Thames Ventures VCT 2 (formerly Downing FOUR VCT) – Ventures Shares

Thames Ventures VCT 2 – Ventures Shares is one of three active share classes in the VCT formerly known as Downing FOUR VCT. The Ventures Shares seek to invest in a portfolio of small, ambitious technology businesses focused on two key sectors: deep tech and enterprise software, and will no longer actively target healthcare investments.

Previously managed by Downing, the share class management contract has been transferred to Foresight Group after it acquired Downing’s technology ventures business in September 2022. As part of the acquisition, senior team members, Richard Lewis and Jack Eadie transferred from Downing to Foresight so the team and thematic investment strategy remain largely unchanged.

The share class first issued shares in February 2017 and now has net assets of £38.2 million, spread across a portfolio of 30 companies and one Downing fund (31 August 2022). 

In the five years to June 2023, the share class delivered a NAV total return of -18.94%, including dividends paid. 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 
• Target dividend of 4% of NAV– variable and not guaranteed

The manager

Foresight Group was founded in 1984 as a specialist technology venture capital manager. In total, it has £12.5 billion under management and over 29,000 clients (September 2022).

The Thames Ventures VCT 2 – Ventures Shares are managed by a team of four investment professionals (transferred from Downing) supported by three international venture partners. 

The team is led by Managing Director Richard Lewis and Jack Eadie. Lewis was previously at Japanese bank Mitsui, investing in the US and Israel, while Eadie was a principal at Next47, a deep tech and enterprise focused €1 billion US VC fund, backed by Siemens, and spent four years at Eight Roads Ventures. 

The three venture partners, located in the US, Israel and UAE, can provide access to international deal flow and support international expansion of portfolio companies.

The team will have access to Foresight’s wider resources where appropriate. The share class follows the same strategy as Foresight’s Thames Ventures VCT 1 (formerly Downing ONE VCT), although it is envisaged that it will offer a distinct alternative to the other Foresight-managed VCTs.

Investment strategy

The share class’s management team takes a thematic approach to investing. It believes by being selective and having deep knowledge within its chosen sectors, it can better understand the businesses and make better investment decisions. 

The team is focused on two key sectors: 

1. Deep Tech – Companies that develop technology based on scientific advances, such as applied intelligence or thematic materials. Foresight believes well protected intellectual property can provide significant barriers to entry for competitors and potentially create value for shareholders.
2. Enterprise Software – Companies that provide software which drives workflow efficiencies and operational improvements for businesses. Software businesses are favoured due to their potential to scale quickly, becoming embedded within a company’s systems and creating durable long-term recurring revenues. 

The non-qualifying element of the portfolio may be invested in OEICs, Investment Trusts and other securities. 

Current portfolio overview 

As at 31 August 2022, the Ventures Shares had net assets of £38.2 million, of which £29.2 million is invested across 30 investee companies. 

The portfolio also holds £2.6 million (6.9% of net assets) in Downing Strategic Micro-Cap Investment Trust plc, a non-qualifying investment. The remainder, £6.4 million or 16.8% of net assets, is held in cash. 

The sector breakdown of the share class is shown below. 

Examples of portfolio companies

Cornelis Networks – largest holding

A spinout from computing giant Intel, Cornelis Networks provides high-performance connecting components for the world’s most powerful computers to “help the smartest people solve the world’s toughest problems”. 

Cornelis’s technology supports over 500 global customer installations serving government, academic institutions, and commercial enterprise, including the U.S. Department of Energy’s National Nuclear Security Administration (DOE/NNSA), NASA and Hokkaido University.

The company is led by a team of former senior Intel executives with expertise ranging from sales to engineering.

Downing, then the manager of the Thames Ventures VCT 2 – Venture Shares, led the first investment round into the company after it was spun out of Intel. The Venture Shares invested £1.4 million as part of a £15.5 million round, in which Intel Capital also participated, in September 2020. The position is now worth £2.4 million and accounts for 6.3% of net assets (August 2022). Past performance is not a guide to the future.

Distributed Limited – recent investment

Distributed is an online talent marketplace that helps build development teams spread across the world. It connects businesses with talented software engineers wherever they are in the world. 

Capita, one of the UK’s largest business process outsourcing and professional services company, has taken an equity stake in Distributed and lists it as an internal supplier to its departments. Capita believes this could generate £10-25 million in revenue for Distributed over three years – not guaranteed. Moreover, this high-profile contract could help Distributed secure other long-term supply contracts. 

Distributed featured in the Deloitte Fast 50 in 2021 and 2022, reporting revenue growth of 823% over its previous full four financial years (as at May 2022). The Venture Shares invested £275,000 in June 2022 as part of an £8 million round.

Exit track record

The share class saw its first profitable exit in 2021, following the sale of its stake in software platform JRNI Limited. It followed this up in July 2022 with the sale of e.fundamentals – formerly the share class’s largest holding – for 2.5x return. 

e.fundamentals – recent exit

e.fundamentals (Group) was set up to help retail brands manage their content across their range of online retailers. Its digital shelf analytics platform ensures a brand’s products are consistently listed with the correct pricing, regulatory and packaging information and identifies gaps in content to promote better engagement with consumers.

Consumer goods giants PepsiCo, Mars, and Arla integrated the company’s digital shelf analytics platform, supporting revenue growth of more than 300% in 2021. 

The Ventures share class first backed the business in December 2017, investing £278k and invested a total of £1.5 million (March 2022). In July 2022 the share class sold its stake to CommerceIQ at total enterprise value of $55 million, representing a 2.5x return across all investments made by Thames Ventures.

Live Better With 

As is to be expected, not all investments work out. One such example is Live Better With. 

Founded in 2015 by entrepreneur Tamara Rajah, Live Better With is a healthcare platform that aims to help people with long-term medical conditions – focusing on non-medical products that make day-to-day life better for patients. The company sells a range of products worldwide from its online platform and launched its first shop in St Thomas’ Hospital in London, the UK’s first physical shop for people living with cancer.

The share class first invested in the business in March 2018; however, in the year to March 2020, the board of the VCT had fully written down the value of its investment as the business appeared unable to achieve its business plan following disappointing trading performance. The investment is still held at nil value (August 2022).

Performance and dividends 

Over the five years to June 2023 the Thames Ventures VCT 2 Venture Shares have delivered a NAV total return (including dividends) of -18.94%.

The VCT suffered a period of weak performance in the year to March 2020, partly as a result of the adverse impact of the pandemic. However, the VCT has performed better in more recent years, helped by the gains on e.fundamental (above) and a number of smaller holdings such as Ayar Labs, Hackajob, Arecor Therapeutics and Upp Technologies Group. 

The share class aims to pay dividends equivalent to at least 4% of its net asset value. Please note, dividends are variable and not guaranteed. 

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.

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

Dividends paid per calendar year

Dividend Reinvestment

The VCT does not operate a dividend reinvestment scheme.

Share buyback policy

The VCT intends to buy back shares at a 0% discount to the most recently announced 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 30 June 2023 was -3.65%. Over the previous five years the average discount to NAV was -0.27%.

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.

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 VCT 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 of the Net Asset Value of the Offer Shares issued to you when you invest (shown in the table above). Terms and conditions apply.

Our view

The share class has suffered a period of disappointing performance since first issuing shares in 2017. However, it has now started to achieve some positive exits from its early investments, most notably the sale of e.fundamentals – previously its largest holding — for a 2.5x gain.

The fund will no longer target healthcare investments following Foresight’s acquisition of the share class management contract. However, the investment team and strategy remain otherwise broadly unchanged – with Richard Lewis and Jack Eadie continuing to lead the team.

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.