BlackRock snaps up provider of loans to Israeli and European startups

BlackRock, the world’s largest asset manager, on Thursday announced the acquisition of British-Israeli Kreos Capital, a provider of loans to Israeli and European startups, for an undisclosed sum.

Under the terms of the agreement, BlackRock will acquire full control of Kreos and take on its 45-person team. As part of the transaction, Kreos’s investment team will join the money manager’s European private debt platform. About 25% of Kreos’s operations are in Israel.

Kreos’s management — which includes Israeli partners Raoul Stein, one of the founders, and Uri Galai, who joined the firm in 2019 — will continue to be responsible for firm’s investment strategies, BlackRock said in a statement. The deal is expected to close in the third quarter of 2023, subject to customary regulatory conditions.

BlackRock said the acquisition will boost its private credit business and allow its clients and investors to tap into the booming venture debt lending market to high-tech and healthcare tech startups.

“Private debt investing has become an increasingly important component of investors’ portfolios,” said Stephan Caron, head of Europe, Middle East and Africa private debt at BlackRock. “Current market dynamics have made private credit an attractive asset class as investors focus on its income generation, low volatility, portfolio diversification and its low defaults versus public markets.”

Founded in 1998, Kreos has provided €5.7 billion in venture debt financing to more than 570 pan-European and Israeli high-growth companies in areas of technology and healthcare. Headquartered in London with offices in Israel and Sweden, the firm lends more than €800 million annually to fast-growing startups in areas including fintech, cybersecurity, semiconductors, digital marketing, AI, drug development, medical products & devices, and healthcare tech. Among its Israeli clients are ride-sharing app Gett, smart energy tech firm SolarEdge Technologies, software company Panaya, and biotech firm BiolineRX.

Venture debt is a medium-term high-risk loan granted to fast-growing startups, often backed by venture capital (VC) investors. Unlike VC financing, which involves the transfer of part of a startup’s capital, or equity stake, in exchange for an investment, venture debt enables fundraising without significantly diluting the capital of the founders and shareholders.

Demand for private venture debt financing has been growing over the past year as startups in Israel and abroad are increasingly looking to diversify their financing avenues and sources of credit lines following the collapse of Silicon Valley Bank Financial Group and the downturn in global financial markets. The US bank served as the lender of choice to many Israeli startups and technology companies.

Following the SVB collapse back in March, Israel’s two largest banks, Bank Leumi and Bank Hapoalim, have in recent months also stepped in and seized opportunities to provide financing assistance and loans to startups and other tech firms. Israeli tech companies are grappling with a steep downward slope in investments after global stock market volatility brought rising valuations down and the specter of an economic slowdown and a regime of higher interest rates hampered deal flow.

In the first quarter of this year, Israeli tech companies raised $1.7 billion in venture capital, down 70% from the $5.8 billion in the first three months of 2022, according to a report by IVC Research Center and LeumiTech. The quarter marked the lowest figure in four years.

“As a pioneer of private debt solutions for high growth technology and healthcare companies in Europe and Israel, Kreos is now taking the next step by accelerating the business and partnering with BlackRock,” said Kreos co-founder Mårten Vading. “The transaction enables us to leverage BlackRock’s scale, resources, and technology to create a holistic product offering that serves innovative companies globally.”