Ukraine’s Horizon exceeds target, ups hard-cap for Fund IV

The firm aims to reach its new $300m hard-cap by September and seeks to capitalise on previously inaccessible opportunities in the country, says chief executive Lenna Koszarny.

Horizon Capital has exceeded its target for its fourth fund, with some existing investors topping up commitments from the first closing, Private Equity International has learned.

The Kyiv-headquartered firm was originally seeking $250 million for Horizon Capital Growth Fund IV when it began raising capital in the fourth quarter of 2021. The firm has since held a $254 million interim close for the vehicle and has increased its hard-cap to $300 million, Horizon founder and chief executive Lenna Koszarny told PEI. It has not yet held a final close for the vehicle.

“We are working with our private investors with a view to reach $300 million, deploy it for new investments supporting the IT sector driving the country’s economic rebound, lessen brain drain [and continue] preparing companies for exit,” Koszarny said.

She noted that the firm has until 26 September, a year after it held a $125 million first close for Fund IV, to reach its hard-cap.

In its first close, Horizon secured capital commitments from LPs including the European Bank for Reconstruction and Development, the International Finance Corporation, Germany’s DEG, Dutch development finance institution FMO, the Swiss Investment Fund for Emerging Markets, the Western NIS Enterprise Fund and the Zero Gap Fund, an impact investing tie-up between the Rockefeller Foundation and the John D and Catherine T MacArthur Foundation.

At the latest closing, IFC added a further $35 million to its original $25 million first close commitment, making it the fund’s largest investor at $60 million. The EBRD also upped its first close commitment from $25 million to $40 million, according to Koszarny.

Additional LPs, including the US International Development Finance Corporation, Proparco, Swedfund, Finnfund and the Danish Investment Fund for Developing Countries, have backed the interim close this month.

Asked whether now is a good time is to invest in Ukraine, Koszarny said “the current environment offers compelling investment opportunities from a risk-reward profile”. She also noted that “valuations are moving firmly to ‘value’ territory” and that “some previously inaccessible opportunities have become available”.

In addition, she noted that the region continues to produce export-focused, asset-light and high-growth companies whose business models are resilient to geopolitical shocks.

Koszarny added that the firm’s active pipeline includes over 60 opportunities, the bulk of which are proprietary deals. The firm is set to announce the first three deals from Fund IV over the next three months, it is understood.

Capital raised for Fund IV will be used to invest in up to 15 companies with an average ticket size of between $10 million and $30 million.

Portfolio performance

According to Koszarny, Fund III portfolio companies grew top-line US dollar revenue in 2022 at 30 percent median, despite the war and a global tech meltdown. Emerging Europe Growth Fund III gathered $200 million at final close in 2018, PEI data shows.

Home security system manufacturer Ajax and dollar store chain Avrora are two examples of portfolio companies that have ploughed through and managed to thrive during wartime.

Ajax transferred its production facilities close to the EU border following the onset of the Russian invasion in February last year. This involved moving and assembling 160 truckloads of equipment to a new location 800km away from Kyiv in 35 days. While production output initially declined with the move, daily output production levels in April have already reached pre-invasion levels and revenues grew 41 percent in 2022, Koszarny said.

Avrora, which operated 863 stores before the invasion, initially saw its store count dip to 636. The company’s operations bounced back over the last year, and have since expanded to 920. It recorded over 50 percent revenue growth and more than 200 percent EBITDA growth year-on-year in 2022.

“We are sending a strong signal to the market that capital is available to back tech companies driving Ukraine’s further digitalisation and ultimately, economic rebound, renewal and revitalisation; providing access to capital for high-growth SME and mid-cap, export-orientated companies, including women-led businesses,” Koszarny said.

Investing with a gender lens

Fund IV is also the first fund in Central and Eastern Europe to receive 2X Flagship Fund status, a gender-based finance initiative founded by the development finance institutions of the G7 nations.

The milestone recognises Horizon’s commitment to build a portfolio with at least 30 percent of the investments fulfilling 2X criteria, which include having women make up 30 percent of leadership positions in the company and having women account for between 30 and 50 percent of the company’s workforce.

“Investing in companies with strong gender diversity policies leads to improved financial performance, as companies with diverse leadership teams tend to be more innovative and make better decisions,” Koszarny said.

“Promoting gender equality and women’s empowerment, as well as supporting economic growth and generating positive social impact [is] so important for Ukraine in these challenging times.”