Review: ProVen VCTs
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
The two ProVen VCTs – ProVen VCT (PVN) and ProVen Growth & Income VCT (PGI) – are the longest-standing VCTs with a focus on growth investing.
Many successful companies, from Watchfinder to Chargemaster, have come out of the ProVen stable. Indeed, the VCTs have achieved a string of profitable exits in recent years (as shown below, the 2019 financial year was particularly strong) and delivered healthy investor returns. You should note as with any VCT there have been failures too. Past performance is not a guide to the future.
As a result, over the past 10 years ProVen VCT has more than doubled investor money and ProVen Growth & Income VCT has produced a return of 74.3%.
Under the current offer, the two VCTs aim to raise a total of £20 million, with an overallotment facility of £20 million. The funds will be deployed into new opportunities – the manager believes it has a strong pipeline – and to support existing portfolio companies the manager believes show promise.
- Large and long-established VCTs with total assets of £232.8 million (Aug 2019)
- Focus on growth capital since inception
- Diverse portfolio of mature investments
- Target dividends of 5% of NAV – achieved an average yield of 11.3% (PVN) and 8.6% (PGI) over the past five years – dividends are not guaranteed and past performance is not a guide to the future
- Experienced management team
- 0.10% annual rebate for three years when you invest through Wealth Club
- Available for investment in the 2019/20 and/or 2020/21 tax year
- Minimum investment £5,000 (at least £2,500 per VCT) – you can apply online
Beringea LLP has managed the ProVen VCTs since inception. It is an award-winning specialist venture capital firm which manages more than £233 million of VCT assets. Beringea is part of an international fund management group which manages venture capital funds in the UK and US of more than $643 million (including the VCT assets).
The presence of investment teams in both the United States and the UK can offer an international perspective.
Beringea’s investment committee comprises five experienced investors with decades of expertise in management, finance and entrepreneurship. They include Founding Partner Malcolm Moss, Managing Partner Stuart Veale and Chief Investment Officer Karen McCormick, alongside two investment directors. They are supported by managers and associates with backgrounds in banking, start-ups and consulting, who assist with sourcing investments, executing deals and working with portfolio companies. The team has been expanded in the last few years.
Established in 2000 and 2001, the ProVen VCTs are almost twenty years old. PVN is the elder of the two and has been a generalist fund since its inception, whilst PGI initially focused on the media sector (this changed in 2006).
Over the years, the funds have progressively converged towards identical investment mandates and Beringea has been steadily working on rebalancing the two portfolios. Today, they're both generalist VCTs which mirror each other, with no companies held exclusively by just one VCT. However, each VCT invests different amounts in each deal.
Unlike many VCTs of the same vintage, the ProVen VCTs have always focused on growth capital investments rather than management buyouts.
This means new VCT rules have had little or no impact on strategy. It also means the ProVen VCTs have among the longest track records of any VCTs in growth investing.
For Beringea, the ideal investee company should have a proven commercial business with an exceptional team capable of taking the company to exit.
The majority of the portfolio companies are tech-enabled and should have the potential to return 3-7x if successful, although this is not guaranteed. Beringea will only invest in companies where it will be a key part of the team and can act as a significant influencer on the business.
Exit track record
In the previous full financial year to February 2019, the ProVen VCTs have had some of the best returns in their history. They exited 10 investments, six of which profitably, including Watchfinder, Chargemaster, Think and Chess. The sale of Watchfinder realised a gain of £21 million for ProVen VCT, the largest gain achieved on a single disposal in its history. Past performance is not a guide to the future.
Watchfinder – recent
Founded in 2002, Watchfinder was one of the first online platforms for watch enthusiasts to sell, buy and service pre-owned luxury watches.
Previously, this market was unreliable at best. By creating a trusted, user-friendly platform, Watchfinder quickly gained a loyal customer base in the UK and access to a global market worth $13 billion. It is now the leading global platform for pre-owned premium watches.
Beringea invested in 2014 to support Watchfinder’s capitalisation. By 2018, turnover had trebled and delivered over £275 million in sales since inception.
Richemont, the Swiss luxury goods group, which owns brands such as Cartier, Van Cleef & Arpels, Jaeger-LeCoultre and Vacheron Constantin, bought the company in early 2018, generating a return of 8.89x for the VCTs.
MEL Topco Limited (trading as Maplin)
As can be expected, not all investments work out. One of the most high-profile examples is electronics retailer Maplin, which went into administration in February 2018. The ProVen VCTs had invested £5 million in 2014.
According to Karen McCormick, it was an unusual deal: Beringea was not the main party involved, which is what it normally prefers, but a ‘passenger’ that provided loan notes whilst a large private equity firm was in the driver’s seat. The investment structure helped limit the impact of Maplin’s failure on the VCTs. Beringea started to downgrade the holding valuation in 2016. Moreover, after the company went into administration, Beringea had priority over the equity investor and received distributions from the administrator.
Current portfolio overview
Both VCTs currently have 46 holdings (Jan 2020), offering a blend of new and maturing growth assets which have the potential to seek an exit in the coming years, although this is not guaranteed.
Beringea will consider most sectors although it no longer pursues investments in advertising technology or in the casual dining sector due to the current market conditions. It has continued to diversify the VCTs’ portfolios to help mitigate sector-specific issues and broader economic uncertainty.
Beringea anticipates future deal flow to be strong. Several recent investments have come through referrals from ProVen’s growing list of successful founders, and this has helped create proprietary deal flow. Competition for the best deals is strong and as a consequence company valuations may be inflated. Beringea is confident in its ability to identify good deals and execute them without veering from its valuation principles.
Through 2019, the ProVen VCTs invested £30 million across a total of 13 investments.
Example portfolio companies
My 1st Years – largest holding (PVN)
My 1st Years, the trading name of Infinity Reliance, provides personalised gifts for young children – from clothing to toys and furniture. Founded in 2009, the company was created when the founders struggled to buy a gift for a friend’s daughter. They ended up making a personalised pair of baby shoes. They were a hit with their friends with many requesting some for their own kids.
Today, My 1st Years has been endorsed by a number of celebrities, from Elton John to Dannii Minogue. Its most famous customer is probably HRH Prince George, who wore one of its personalised dressing gowns when meeting President Obama.
The company sells directly through its website, as well as through online marketplace notonthehighstreet.com and department stores such as Harrods, John Lewis and Selfridges.
My 1st Years previously secured £2 million in funding from individuals, including Lord David Alliance, co-founder of Coats Viyella. In December 2016 Beringea invested £4 million alongside £1 million from Hargreave Hale. In May 2018, Beringea invested a further £3.6 million to enable the company to continue its expansion into the US. The business has recently diversified into offering personalised products for pets, potentially a large market with a high overlap with the existing customer base.
My 1st Years is the largest holding in PVN and the twelfth largest in PGI (Nov 2019).
Papier – recent investment
Papier is a personalised online stationery retailer, producing items such as wedding invitations, diaries, and thank you cards on high-quality paper. It started in London in 2015. Having followed the progress of Papier over the previous three years, in September 2019 ProVen invested in the latest $11 million funding round alongside three other venture capital firms: Felix Capital, JamJar Investments (Innocent Drinks founders’ fund), and Downing Ventures. The ProVen VCTs invested a total of £4.5 million (£3.15 million through PGI, and £1.15 million through PVN).
Based in London, Papier has now raised $15 million to date and intends to use the proceeds to accelerate growth within the US, which currently accounts for 15% of total sales, and is reported to be growing at 40% per month.
Performance and dividends
The ProVen VCTs have a strong performance track record. Over the past 10 years, ProVen VCT has more doubled investor money (105.1% total return), whilst ProVen Growth & Income has delivered a 74.3% total return (on top of the original investment). To put that into context, the average VCT has delivered 87.0% over the same period. Past performance is not a guide to the future. Dividends are variable and not guaranteed, in these examples dividends are reinvested. (Source: Morningstar at 28 January 2020; performance figures calculated net of fees on a NAV to NAV basis, dividends reinvested, for the period 31 Dec 2009 to 31 Dec 2019).
In line with the two VCTs' investment strategy, the performance is underpinned by the capital growth within the portfolio. Over the last five financial years (to Feb 2019), the ProVen VCTs have sold more than £153 million of assets, and generated £48 million of realised gains and £31 million of unrealised gains.
Notably, the realisations have historically achieved significant average uplifts to the last valuation (from 21% to 41%). This reflects the manager's conservative valuation policy. Beringea views the practice of valuing investments based on the valuation of the most recent fundraising round with some scepticism and in many cases prefers market-based valuations. This means an exit can command a sizeable premium to the net asset value, as has indeed been the case over the past five financial years. In our view, recognising performance as assets are realised (or sold) in this way, is a healthy approach for investors in the longer term.
The VCTs have a target annual dividend yield of approximately 5% of Net Asset Value, not guaranteed. The dividend track records for both VCTs are shown below (note this shows dividends paid in the calendar year, not per VCT year-end). Both VCTs have exceeded their target in the last five years (Dec 2019), achieving an average annual dividend of 10.7p (PVN) and 6.7p (PGI). However, please note, past performance is not a guide to the future, dividends are variable and 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.
Tax rules can change and benefits depend on circumstances.
VCTs can now only invest new money in growth capital deals. Management buyouts / replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks.
What to consider next
Please visit the offer page to download the provider documents, read more (including risks and charges) and apply online.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.
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