Welcoming Structured Growth Capital to the White Star Capital family
White Star Capital is delighted to announce the launch and first close of its Structured Growth Capital Fund I, a new investment strategy, with the support of existing and new limited partners. The fund has a simple mission: helping exceptional companies accelerate from scale-up to global champions.
The new fund, co-managed by General Partners Hemal Fraser-Rawal and Bryan McLoughlin, is a hybrid investment strategy combining credit and equity capabilities in a single fund. This is an all-weather strategy allowing investors to benefit from income generation, at a time of higher interest rates, while remaining invested in the long-term capital appreciation.
Such hybrid strategies remain novel and, to date, the preserve of mega cap multi-asset managers. Private markets, having grown AUM by 3.2x over the past 8 years, now stand at $11.7 trillion in AUM, and surpass public markets in size[1]. Yet given the size and sophistication of private markets in the technology sector, or lack thereof, the time is right for Structured Growth Capital.
“What we do is not novel. It’s the natural progression of the sophisticated financing solutions available to multi-billion dollar companies, now accessible to growth stage companies. It’s a win/win for our investors and the portfolio companies we serve.” — Hemal Fraser-Rawal
Evolution, not revolution
Evolution best describes the story behind our newest investment strategy. Over the past decade, the venture capital ecosystem in Europe and Asia has “industrialised” as increased investment volume furthered the sophistication and capabilities of the asset class. Yet there is a lack of sophisticated financing options available to growth and later-stage technology companies when compared to North America.
This paucity has been reinforced as investors recalibrate to what we term the “end of cheap money”, marked by the peak in technology valuations and rapid rise in interest rates from 2022 onwards. The investors, who redefined the growth equity industry in the later stages of the tech bubble following the mantra of “growth at any cost”, have retrenched.[2]
Natural selection shall consume unsustainable or zombie businesses that have exhausted both investor patience and resources. However there are many businesses on a sound financial footing that are impacted by the wider market fall-out.
Unlike venture capital, growth debt had no industrial revolution and remains underdeveloped given the sizable opportunity. An observation offered by Hemal and Bryan, having worked in this space previously, is inertia has fostered a generic debt offering despite many firms touting its flexibility.
There is a place for credit in the capital mix of expansion-stage companies. It is counterproductive to an entrepreneur and existing shareholders to finance an organic or acquisition-led growth strategy solely with equity. If European and Asian scaleups are underinvested, when compared to peers in North America, then every dollar of investment is working harder to create enterprise value.
Enter Structured Growth Capital
The distinction of investing across the spectrum of credit and equity securities is poorly understood. Each is regarded by the other as foreign and unrelatable. An outcome reinforced by the confirmation bias to support long-standing beliefs regardless of market conditions. Together, this simply clouds the conversation of optimising how to capitalise on growth.
Entrepreneurs benefit from having a long-term partner fluent in investing in both asset classes. An investment from Structured Growth Capital is designed to meet the needs of the company, not the other way around. Hybridity allows the fund to respond with creative credit and equity solutions, regardless of market environment, to fund further growth, execute acquisitions, or bolster liquidity.
Structured Growth Capital will invest in “proven” business models. Backing the entrepreneurs who have overcome the early challenges of scaling, and achieved material revenues and proven operational excellence. Maturity only accelerates their need for efficient capitalisation to continue financing expansion.
“We want entrepreneurs to succeed. That may sound like a well-worn cliché but an important incentive to help them succeed and continue creating exceptional outcomes for all shareholders is minimising unnecessary dilution at the growth stage.” — Bryan McLoughlin, General Partner
Bryan and Hemal have worked together for almost five years, and in that time collectively invested over $350 million in the European and Southeast Asian ecosystems. Several of our former companies have gone on to become unicorns. Structured Growth Capital is the by-product of their learnings over the past decade of investing in markets they understand and are deeply embedded in. White Star Capital’s established presence across Europe and Southeast Asia will provide a strong platform to apply this experience.
“Many talented teams fail. It is not through a lack of commitment but alignment. The shared work experience with Hemal and the White Star Capital team prior to joining forces was instrumental in establishing trust in each other’s decision making and ability to work together as a high-performance team.” – Bryan McLoughlin, General Partner
Bright Future in Uncertain Times
The consequences of an economic slowdown are not universally shared across firms. There will be winners and losers. Naturally, the role of Structured Growth Capital is to reliably identify those emerging winners. A characteristic of winning firms is an ability to expand growth and profitability in difficult times.
Large corporations are under pressure to disrupt and evolve regardless of economic conditions. A message often lost in the downbeat messaging of recent market headlines. Countless surveys by consulting firms this year reinforce that technology adoption remains a key driver of business transformation over the next five years.
The demand side is there for the emerging winners at the forefront of these transformational technologies. As a firm, we expect the relentless pursuit of business transformation to permeate many sub-sectors within technology. The adoption of transformational technologies is not solely motivated by economics. Sustainability demands from stakeholders, in response to climate change and climate risk, elevates the role of emerging technologies in taking meaningful action to reduce the resource intensity and inefficiency of value chains.
There is a universe of over 10,000 technology-enabled companies in Europe and Southeast Asia alone that have graduated to scale-up. An important differentiator for Structured Growth Capital is the application of “growth” to a broader consistency than simply venture-backed companies. The fund can invest in a variety of situations with private equity or bootstrapped entrepreneurs that have achieved critical mass.
A note of thanks
We would like to thank all investors who joined the first close; it is a privilege to be long-term stewards of their capital. White Star Capital looks forward to partnering with a new cohort of growth stage, ambitious technology companies on their own journey to becoming exceptional businesses via this new fund.
“This new fund is a complimentary addition to our existing strategies and is a natural progression of the firm’s journey to enable and support globally-minded entrepreneurs in the next stage of their growth journey.” — Eric Martineau-Fortin, Managing Partner and Founder, White Star Capital.
Footnotes
[1] Source: McKinsey, Global Private Markets Review, March 2023. Note: The 3.2x is calculated on private markets AUM in 2022 ($11.7 trillion) divided by 2014 ($3.7 trillion).
[2] Data sourced from Pitchbook as of 31 May 2023. “Investment” is defined as venture capital, growth equity, and growth/expansion private equity financing rounds at Series B or later. “North America” is defined as the United States and Canada; “Europe and APAC” is defined as EU-28, Norway, Iceland, Switzerland, UK, Singapore, Australia, New Zealand, Japan, South Korea, and Taiwan; Population data, used to calculate investment per capita, is sourced from World Population Review.
