Seneca Growth Capital VCT

Launched in 2018, Seneca Growth Capital VCT (B Share class) looks to invest in a mixture of AIM-quoted and unquoted companies with a preference for later-stage opportunities. 

The share class has net assets of £14.1 million, of which £9.0 million is invested in a portfolio of 25 companies, including 16 AIM-quoted investments (June 2023). While the trust is sector agnostic, it currently has a large weighting towards software and life sciences.

Since launch, the VCT has achieved two full exits from its unquoted portfolio, with its most successful investment, ADC Biotechnology (detailed below) achieving a 3.6x return. There have been several realisations from the AIM quoted portfolio. 

These returns, along with existing distributable reserves, have helped the B Share class pay cumulative dividends of 15p since launch (December 2023). Over the five years to 31 December 2023, the VCT delivered a total return (including dividends) of -12.0%. Past performance is not a guide to the future; dividends are variable and not guaranteed.

• Seeking to raise up to £10 million with a £10 million overallotment facility
  
• Targets a dividend of at least 3p per share – not guaranteed 
• Invest in the 2024/25 tax year
• Minimum investment: £3,000; you can apply online 
• Next deadline: 30 April 2024 (noon) for 2024/25, 1.5p declared dividend and 1% additional initial saving

The manager

The VCT is managed by Seneca Partners Limited. In 2018 it took over the management of Hygea VCT plc, renamed it, and launched a new and separate B Share class. 

Seneca is an experienced growth capital investor and has raised and deployed more than £100 million of EIS and VCT growth capital into over 65 SME companies through 130 funding rounds since 2012 (June 2023).

The Seneca Growth Capital VCT is managed by the same team behind Seneca’s EIS funds, including shareholder directors Richard Manley, Ian Currie, and Tim Murphy. All three are SME specialists. Their previous experience includes KPMG, NM Rothschild, Cenkos Fund Managers, Altium, Apax, RBS, Deloitte and HBOS.

Directors of Seneca and key members of the management team have collectively invested more than £1.3 million in the VCT to date (June 2023).

Investment strategy

Seneca seeks well managed businesses with strong leadership teams that can demonstrate established and proven concepts and are looking for growth capital to support their continued development. 

The trust is sector agnostic, although the VCT currently has a large weighting towards the life sciences and technology sectors. It will consider both unquoted and quoted companies and does not target a particular split between the two. 

When investing in quoted businesses, the team relies on strong relationships with national brokerage firms to access fundraising rounds. In particular, it benefits from co-founder Ian Currie’s previous experience of raising capital for many AIM-quoted businesses. Depending on price targets and market outlook, Seneca is willing to realise its quoted positions after a short holding period to reduce downside risk and manage liquidity. 

Seneca will use its network of non-execs and industry partners to conduct technical due diligence where necessary, while the investment team focuses on valuation and the ability of investee company management to deliver on the growth plan.

Since the VCT follows the same generalist investment strategy as the manager’s two EIS funds, the funds often share the same deal flow and co-investment opportunities. 

Current portfolio overview

The Seneca Growth Capital VCT (B Shares) has net assets of £14.1 million, of which £9.0 million is invested in 25 companies, including 16 AIM-quoted. The remaining £5.2 million is currently held in cash (June 2023).

Examples of portfolio companies

SolasCure (unquoted) – largest investment 

A spinout from BRAIN AG, a German listed biotechnological company, SolasCure is developing an innovative, patented wound-cleaning hydrogel. Using biomimicry (copying a proven solution from nature), SolasCure has synthetically replicated maggots’ valuable wound-cleaning ability – maggots feed on dead tissue, thereby cleaning the wound, a crucial first step in the healing process.

SolasCure believes its hydrogel could be a faster, cheaper, non-invasive and effective alternative to current methods of cleaning chronic wounds, which affect an estimated 100 million people in the world. SolasCure completed its first in-human clinical trial in H1 2023, reporting positive data for its gel, Aurase. 

The VCT invested £0.5 million in January 2021 and has participated in two follow-on rounds, most recently a £10.9 million Series B round in March 2023. The company is also backed by Abcam’s Jonathan Milner, BRAIN Biotech and EVA Pharma. SolasCure is the VCT’s largest investment, representing 12.0% of the portfolio.

Engage XR (AIM quoted) – recent investment

Engage XR is a virtual reality metaverse platform. It allows employees to mingle and collaborate in a variety of virtual settings, helping deliver immersive corporate communications, remote events, training and education. 

The company has built a sizeable user base, with 220 active enterprise and education customers as at June 2023, and expected revenues of €2.1 million and a gross margin of 93% in the first half of the year (up 18% year-on-year). Customers include several blue-chip companies such as Meta, HP, HSBC and Pfizer. 

The first six months of 2023 also saw the platform host its first virtual reality concert with Fatboy Slim and launch a partnership with Lenovo targeting the virtual headset maker’s top 100 customers.

Engage XR raised €9.9 million in February 2023, with the Seneca Growth Capital VCT investing £376,000. That position was valued at £329,000 at the end of June 2023, accounting for 3.6% of the portfolio. 

Exit track record

Since launch, the VCT has achieved two full exits from its unquoted portfolio, and several realisations from the AIM quoted portfolio, which are more easily bought and sold than private (unquoted) companies. Collectively these have generated proceeds of £4 million on an investment cost of £2.3 million. 

ADC Biotechnology – example of an unquoted exit

ADC Biotechnology is a commercial developer of antibody-drug conjugates (ADCs). ADCs are a class of drugs designed to deliver potent chemotherapy agents to cancer cells. Using its patented ‘Lock-Release” technology, the company aims to speed up and simplify the ADC production process while significantly lowering costs.

The company has two distinct revenue streams: proprietary drug development and external support services. Currently, ADC Biotechnology has one product commercially available along with a pipeline of four other treatments, at various stages of clinical trials. 

In 2021, the company was acquired by Sterling Pharma Solutions, a UK-based pharmaceutical company. This generated c.£550,000 in proceeds for the VCT, equivalent to a 3.6x return on investment cost. Past performance is not a guide to the future.

Ten80 – example of a failure

As can be expected, not all investments work out. Ten80 is one example.

Ten80 was set up to reduce the cost of SAP (which stands for systems, applications, and products) and technology projects by offering clients an on-demand, remote workforce while improving the quality of programme delivery. 

SAP is one of the best-known developers of business management software and solutions in the world. Using Ten80’s platform, companies could outsource SAP projects to its bank of over 120,000 consultants, with payment and monitoring tools all centralised in one place.

The VCT invested £400,000 in March 2020. However, the holding was provisionally revalued to zero in 2021 following poor commercial traction and uncertainty over the outcome of future fundraising efforts. The company entered liquidation in February 2023, resulting in a full loss for the VCT.

Performance and dividends

The VCT’s AIM-quoted exposure has hindered performance following significant market volatility. Over the five years to 31 December 2023, the VCT delivered a total return (including dividends) of -12.0%. Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years.

The VCT targets dividends of at least 3p per annum in relation to the B Shares. Please note, dividends are variable and not guaranteed. 

The VCT has paid 15p in dividends per B Share since launch. 

NAV and cumulative dividends per share over five years (p)

Dividends paid per calendar year

Dividend Reinvestment Scheme (DRIS)

There is currently no Dividend Reinvestment Scheme. The company is considering launching a dividend reinvestment scheme in due course.

Share buybacks

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is not guaranteed – please see the offer documents for details.

Discount history

VCT shares are traded on the London Stock Exchange. Similar to investment trusts, the share price can fluctuate and can be different from the VCT’s net asset value (NAV), i.e. the value of the VCT’s underlying investments. The difference between the share price of a VCT, and its net asset value per share, is called a discount.

Based on data from Morningstar, the discount to NAV as at 31 December 2023 was -6.32%. Over the previous five years the average discount to NAV was -4.31%.

The discount history is based on the closing share price of the VCT at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCTs’ share buyback facilities, although this is not guaranteed.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

To retain the tax benefits, VCTs should be held for at least five years. If you sell VCT shares and reinvest in new shares of the same VCT (including any mergers) within six months, tax relief can be restricted. Tax rules can change and benefits depend on circumstances.

The VCT has significant exposure to AIM. AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply. The difference between the buying and selling price of AIM-quoted companies is often wider than those listed on the main market.

Charges and savings

A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details, offer price and share allotment calculation methodology.

Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.

Annual rebate when you invest through Wealth Club

The Seneca Growth Capital VCT offer includes an annual rebate for Wealth Club investors, payable for the first three years. This is a rebate of our renewal commission and should be equivalent to a percentage (shown in the table above) of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Deadlines

• Deadline for 2024/25, 1.5p declared dividend and 1% additional initial saving: 30 April 2024 (noon)
  
• Deadline for final allotment in 2024/25: 15 August 2024 (noon)
  

Our view

The VCT is managed by Seneca, an established regional asset manager. The VCT’s strategy is a combination of Seneca’s two existing EIS funds, allowing all three to share deal flow and resources. Seneca believes this collaboration helps the trust participate in larger deals and invest in more established businesses than might otherwise be possible for a VCT of its size.

Similar to the EIS funds, the VCT follows a generalist strategy. However, at present there is a significant weighting, particularly within the quoted portfolio, towards life science businesses. Although Seneca does not promote itself as a sector specialist, it has developed a network of technical partners in this field.

While the portfolio is still developing, the VCT has used exit proceeds, along with existing distributable reserves, to pay an annual dividend of 3p per share since 2018. Please note, past performance is not a guide to the future and dividends are variable and not guaranteed.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.