Behind KKR’s Big Bet On CybersecurityApril 15, 2019
It’s no secret that private equity has been on a cybersecurity kick as of late—and for good reason. With online attacks and digital fraud only becoming more prevalent, global spending on technology to protect sensitive data and information is expected to reach an unprecedented $124 billion this year, according to research firm Gartner.
That means there are more companies than ever seeking to provide cybersecurity solutions, and those companies need capital to grow. Enter the likes of private equity giant KKR, which closed its $711 million Next Generation Technology (NGT) Growth Fund in 2016 with an eye toward investing in growth-stage companies in the realm of technology, media and telecommunications (TMT).
Thus far, the cybersecurity sector has proven an integral part of KKR’s investment approach to the fund, which also targets enterprise software, fintech, and consumer internet companies. The NGT Fund has delivered returns through the likes of endpoint security software firm Cylance, which was acquired by BlackBerry for $1.4 billion earlier this year, and is a lead investor in British artificial intelligence firm Darktrace, which closed its most recent funding round in September at a $1.65 billion valuation.
More recently, KKR agreed to take a minority stake in Florida-based startup KnowBe4 via a $50 million investment that valued the company at $800 million, as Fortune first reported in March. KnowBe4, which counts notorious hacker Kevin Mitnick among its leadership, offers cybersecurity training to companies and their employees that aims to build a “human firewall” against phishing attacks and data breaches.
KKR managing director Vini Letteri has helped guide these investments, overseeing a 20-person team spread across Silicon Valley, New York and London. According to Letteri, the NGT Fund, which today has 11 companies in its portfolio, is now “about 90 percent invested.” While 2018 was “a really slow year” for the fund amid a high-valuation environment—with KKR making only one new investment, in Portugal-based tech firm OutSystems—this year has already proven more active, with both the KnowBe4 deal and a February investment in Michigan-based software firm OneStream.
Letteri sat down with Fortune at KKR’s offices in Midtown Manhattan to discuss cybersecurity bets, whether data really is the new oil, and how one-third of the KKR team fell for a phishing hoax.
What prompted KKR, an established giant in the private equity realm, to launch a growth fund?
I think the strategy is an outgrowth of something that Henry [Kravis] and George…