#GROW - Molten Ventures - UK closed fund investing in European VC sector. Diversified VC exposure at discount to NAV. Port Co's include Revolut, Ledger, Crowdcube, CoachHub, Trustpilot, UiPath...
Additional director purchase 29 Sep 2022, continuing a buying trend
Molten Ventures Plc - #GROW
DESCRIPTION - Molten Ventures (formerly Draper Esprit Plc) is a UK listed closed-end investment trust that mostly makes venture capital investments in tech-focused businesses in the UK and Europe, and has a history dating back to 1984. It has flexibility to invest across most of the life-cycle of a firm, whether pre-revenue or pre-IPO, but most focus is on European companies with a global ambition, making £5-25m investments in Series A/B upwards. Being a closed-end fund, time horizons can be optimised for the needs of the portfolio companies rather than needs of the usual VC fund lifecycle.
FUNDAMENTAL DATA - Market cap £447m @ 292p, estimated NAV at least £900m or c590p per share. Updated fair value NAV however is a key debating point after huge moves in valuations of private and listed early stage growth companies.
INVESTMENT CASE - Possible update in early October time, and then results in November. The company recently drew down a term loan facility with Silicon Valley Bank on terms that suggest the NAV per share is worth meaningfully more than the current share price, at least in SVB’s assessment methodology.
Insider dealing details
No insider sales since Jan 2021 (COO, Stuart Chapman, £2m).
The table below shows all the deals since the start of 2022 - decent trend and a new transaction just yesterday.
History back to 1984. Focus on European tech co’s with potential to go global, typically looking to invest £5m-£25m in Series A or B rounds, but can go as early as pre-revenue.
Portfolio is focussed on high-tech sectors including AI & Machine Learning, Agritech, Consumer tech, Health tech, Climate tech, Fintech. Reported net assets at end March 2022 £1.43bn, up from £1.0bn at end March 2021 of which £363m was fair value movement.
Some of the larger portfolio investments by carrying value include…
Graphcore (Mar22 £113m, from £24m cost - hardware/deeptech)
Aiven (Mar22 £105m, from £5m cost - enterprise tech)
Thought Machine (Mar22 £103m, from £36.5m cost - hardware/deeptech)
Ledger (Mar22 £92m, from £28m cost - hardware/deeptech/crypto)
Revolut (Mar22 £91m, from £7m cost - consumer fintech)
CoachHub (Mar22 £86m, from £27m cost - enterprise tech)
Assessing the current fair value of the portfolio after such large declines in industry valuation multiples, offset against rapid revenue/profit growth progress at various portfolio companies, is a tough challenge. One method we liked was to go on the basis of recent debt funding from Silicon Valley Bank which was given on the basis of it representing no more than 10% of the value of the investment portfolio. SVB provided a £90m term loan plus a £60m revolving credit facility. It is not clear from the RNS below if we should apply the 10% only to the £90m or if we should include the £60m RCF. If we do the former then perhaps the implication is that SVB has done their own conservative fair value assessment of the portfolio at £900m. If the latter then perhaps they have simply taken the recent fair value from Mar22 of circa £1.5bn. Either way, Silicon Valley Bank is a proper operation and the fact that they felt comfortable to lend assuming either £900m or £1.5bn portfolio valuation implies that SVB thinks the portfolio value is worth at least c590p per share at the low end of this range.
Timing seems interesting with interim results due in November and a possibility of a portfolio update before that in October.
Despite not having a net cash position, with the debt facilities the fund has sufficient capital to continue funding its portfolio companies for the next year, and there should be further funds from exits.
Risks include further deterioration in venture stage valuations, especially if it continues over a long enough period that it affects Molten’s ability to keep funding its portfolio companies. But even so this would unlikely prove to be a terminal outcome, just somewhat painful.
2019 Interview with Investment Director V Jayakumar
Company’s official video library
Annual report for year ending March 2022
June 2022 research note from Edison Research
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Thanks Usama. Good point too. I would say that at a glance IP group looks similarly discounted in terms of share price versus NAV. There are NAV figures for June 2022 (current share price 60p versus June NAV of 137p) - this discount is less than the discount of Molten between March val and time of writing (£450m market cap versus NAV £1430m), but the lower discount in IP Group is probably compensated by having the NAV taken at a later date that has had more time to reflect deteriorating conditions. Perhaps that is even an understatement. Insider trends at IP Group are a little less compelling but at least there was a recent small buy from Douglas Flint the Non exec Chair of c£21k at 71p on 14 June 2022, and a tiny £5k buy from the CEO on the same day. In terms of the portfolio I find it harder to identify anything I know about at IP Group, except for Oxford Nanopore, which is listed and which we have written up here in fact. If you want to check out other examples of listed VC then aside from Molten and IP Group you can have a look at Syncona Plc (UK - SYNC - biotech, also written up here), VNV Global (Sweden - VNV), Oakley Capital (UK - OCI - mix of PE and VC and does consumer etc as well as tech), 3i Group (UK - III), Forward Partners Group (UK - FWD), Augmentum Fintech (UK - AUGM), HG Capital Trust (UK - HGT), TMT Investments Plc (UK - TMT), Eurazeo SE (Paris - RF). A number of these I have not looked at yet and so could be of questionable quality!
Hi nice writeup! Just curious as to how you'd compare it to IP Group Plc? Have following Molten for a while so agree mostly, still with such drawdowns, the "opportunity cost" set is also interesting.