BlackRock Cannonballs Into the Venture Debt Market With Kreos Acquisition
The world’s largest asset manager hasn’t done any venture deals in Europe and relatively few in the U.S.
BlackRock has acquired London-based Kreos, a longtime investor in European growth and venture debt markets. The deal gives the world’s largest asset manager a meaningful presence in a space where it wasn’t much of a player before.
Terms of the deal announced Thursday were not disclosed.
Since it was founded in 1998, Kreos has committed $5.6 billion in capital through more than 750 transactions and across 19 countries. In terms of assets under management, Kreos won’t significantly move the needle at BlackRock, which manages a total of $9.09 trillion in assets, or meaningfully boost the firm’s $274 billion alternative business, which includes investments in private equity and credit, infrastructure, real estate, and hedge funds.
But Kreos will nicely complement BlackRock’s existing credit business and suddenly give the asset manager a meaningful presence in the growing industry that is venture debt, lending to late-stage startups in the technology and healthcare industries.
According to PitchBook, the number of venture debt deals rose from 996 in 2012 to 2,070 in 2019, and increased further to 3,195 in 2021. Deal value rose from $6.7 billion in 2012 to $31.2 billion in 2021.
The acquisition “adds to BlackRock’s position as a leading global credit asset manager and advances its ambitions to provide clients with a diverse range of private market investment products and solutions,” BlackRock said in a statement about the deal.
BlackRock added: “Kreos complements BlackRock’s Global Credit business with a seasoned investment team and successful long-term track record, while the adjacent asset class unlocks additional private debt capabilities for BlackRock’s clients to access a larger proportion of the risk/return spectrum.”
The deal will jumpstart BlackRock’s venture debt investing in Europe, the Middle East and Africa, where it wasn’t doing it before, a person familiar with the deal said.
In turn, Kreos will get the benefits of BlackRock’s scale, resources, and technology to improve its own business.
“Coupled with our expectation that growth and venture lending will figure prominently in the expansion of the global direct lending opportunity set going forward, we believe this is an opportune time to welcome the Kreos team to BlackRock,” James Keenan, CIO and global head of BlackRock Private Credit, said in a statement about the deal.
BlackRock’s acquisition of Kreos is the latest example of a large financial player taking more direct exposure to venture capital, alongside Blackstone, JP Morgan, and others, and validates venture capital as a key economic driver, said Kyle Stanford, a senior analyst and U.S. venture lead at PitchBook.
The deal is also more proof that investors want venture debt to be part of their allocations to private credit — and asset managers of all sizes are working to make that happen.
“From BlackRock’s perspective, adding this venture debt risk profile for clients closes a gap, enabling them to more widely service client needs with regard to risk,” Stanford said. “Kreos has been a part of the venture lending market for 25-plus years, so BlackRock is acquiring a lot of expertise within the lender. Kreos also helped loan to companies from early to late stages in development, which will help BlackRock capture a variety of risks and return profiles.”
In the U.S., BlackRock is far from a leader in venture debt, according to Zack Ellison, the founder, managing general partner, and CIO of Applied Real Intelligence, a venture debt investment manager. If BlackRock was involved on any level in the U.S. venture debt market, Ellison said he’s unaware of it. (BlackRock confirmed it has been active in the U.S. venture debt market. It declined to share additional details about its activity.)
Nevertheless, Ellison welcomed a new entrant to the venture debt market like BlackRock.
“I just love it when folks like BlackRock and Blackstone and OakTree [Capital Management] are investing in the space in various ways,” Ellison said. “It makes it clear that — if the smartest, largest, most successful investment managers on the planet are tapping into this because they think it’s the next big thing — we’re really onto something here at A.R.I as well.”