Turn/River’s Joanne Yuan on Europe’s attractiveness and generative AI

KKR and TPG’s A-Gas valuation revealed.

Kicking things off today is an interview with Joanne Yuan of Turn/River Capital, where I find out why the San Francisco-based software investor has been so keen to buy European companies and learn about its recent hires in the region. We also talk about how the firm views generative AI.

Then we have an update on last week’s announcement that KKR is selling its majority stake in A-Gas to TPG Rise Climate. We have the valuation for you as well as some comment from KKR’s Mattia Caprioli about why the private equity firm is retaining a majority stake.

Europe over unicorns

Something I’ve heard repeatedly over the last few months is that on the software investment front, the focus is firmly on established companies providing services such as digitising businesses or helping them move to the cloud. Those type of businesses are much more in demand than the tech unicorns that might be the next big thing.

This morning, we published an interview with Joanne Yuan, partner, investments, at Turn/River Capital, a software investor based in San Francisco, that touched on that theme, as well as the trend we’ve seen for US private equity firms to up their presence in Europe.

San Francisco-based Turn/River invests in B2B software companies and raised $1.35 billion for its fifth fund in April 2022. Around half its investments historically have been European, but in the last year it pushed operationally, hiring Kais Baker as executive director, Europe, and Sebastien Delattre as vice-president, investment development, Europe. They are based in Munich and Paris, respectively.

The hires fit a firm that, despite its location and focus, has no portfolio companies based in venture capital-heavy Silicon Valley.

“The venture capital path works for some, but for a lot it’s not necessarily the right path,” said Yuan. Because the European venture capital ecosystem is less developed, she said, more companies are bootstrapped or have alternative sources. That leads to “a scrappier capital mindset, which means it’s easier for us to work with them, rather than companies burning for growth with no efficiencies”.

“Europeans have the right mentality. There are so many gems overlooked in Europe because everyone is trying to chase these high-fliers.”

Check out the full interview to find out the other reasons Turn/River finds European software companies attractive as well as its approach to ownership.

As a bonus for Dealflow readers, here’s part of the interview that didn’t make it into the final article.

Turn/River is incorporating generative AI on an ad hoc basis, said Yuan, especially for its sourcing team. Leveraging ChatGPT to get up to speed on industries “has been a real boon for some of our juniors”, she said. The firm is also leveraging generative AI into its portfolio companies, starting with support.

Other tailwinds have come from the tech’s ability to accelerate software development.

“But ultimately what matters is distribution and customer relationship,” she said. That means that for a lot of the large software companies, when they see an approach working in a pureplay company, it makes more sense for them to launch that functionality themselves.

“There are a lot of green fields, but a lot might go to the incumbents,” said Yuan.

Gassing up

We’ve got an update on a deal we reported for you last week.

KKR’s agreement to sell a majority stake in A-Gas, a supplier and manager of refrigerant gases, to TPG Rise Climate valued the company at over £1 billion ($1.3 billion; €1.2 billion), according to a source close to the matter.

I also found out from Mattia Caprioli, co-head of European private equity at KKR, why the firm had opted to sell its majority stake but retain a minority interest.

“KKR has helped A-Gas reinforce its circular economy business model and broaden its geographic reach, and we believe further value from this transformation is still to come,” said Caprioli. “For example, our main focus in recent years was to support A-Gas to grow into new sustainability-focused segments, including carbon offset markets, and to enter new geographies, including Japan and Canada. These initiatives and geographies are still being ramped up, while also benefiting from regulatory tailwinds targeted at furthering the climate change agenda.

“Entering into the partnership with TPG Rise Climate created a significant monetisation event that enabled us to distribute sizeable returns to our investors whilst offering us further exposure to the structural trends that are driving the company’s success, and we look forward to support its future growth.”