Episode 129: Arjan Hannink of Keensight Capital on Building an Embedded Value Creation Team at Scale

Episode Transcript   

Shiv Narayanan (00:09.88) All right, Arjan, welcome to the show. How's it going?

Arjan Hannink (00:12.369) Hey, Shiv, yeah, thanks. Things are well. How are you?

Shiv Narayanan (00:15.276) I'm good, excited to have you on. And why don't we start with your background and Keensight and then let's take it from there.

Arjan Hannink (00:21.819) Yeah, thanks a lot for having me. Maybe first a quick introduction of the firm, just to give you a bit of context and then I'll explain to your listeners how I fit in there. So, Keensight Capital is a growth buyout firm. And I want to really start with that. What does that mean? It means that we invest in buyout stage companies. So it's companies that stand on their own feet from a cash perspective. And that drive actually value creation through revenue growth. So it's really a growth buyout stage. So it's not leveraged buyout, it's not growth equity. It sits right in between. And we have been in this specific niche for the last 25 years. And we have done that in two sectors, tech, but also healthcare. And specifically, if I take tech, obviously the topic of today, think specifically that on the tech side, we do two things. We focus on B2B software, mostly vertical, and we focus on niche IT services. And I can elaborate a bit more on that. We are European headquartered outfit, a little bit north of 8 billion AUM, 30 odd portfolio companies, team of 130 people, that really functions as one team between London and Paris. And then we have portfolio support offices in Boston and Singapore. So that's a bit of a high level of where we are and my role, I'm one of the partners in the firm. So on a day to day basis, I have a couple of hats. I think one is I lead investments in the tech space, so both on the software and in services space I just described. And then secondly, I think relevant for today's conversation, I chair, we have an internal forum where basically we talk with the full tech team around, okay, what kind of niches do we want to spend time on? How do we drive that time spent into A, intellectual capital and B, potential new logos to evaluate and invest in? But also how do we as a group of people make sure that the passion that has driven the firm over the last 25 years is translated into the, of course, the newer hires that join us.

Shiv Narayanan (02:25.9) And so what are some of the focus areas that you're looking at right now?

Arjan Hannink (02:30.032) So if you think about the way we do that, Shiv, is that we basically look on a yearly basis. So obviously how that works is that basically we sit together as teams. Okay, well this year as a team, based on everything we've read, heard, find interesting, we want to do an institutional effort on A, B, and C. And we don't reinvent that wheel every year. We look, of course, to everything what we've done last year. And that way we have kind of a calendar of things we work on. And you then have concretely teams that start digging and present their findings to the forum. So if I take a couple of examples this year, but those are things most of the time we've been working on for four or five, sometimes more, years. One is cybersecurity services. We've made two specific investments in that space, a topic we continuously work around. We work specifically in the construction tech space where we have made several investments over the last couple of years.

Shiv Narayanan (03:09.537) Hmm.

Arjan Hannink (03:26.288) specifically in the HR tech space. And then each time, both on the software and services side, very important to repeat that point.

Shiv Narayanan (03:35.31) And there are so many different value creation levers inside these companies. Also, one of the interesting things is that you have a base in Europe and we work with a lot of PE firms that have a European presence, but it feels like Europe is your primary hub as an investor. So how does that shape how you're looking at companies? And do you look at geographical expansion as one of your priority areas or like, are there other levers that you're looking at? Just curious how you perceive the market from there.

Arjan Hannink (04:02.321) No, I think it's a good question. So we were really as a firm born and raised in Europe, but from day one with a mandate to look across borders. So what do we bring to the table when we speak to entrepreneurs, but also to our investors? It's growth expertise, sector expertise, international focus, active value creation. And on the latter, I'm sure we will get to talk about it later in the podcast. If I take our view on the world, it means that we

only invest in businesses that either are international, which of course, given how fragmented Europe is versus the US, just looking at it from a serviceable markets perspective is a key point, or have a very strong road or potential to become international. That's how we look at the world. And that I think is very important given the structure of the market here versus what you will find in the US.

Shiv Narayanan (04:46.412) Yeah.

Shiv Narayanan (04:54.143) Yeah. And so what does that look like? Tell me about the characteristics of companies that you think are more global. Obviously global presence matters, but if let's say they start with a European presence, are you looking for certain traits that you think can be duplicated or extended to other markets?

Arjan Hannink (05:07.921) Yeah, we do, Shiv, but just to highlight one point on that, we don't always have a story where international means global, right? International means international, i.e. cross-border. It can be two, three, four, five countries. It doesn't need to be 200 countries. It doesn't necessarily need to travel outside of the continent. That said, if you look back at the track record over 25 years, many of our investments were global champions, and part of them were global champions before we came in.

part became that with our help essentially. And what we therefore specifically look at, and that comes back to kind of when we look at vertical software, and if I take niche IT services, vertical for us means really, okay, I am within a certain niche, a certain category from a value proposition perspective, solving a problem that is not a local problem. It is a

international problem, but it's very specific to the space in which I'm operating. And then on the IT services side it's the same. I'm not offering generalist digital transformation, but for example, one of our investments is the largest independent ServiceNow partner in EMEA. I'm specifically a thought leader in the ServiceNow space within EMEA. This is what I bring to the table. And those are value propositions that are very clearly not limited by geographic borders.

Shiv Narayanan (06:29.005) Mm hmm. Yeah, that totally makes sense. How do you balance that with other initiatives or value creation opportunities for these companies? Because right now, AI is a big lever. There's go to market issues that companies are facing. There's not enough budget to go around. We've seen profitability become an issue. How do you manage all of those priorities along with this fact that some of the companies you want to invest in, you want them to be more international or extend across borders.

Arjan Hannink (06:49.467) Yeah.

Arjan Hannink (06:59.301) Yeah. I think on that, you know, we have an integrated value creation approach and I can elaborate a bit on what that means because those are nice words, but what it concretely means is that we have a team of now close to 40 people that work full time only with the management teams of the portfolio companies to help them drive growth. So when I said, what are our strengths to focus on growth? It's not just

reflected through experience. It's reflected in, okay, what do we then bring to the table? How do we translate that completely into action? And the way that works, let me first explain very quickly what that team is made up of and then how they intervene because it's the intervention part that I think responds very well to your question. So the team is made up of several categories of people and the two main ones for this conversation are: we have value creation directors. It's their job to basically help drive the change required for revenue growth.

And then we have experts and those people are there to help their equivalent in the C-suite on the specific underlying points around that growth. For example, we have an in-house chief product officer, we have an in-house chief technology officer, we have an in-house chief marketing officer, we have an in-house chief revenue officer. And those people function either on a per project basis or as an intermediary between, for example, third-party consultants in helping basically the C-suites of the company drive the change required.

Then the question, to your point, is, okay, but you know, there's always too much to do. Where do we start? Where do we stop? Then the question from the management perspective is attention from the portfolio. It's arbitration. Like where do we spend time? Right. And that is very much constructed around, okay, where is the most reservoir of growth? What is the right equity story to write towards an exit? And what is the capacity of an organization for

change? Because that's a very important point. You can of course make a very nice plan, but if the company cannot absorb the change required to drive the plan, then the plan is worth nothing.

Shiv Narayanan (08:58.349) That's an interesting model where you're assigning value creation partners to these companies. It sounds more involved than a traditional operating partner. How deep are these getting in with these companies?

Arjan Hannink (09:10.527) No, Shiv, it absolutely is because that team, we also have operating partners, which is more the classical way of working with management teams that you saw 10, 15, 20 years ago. And that still exists because it's still relevant. But what we bring additionally to the table, and that we have done for over 10, 15 years now, is to have people actually much more on the ground and with a different kind of profile. And to make this

a bit of a caricature, you know, an operating partner would be a former CEO, former CFO, former CXO that is maybe close to retirement, has retired and so on, which brings a certain quality to the table, especially at board level discussions and so on. But to drive growth in companies that of course are on a growth curve that is typically very steep and therefore the challenges and sophistication of the challenges changes very rapidly, people need much more support.

Shiv Narayanan (10:10.263) Mm-hmm.

Arjan Hannink (10:12.313) And so we decided, okay, we need a team that does two things. One, it's expertise. That's the expert team. You have been there, done that, but in your shoes and relatively recently, not 20 years ago. And then the other one is, okay, how do we set this up in a kind of a program where we set priorities? We can actually together track results and make sure that we really stay focused, which is where the value creation directors come in.

Shiv Narayanan (10:37.517) Yeah, that seems almost like a quasi CEO role. How are you balancing that with the CEO of the companies themselves because they obviously want to run the business and not have you guys interfere as much. But I get that you're a buyout fund. So it's a little bit different, but just help us understand how you manage that because it's a bit of a delicate needle to kind of thread.

Arjan Hannink (10:46.928) Yeah.

Arjan Hannink (10:59.845) Yeah, to be honest with you, I have a very different view on this and let me explain why. You know, when I'm meeting a founder or manager, it's not necessarily capital they're looking for, right? Because capital they can find anywhere. What they're looking for very often, of course alongside the price for the shares, is a partner, and a partner that adds value. And that means that, you know, you need to have a connection with someone. You need to build trust.

And then you need to bring something to the table that is appealing, but also for them diligenceable. So that means that I always tell people just call the CEOs we've worked with. They will tell you — and we don't need to script that — you call them and they will tell you what it's like to work with us. And what that package gives you in the end is, you know, the founder or manager chooses a partner like us, but you choose that for quite a long time, right? On paper, you choose that for three and a half to five years.

But the reality is if you take the 2026 Bain Private Equity report, you see that actually the average hold period is going up. So you're going to work with an individual and a group of individuals, not a logo, a group of individuals, for four, five, six, seven, eight years of your life. Just taking the sector statistics here. Day in, day out, and that needs to feel right. And in good times, in bad times, it also needs to feel right in bad times.

Shiv Narayanan (12:12.695) Mm-hmm.

Arjan Hannink (12:20.195) And what that means is that we're absolutely not operators. So we don't come there to sit in the chair of the CEO or the C-suite or so on. We're there to say, listen, you're on this growth trajectory. You want someone to help you go faster, better in a way that is prioritized properly and so on and so on. Otherwise we wouldn't be having this conversation. How do we set that up so that everyone feels at ease? So those people come in as doers. They also don't go in as consultants with slides and so on.

They're doers, they spend a lot of time on site. And if I were to find an equivalent in the C-suite for this individual, I would much more say it's a chief of staff, you know, it's a chief of staff plus plus that is there to really empower the CEO in driving the change that he or she would want to realize.

Shiv Narayanan (13:05.729) Mm-hmm.

Shiv Narayanan (13:14.409) Right. Yeah, I think that's an interesting way to look at it because I do think if you're CEO of these types of companies, there's so much to do. And a lot of orchestration and coordination across different functions require that if you have a true partner on that front, you can make a lot more progress. And sometimes CEOs offload this work to let's say a chief revenue officer, but that person might be more sales focused or more marketing focused. And so you kind of end up with this gap because a lot of growth is focused on not just marketing or sales, but also on product,

customer success and how everything comes together.

Arjan Hannink (13:48.252) Yeah, I couldn't agree more. And even then, that's why we expand the team also. The operating partner model is typically someone who would speak to the CEO. But exactly to your point, it's not that the CEO is going to change the world all by themselves. That's not how it works in real life. In real life there's a leadership team. The CEO is there to do what? Set the vision of where the business is heading and to make sure that he or she has a team that helps the business get there. It's not, you know, the CEO of course is always a doer, themselves,

but very good CEOs are very good at building the right team. But every key member in this team also is a mini CEO of their function and also needs support. And that's really why we built the team the way we did. And to your point earlier, like is this different than other firms? Absolutely. We are convinced it's different than other firms. If you would just map the European space in terms of who does it like us, you would find that the number of logos that you would be mapping out is fairly limited.

On top of that, you just count heads in Europe, a team of close to 40 individuals — I think we're at 38 doing this from our payroll. We have one of the biggest teams in Europe doing this.

Shiv Narayanan (14:57.579) Right, right. Yeah. When you deploy an operating partner versus these value creation partners that are deeper in the business, how do you distinguish which resource is more relevant?

Arjan Hannink (15:10.257) One does not exclude the other. So we have plenty of situations where both are deployed. I always say, when entrepreneurs or CEOs challenge us like, how does it work? I always tell them, okay, it's not the paratroopers that come in. It's not people that are being imposed on you. Like here's the flying brigade. They're going to solve all your problems. They're going to explain you how to run your business. No, it's to say we have a toolkit of people

Shiv Narayanan (15:33.526) Yeah.

Arjan Hannink (15:40.038) with what we think is highly relevant expertise. And not only we think that, but the CEOs and managers we've been backing think that. Please check with them if you don't believe us. We'd be glad to have them meet you, to have a chat, to explain what it is they're doing and so on. And that's how we build acceptance. We never really have to build acceptance because the reason for people to partner with us, one of the core reasons, is to have access to these people. And as part of that discussion, then we say, but

where are you helped best? And back to my earlier point, the operating partner people, those are typically board level individuals. And to have a high quality board level discussion, an operating partner can be absolutely highly valuable, which is why we have them. But if you go outside the board and the actual leadership team, help at that level can also be extremely useful. And having sometimes help at both levels is even better. And then the big challenge we're getting is that,

how do you not become victim of your own success? Because the management teams always ask more of this team. So how, as a GP then, do you work on arbitration on where to actually deploy this resource?

Shiv Narayanan (16:49.517) Yeah, that was going to be my next question because if it's two people, okay, fine. But how do you decide which companies are getting these resources? Because there is a threshold, right? Because you have to make your own operating model work as a firm. So how do you manage that? Are you billing their time to the companies? How does that work?

Arjan Hannink (17:08.047) No, it's an all-you-can-eat model on purpose. So you don't get into discussions like, what's the day rate of this person? Is that worth their time on this specific problem? Should we not hire a consultant and so on? Because then you're being penny wise from a GP perspective. What is it? Yeah, pound foolish, penny wise. Exactly. Because as a GP, what we're trying to build is growth stories.

Shiv Narayanan (17:27.925) Yes, yes.

Arjan Hannink (17:36.306) So the conviction we have is that those people are relevant already. So you don't want to get into discussions around how many hours are being spent. So what does that concretely mean? It's an all-you-can-eat model. We manage that by setting very clear expectations because the CEOs and the leadership teams we back, they understand that it's finite in real life. It's finite. But what does that mean concretely? Have we in the last 10, 15 years with this team had any major issues doing this

in a partnership driven way with the teams we back? No. And has this team grown alongside our AUM? Yes. And even if you would draw two curves, the curve of the FTE growth of this team is much steeper than the growth of the AUM. So that's how we work. And of course, internally, from a portfolio perspective, we debate as well about the intensity and time of the support.

Shiv Narayanan (18:22.965) Mm-hmm.

Arjan Hannink (18:33.178) depending on the growth challenges that we face.

Shiv Narayanan (18:37.325) How do you make the economics work as a firm? Because I'm sure there are people listening to this, even in smaller firms or larger firms where, let's say in a smaller firm, maybe they have one or two operating partners. In larger firms, they may have some sort of a strategic resource group that has four or five people, but they're selective with how they deploy these folks because they don't want to over hire and use their management fees for these resources. So how does that work for you as a firm? I'm curious what thoughts you have because I'm sure other firms can learn from it.

Arjan Hannink (18:57.51) Yeah.

Arjan Hannink (19:05.617) Yeah. I think the take we had there and we've always had is we always have invested ahead of our own growth as a platform. So we, of course, think intelligently around our P&L, but if you would look back in time at how we have been building this team, but also the investment team, we have never, for example, raised a fund first and said, okay, let's now hire the investment team that goes to deploy it. So we've always had the vision of growing the platform, doing the right things.

And of course you need to — it doesn't, I would say, doing that doesn't stop you from course correcting if at some point you would need to. We haven't needed to do that yet. But if we would need to do that, that's quite easy, right? So I think the key DNA of the firm is that, you know, we back growth stories, but we always say, well, in a very modest way, we're our own growth story. We're a private partnership. We put our own money in the firm. We're our own growth story. We're at our scale also entrepreneurs. So we understand also what it is to

you know, to take risks, to think ahead, to have a clear vision of where you want to go.

Shiv Narayanan (20:09.197) What's the ratio that you have on your investment team to these strategic resources? Is it one to one, two to one? How do you guys think about that?

Arjan Hannink (20:17.86) It's an interesting point, Shiv. It's close to one to one. So we have now a total team of around 140 people. If you would count the heads on the website, investment team around 50, 55 and then around 40 on the portfolio support.

Shiv Narayanan (20:37.527) So I would say that is unique because in most firms, the ratio is like two to one at best. And in a lot of firms, it's like three to one or four to one. And I think that's a very interesting take. I like it personally. And I think maybe five, six years ago, you could get away with being four to one or five to one as a ratio because the market was just kind of trending upwards. And so your investment team was your growth strategy, the rate at which you landed a deal

helped you deploy more capital and that capital was appreciating at a certain rate so you could get a good enough return. But I feel like now having the right type of operating partners and strategic resources that actually help these companies grow, because growth is harder to find, is like an essential part of actually returning the fund.

Arjan Hannink (21:25.905) Yes, listen, I cannot talk for the sector. I can only talk for ourselves, right? And we, the way we looked at it, we have never kind of thought around what is the macro cycle doing or, you know, how do we avoid certain pitfalls and so forth and so on. Our vision was really from day one. So we, you know, we started doing growth buyout 25 years ago. It was to say, okay, we need to build a platform that offers a couple of

very specific points to first and foremost, the people we back and secondly, our investors. And that was growth expertise because every company that goes through steep growth faces the same type of challenges. It was sector expertise because it's there also where you build relevancy, and then it was hands-on support. And of course we started with one person. We didn't start with 14.

So we started with one, we tried to build the concept, we tried to get it right. And then gradually started building it out as we saw, okay, how does this work? What kind of profiles do we need? And as part of that journey, just like with any kind of business building, of course there are things where we said, okay, finally, maybe we should do this slightly differently. This is maybe not exactly the way we should do it. How can we do it better, faster, more impactful and so on. So we're still doing it. We're still building it.

But the philosophy was really to say, what is it in the end that we bring to the table? And it's not to say that this model with the close to one-to-one is necessarily the blueprint for every firm. It's the path that we chose and it's a path that has worked very well for us.

Shiv Narayanan (23:11.115) Yeah. How does that impact how you're underwriting deals? Because a lot of the engineering behind a deal is what you're projecting out for a business. And given that you're deploying these resources inside companies, when you're writing your thesis or your value creation plan, how does this factor into that piece?

Arjan Hannink (23:31.794) Yeah, it's a great question. Because these people don't come in just, you know, the ink is dry on the SPA and the SHA and they walk in the room and shake hands and start building. They indeed come in earlier. And the idea of that is really to understand, if we look at the various avenues of growth and in front of that, we discussed earlier in this conversation, the maturity of the organization to absorb change.

We use the expertise of this team to help rank the level of realism of parts of the business plan that we are being presented, and in a very positive way. And that means that we work really with the team hand in hand. So it's also reflected in the way the offices, for example, are set up. These people are not sitting on a separate floor or something like this. They're really part of the team. Senior members sit in IC audiences, for example, also very important.

So it's really an integral part. That's why I put all three in the same bucket: growth expertise, sector expertise, hands on support. It's an integral part of how the firm functions as an investor.

Shiv Narayanan (24:41.941) Yeah, yeah, that's interesting because even the engagements that we work on when we partner with PE firms, some of the most impactful ones are when we are crafting the thesis or helping due diligence on the marketing side while the transaction still hasn't closed. And that allows you to hit the ground running and move a lot faster. So I guess in that phase, these are your value creation partners coming in and doing a deep dive

into these businesses so that on day one you already know all the initiatives that you're working on.

Arjan Hannink (25:13.169) Yes, absolutely. Because of course we don't know everything, but the key part of the intervention is also during the pre-deal phase — just to put them in front of the management team. Because that comes back to my point, okay, what is it we offer to the management team when they have to choose their next partner, founders, CEOs. It's again the expertise: growth, tech. So of course, as part of that dialogue, we put these people in the room very early on presenting, okay, this is who we are,

this is how we operate, these are examples, very concrete ones, of how we've been working with the portfolio companies. Because that's what the audience is interested in. It's not a couple of pictures of very senior people as in the operating partner model, you know. But here, most of the CEOs, they really ask, okay, and they have been for a long time, what is it you can bring to the table concretely? What does it look like?

Shiv Narayanan (25:52.973) Mm-hmm.

Shiv Narayanan (26:12.116) Yeah, yeah. And I guess that's something that you're bringing to that sale process as well, because the founder is trying to figure out who's the right partner for me and who's going to help me add the most value once we've received an investment. And I believe this type of partnership makes them feel like they'll get access to way more resources.

Arjan Hannink (26:31.569) Absolutely. So the idea is really that these people early on have air time with the management team. So we can also get out of the PowerPoint presentation mode. What is it? You know, how does value creation work at the firm? And back to my point I made earlier in this conversation, it's also about getting the people fit right. Because the model of driving value creation, to your question earlier around, okay, are these people taking the seat of the CEO, for example — people don't want to

Shiv Narayanan (26:57.132) Mm-hmm.

Arjan Hannink (26:59.825) get the flying brigade most of the time. They don't want to feel that it's a couple of people monitoring day in, day out, every single detail. People don't want to feel that it's becoming very intrusive. What they want is help to solve business problems. And it's very simple. The way you engage in the discussion there is very important, to show that I'm here to help you realize your journey. I'm not here to tell you

Shiv Narayanan (27:26.827) Mm-hmm.

Arjan Hannink (27:29.969) how to precisely do your journey and give you a slap on the wrist each time that you deviate a little bit from whatever we said last week we would be going to do.

Shiv Narayanan (27:39.468) How do you balance this with the people side? Because sometimes you can make the best plan, but maybe the CEO is not the right CEO to take the business to the next level, or you don't have the right leadership team. So how much of this is actually vetting the talent inside these companies?

Arjan Hannink (27:57.842) It's not so much about explicitly vetting. I think what we of course see, like in any business, there will be teams that at some point are put in an environment that is so radically different than what they had experienced a couple of years ago, that at some point perhaps you get to a situation where that fit is no longer there. But the job of the team is not to go and rate executives and then determine what will happen at some point in time. So it's not at all that. It's to say,

Shiv Narayanan (28:16.266) Mm-hmm.

Arjan Hannink (28:27.461) we have a team here and when we make an investment decision, I'm not backing a key strategic plan. I'm backing a founder or management team. And it's really the nature of our firm. And if you look on the website, we have a motto, and it always ends with "we grow together." And we wrote that motto, "we grow together," 15 years ago or so as a team — not with a marketing agency — and this "together" is really important.

And it together includes first and foremost the management teams, the founders we back in good and bad times. It includes the broader ecosystem, our co-investors, advisors, banks, and so on. And of course it includes our investors and it includes our team. It means that when, you know, the starting point, we have to say, okay, we together, we back this team. We need to get to this point on the horizon. What is it you need from us? How can we help you to get there?

Shiv Narayanan (29:14.471) Mm-hmm. Yeah.

Shiv Narayanan (29:19.968) Mm-hmm.

Arjan Hannink (29:25.09) That's the approach we take.

Shiv Narayanan (29:27.276) Yeah, I really liked that because even your operating model involves you guys investing as a firm to help these companies grow. So I think it kind of plays all the way through your organization. 

Arjan Hannink (29:47.001) I really appreciate you having me today, Shiv. Really liked the conversation.

Shiv Narayanan (30:04.262) Yeah, awesome. I'll be sure to include that and all the links in the show notes as well. And with that said, Arjan, thanks for coming on and sharing your wisdom. I especially liked how you guys are approaching value creation and the investment that you're making inside your companies and your team. And I think a lot of PE firms will learn a ton from that. So I appreciate you doing this.

Arjan Hannink (30:20.604) Thanks, Shiv.