Investor insights: Maurice Hernandez, Principal, Accel-KKR
We recently caught up with Maurice Hernandez, Principal at Accel-KKR. Founded in the US in 2000, Accel-KKR is a leading Silicon Valley-based technology focused private equity firm, with offices in Menlo Park, Atlanta, and London, UK. Maurice shared his views on how PE is responding to the current climate and his key advice for entrepreneurs.
What is the role that PE can play in helping the global economy recover?
PE has more capital at its disposal than ever before. According to one study by EY, as of March 2020, PE funds were estimated to hold more than US$1.4 trillion in immediately deployable funds, the so-called “dry powder”. This means PE funds are poised to invest even during this uncertain period and the eventual recovery, and those investments would eventually spur other economic activities such as investments in growth, innovation, strategic alliances, and so on.
Beyond capital, sector-focused PE firms such as Accel-KKR, have expanded their operating capabilities in a meaningful way over the past decade – that deep know-how can be a real aid to management teams when navigating through choppy waters and also to help them make the most of the recovery period.
Specific to us, our firm’s mission is to grow our software companies through various cycles and we are planning to stay the course as we have in past cycles. Short-term investments for growth may be dampened as we head into a potential downturn but our long-term goal remains the same – to position our software companies for long-term growth and support our companies so they are able to maintain and then maximize their growth potential through this cycle.
How are you supporting your portfolio companies during this difficult time?
Operational resources including:
- Cross-portfolio knowledge sharing including numerous, timely CXO mini-summits and sharing of best practices across our portfolio company management teams.
- Operational consulting resources through our captive consulting group – Accel-KKR Consulting — to assist with revenue preservation initiatives, cost optimization, customer success, cash flow/working capital management, group cost negotiations with 3rd party vendors.
- Financing resources – including lender management (from revolver draw downs, covenant compliance and negotiation of special terms), accessing capital markets and providing additional equity capital through our fund capital as needed.
What’s the key advice you would give to entrepreneurs at this time?
- Plan for the worst and understand what might be required from the business to withstand an economic downturn and the actions management may need to take – whether organizational actions or actions with customers to maintain their long-term success.
- Leverage your investor as much as possible, especially if they are a technology-focused investor with the breadth and depth of resources that they may be able to provide to your company on a global basis.
- Be prepared to take quick and decisive action to stay ahead of headwinds – to be proactive rather than reactive to potential shocks.
- Be of the mindset to orient your business to withstand muted or declining top-line growth. You will be better off focusing on short-term stability and medium-term survival rather than trying to maximize today’s cost structure with a growth-at-all-cost mindset.
- Communicate frequently using all the methods at your disposal with your team, your shareholders, your customers and other stakeholders. Be clear about actions that need to be taken, the challenges the company is facing and what needs to be done to ensure your company’s long-term success.
- Focus on the strengths of your company culture to rally your team.
What have you seen portfolio companies do to adapt to the changing circumstances?
We have been generally impressed by the speed at which our management teams have come to acknowledge the sudden change and the likely deep and reverberating impact that have been brought on by COVID-19. Once they understood just how serious, widespread and potentially protracted these impacts were, they acted quickly and decisively to protect their company for the long term.
Several other things we were heartened to see:
So many of our portfolio companies showed tremendous empathy towards their customers. And in almost every case, our portfolio companies had something within our means to share with the customer that was timely, valuable and materially impactful e.g., one of our portfolio companies provides sophisticated algorithms to help large companies manage complex supply chains. Right away, the company was able to help customers make adjustments to their predictive models to reflect a world that have never been contemplated before.
Another portfolio company, which has a significant market exposure to the hotel and lodging industry, was able to quickly stand up a voice support service that shuttered hotels could use to answer calls even when they have sent all their staff home.
On the opposite end of the spectrum, one of our portfolio companies provide financial software to US community lending institutions. When the US government announced business lending relief programs (the PPP and soon-to-come MSL programs), the company was able to quickly modify its product to meet the program’s new requirement and release it to its banking customers.
So, whether it’s a product solution, customer support and training, new information or thought leadership, every single one of our portfolio companies has provided their customers with timely solutions, support, expert advice and knowledge sharing with specific implications of COVID-19 on their businesses, all with the goal to help customers navigate this uncertain time and to come out even stronger on the other side.
A strong and united can-do spirit that permeates throughout all our companies: from senior leadership to the rank-and-file, everyone rallied from Day 1 to keep business moving, to serve customers, and to protect the wellbeing of families, co-workers and the company itself. There is a strong sense of focus and direction that is bringing people together towards a common goal. Working virtually has not diminished that feeling of cohesion, and has in fact made work relationships even more authentic, patient and thoughtful. Even at companies that had to make difficult staffing decisions, everyone understood the reasons and appreciated management’s leadership.
What can companies do to maximise PE interest in the current environment?
- Have and set realistic expectations with expected company performance and how potential headwinds may impact a business. Amongst all the KPIs that may be important, sound judgment can never be undervalued.
- Understand the pronounced importance of finding the right partner rather than maximizing a short-term investment transaction – you want to make sure you are in business with those who will truly operate as partners through the bad and the good, so focus on taking the time to find the right partner.
Do you see US investors responding differently to European investors at this time, or indeed into the near future?
As a USD fund, we are able to benefit from currency trends to take a forward leaning stance in European markets. Given our US heritage, we have been able to focus on technology and specifically software investing since our founding 20 years ago. As such, over that period we have been able to develop a very deep and broad set of resources specific to software and tech-enabled services companies that we believe enable them to not only maximize their growth potential but maximize their ability to withstand economic shocks.