The most powerful leveraged-buyout firm in Wall Street history has quietly started wielding its clout in the b-to-b venture capital arena.
A torrent of investments shows how New York-based Kohlberg Kravis Roberts & Co. wants to make its mark in b-to-b e-commerce. Recent investments include Intermedia Communications Inc. and Suppliermarket.com.
KKR is expected to soon announce an undisclosed investment in Dynamis Solutions Inc., a b-to-b e-commerce consulting firm. The deal follows the recent debut of Accel-KKR Internet Co., the first venture fund that will invest solely in the Web units of big companies.
Most of KKR's investments until now have been in old economy company buyouts on behalf of KKR executives and institutional investors. Landmark deals include investments in Safeway Inc., Wometco Enterprises and Beatrice Cos. Inc.
KKR has made some large tech-related plays, such as its $320 million investment in Primedia Inc. in 1989. It also invested in direct marketing site MyPoints.com in 1998.
The firm uses money from its general institutional investor funds for large technology investments. Its executives usually use their own money to invest in dot-coms.
The company became famous--and notorious--in the late 1980s for its controversial use of debt to fund company takeovers. Deals such as its $31 billion leveraged buyout of RJR Nabisco, the largest ever, stand out. KKR's unparalleled access to CEOs, and a zealous development of its stealth image--founders Henry Kravis and George Roberts granted interviews about as often as the Pope--cemented the firm's reputation in corporate boardrooms.
KKR executives are betting that their legendary Rolodex, the firm's narrow focus on earning generous returns and high involvement in the companies it invests in will make it a Web kingpin. The question is whether KKR's clout can be leveraged in the b-to-b economy.
KKR likes to target companies run by brainy people with prestigious backgrounds. Southfield, Mich.-based Dynamis Solutions is that type of company, with a new economy twist. Founded in July by e-commerce vets from McKinsey & Co. and Deloitte Consulting, Dynamis aims to consult b-to-b start-ups and automotive suppliers.
While Dynamis is KKR's latest b-to-b play, other recent investments outstrip it in importance. One is Accel-KKR Internet. Announced in mid-February, it is a joint venture between KKR and Palo Alto, Calif.-based venture capital firm Accel Partners.
KKR and Accel Partners will plow an initial $50 million into Accel-KKR Internet. The fund will then seek to raise "hundreds of millions" within the next half year, said Theresia Gouw Ranzetta, a partner at Accel Partners.
The idea is that KKR's corporate experience and Accel Partners' Web venture capital experience with major corporations--it invested, for example, in Wal-Mart.com--will make Accel-KKR Internet the top venture capital firm for large companies looking to make Internet plays. "You need a combination of our VC expertise and big company control position expertise that KKR brings," Gouw Ranzetta said.
"We've invested over $100 billion in 80 different companies in 30 different industries," said Marc Lipschultz, the executive in charge of KKR's Internet activities. He said Accel-KKR Internet will help big companies develop start-up traits. "It is the hybrids of those two worlds that will be a superior solution."