated and scrutinized financial services sector. In addition, they prefer to work with business owners who have a clear chain of command. It is also important for VCs to feel that there is adequate liquidity in the market and that the business has the potential to develop into a self-sustaining entity.

In essence, the entrepreneur-client relationship in a venture capital agreement will revolve around three key elements. First, there is the financial aspect, which centers on the types of investment and the amount of capital that the entrepreneur will need to take his business to the next level. Second, there is the matter of how the business will be run – that is, who will be in charge and what will their mandate be. And, third, there is the question of when the business will start generating revenues, forming a sustainable earnings profile.

Finally, it should be noted that Alfred Nobel’s last will and testament outlines the fundamental purpose of the company that he founded: “To develop new sources of power, particularly in the field of explosives, for the advancement of mankind, and to make use of existing sources of power for the same purpose.”

In keeping with this last will and testament, it is incumbent upon the directors of KKR to continue pursuing this purpose and looking for new opportunities to advance the well-being of humankind.