Baronsmead VCTs

Update: Offer fully subscribed

As at 4:50pm on Monday 28 February the offer has reached capacity and is now closed. 

Applications with cleared funds are processed on a first come, first served basis. 

Compare other VCT offers still open, or register your interest in the next Baronsmead offer.

The Baronsmead name is well known and respected amongst VCT investors. Baronsmead VCT was one of the first VCTs to launch in 1995. Today the two Baronsmead VCTs – Baronsmead Venture Trust (BVT) and Baronsmead Second Venture Trust (BSVT) – are amongst the largest and most diverse of all VCTs. 

Combined, they have net assets of £472 million (August 2021) and a portfolio of more than 100 companies spread across legacy management buyout (MBO) investments, AIM-quoted companies and newer early-stage growth investments, as well as three Gresham House equity funds and two money market funds.

Over the last five years to 30 September 2021, the VCTs have generated a NAV total return (including dividends reinvested) of 37.25% (BVT) and 38.15% (BSVT) respectively: note past performance is not a guide to the future. 

The VCTs aim to make dividend distributions of 7% per annum – not guaranteed. Over the five years to September 2021, the VCTs have paid out 32.85p (BVT) and 34.05p (BSVT) in dividends per share, equivalent to 39.7% and 39.9% of the average NAV over the period.

The current offer is seeking to raise a total of £50 million with an overallotment facility of £25 million. Update (20 December 2021): both VCTs are using their overallotment facility.

On 6 December 2021, the VCTs declared a final dividend of 3.5p each, expected to be paid on 4 March 2022. New investors who applied before 25 January 2022 (noon) should be eligible – dividends are variable and not guaranteed. 

VCT Offer capacity1 Funds raised2 Capacity remaining
BVT £37.5m £37.5m CLOSED
BSVT £37.5m £37.5m CLOSED
Total £75.0m £75.0m
1. Including overallotment facility of £12.5m for each VCT
2. As at 4:50pm on Monday 28 February

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


Highlights

  • Portfolio of over 100 companies – split between legacy MBO investments, AIM-quoted companies and newer early-stage growth investments
  • Preference for companies within the technology, services, consumer, healthcare and education sectors
  • Significant AIM exposure: 34.7% (BVT) and 41.2% (BSVT) 
  • Target dividend of 7% NAV, not guaranteed
  • 0.10% annual rebate for three years

The manager

In 2018, the manager of the Baronsmead VCTs, Livingbridge VC LLP, was acquired by Gresham House plc. Gresham House is an AIM-quoted specialist alternative asset manager with a market capitalisation of £320 million (Sep 2021) and £4.7 billion assets under management across a range of investment mandates, including strategic public equity, private equity, forestry, renewable energy, housing and infrastructure.

The management of the two Baronsmead VCTs and the equity funds (LF Livingbridge UK Micro Cap Fund and LF Livingbridge UK Multi Cap Income Fund) and all 16 members of the Livingbridge VC team moved across to Gresham House. 

In 2021, Gresham House acquired the VCT business of Mobeus Equity Partners. The acquisition will add £369 million assets under management. As part of the acquisition, 16 full-time members of staff will move across to Gresham House. This includes Partners Trevor Hope and Clive Austin, who will join the senior management team of Gresham House Strategic Equity division. It is expected that the two Baronsmead and four Mobeus VCTs will share unquoted deal flow. 

The senior team members – Bevan Duncan, Ken Wotton, Tania Hayes, Trevor Hope and Clive Austin are responsible for all aspects of portfolio management and investment strategy. In total, the investment team includes six public equity investment professionals and 18 private equity investment professionals. 

In addition, the investment team is supported by a Technology Operating Partner, Tamer Ozmen, previously CEO of Microsoft in Turkey, and a Head of Portfolio Talent, Hazel Cameron, who has 20 years of private equity experience. Both appointments seek to provide assistance and add value to the VCTs’ expanding portfolio of early-stage investee companies. 

Investment strategy

The two Baronsmead VCTs are the result of a series of mergers over the years. 

Baronsmead Venture Trust (“BVT”) is the result of the merger between Baronsmead VCT 2 (established in 1998) and Baronsmead VCT (established in 1995). Baronsmead Second Venture Trust (“BSVT”) is formed from the previous Baronsmead VCT 3 (2001), Baronsmead VCT 4 (2001) and Baronsmead VCT 5 (established as Baronsmead AIM VCT in 2006).

Historically the VCTs have invested in a diverse portfolio of unquoted management buyouts and AIM-quoted companies. Following the VCT rule changes in 2015, new management buyout investments are no longer permitted, so the Baronsmead VCTs have developed a growth capital investment strategy. 58% of the existing investment portfolio remains invested under the old rules (August 2021).

The VCTs seek to back companies with strong growth momentum, high-quality management teams, proven and profitable unit economics and a scalable sales model. The investment manager typically invests in businesses with annual recurring revenue of £1 million or more.

Investee companies are split into three stages of maturity – emerging, developing, and core – which will help determine the size of the investment. This helps Baronsmead manage risk and create future deal flow for the VCTs if successful investee companies mature. Moteefe, mentioned below, is an example.

In addition to unquoted investments, between 34.7% and 41.2% of each portfolio is invested in AIM-quoted companies. This asset split helps provide diversification and add some liquidity to the portfolio.

Exit track record

The Baronsmead VCTs have historically achieved a high level of realisations, which has allowed the payment of generous dividends to date. Over the last two years to August 2021, the VCTs have realised investments in 17 companies, generating total proceeds of £89 million, at an average return of 2.4x investment cost. Please note, past performance is not a guide to the future.

Pho – Baronsmead VCTsPho – example of previous exit

Founded in 2005 by husband-and-wife team, Stephen and Juliette Wall, Pho is a casual dining restaurant chain known for its fresh and healthy Vietnamese food, cooked daily in each restaurant.

The Baronsmead VCTs initial backed the business in 2012, investing £4.4 million for a 30% stake. The investment was used to fund the rollout of new sites. Whist Baronsmead held a stake in the business, Pho expanded from six sites to 30 nationwide, as well as launching three delivery-only kitchens. In the year to February 2020, the business generated £40 million in revenue. 

In August 2021, the Baronsmead VCTs sold their stake in the business to TriSpan, a private equity investor with experience of supporting high-growth restaurant chains across Europe and North America. The exit delivered realised proceeds of £11 million, a 2.5x return for the VCTs, and up to a potential 3.1x with an earn out. Past performance is not a guide to the future. 

CR7 – example of previous failure

As can be expected, not all investments worked out. Payment processing company CR7 is an example. CR7’s management team had previous experience in building and exiting businesses in this sector and was looking to replicate the strategy.

The business was split between cash-generative terminal hire and software development, with the former supporting the latter. However, development was more costly and time consuming than originally anticipated. 

Eventually, the investment team decided to sell the company to DNA Payments as the VCTs could not provide further investment. The company was sold for nil proceeds in 2019, generating a total loss of around £4 million across both VCTs.

Covid-19 impact

The VCTs’ consumer-facing businesses, particularly those with multi-site outlets such as restaurant chain Pho (now exited), were significantly impacted by the pandemic. However, they represent a small portion of the portfolio. Other areas of the portfolio appear to have thrived. 

At the onset of the Covid-19 pandemic the trusts’ NAVs fell from 77.1p (BVT) and 82.4p (BSVT) on 31 December 2019 to a low of 62.0p (BVT) and 62.5p (BSVT) on 23 March 2020. Following a strong recovery led by the AIM portfolio, the trusts’ NAVs ended 2020 at 77.04p (BVT) and 79.92p (BSVT) after paying 3p each in dividends.

The VCTs have continued to recover through 2021, led by the portfolios’ AIM exposure. As at September 2021, the trusts’ NAVs have risen to 82.4p (BVT) and 87.77p (BSVT) after paying 6.5p each in dividends.

The investment team is confident in the current level and quality of deal flow and it expects this to strengthen following the acquisition of the Mobeus VCTs in September 2021.

Current portfolio overview

The combined portfolio contains more than 100 companies and has a net asset value of £472 million (September 2021). The combined portfolio is well diversified: £179.8 million (38.1%) is invested in AIM-quoted companies, £103.5 million (21.9%) in unquoted companies and £76.6 million (16.2%) in liquid assets. The remainder is split across three equity funds: LF Gresham House Micro Cap, LF Gresham House Multi Cap Income, and LF Gresham House UK Smaller Companies, with the majority (£74.0 million / 15.7%) allocated to the highly rated Micro Cap fund. 

The portfolio has a bias towards technology and business service companies, particularly those with B2B models. Furthermore, the investment team has identified four sectors of interest: technology, services, consumer markets and healthcare & education. Currently, 69% of the portfolio by value is invested in companies with contracted or recurring revenue business models (August 2021).

To date, 2021 has been a bumper year for deal flow. In the first eight months of the year, the VCTs have deployed £26.0 million of capital across both new and follow-on deals. This compares with £21 million for the whole of 2020 and £27.3 million in 2019. The manager is seeing more unquoted opportunities in its pipeline at present, with over half the capital being deployed into new unquoted investments.

Asset class breakdown (%)

Source: Gresham House, September 2021

Sector breakdown (%)

Source: Gresham House, September 2021

Examples of portfolio companies

Cerillion – Baronsmead VCTsCerillion (largest AIM-quoted)

Founded in 1999 following the management buyout of the in-house customer care and billing product division of Logica, an international IT and management consultancy, Cerillion Plc provides enterprise CRM and billing software to telecoms companies across the globe. Its core product allows clients to manage billing, charging, network provisioning, workflow and CRM processes, all vital to support the business operations, revenue delivery and pipeline of its clients. 

In the five years to FY 2020, the business has grown revenues from £8.6 million to £20.8 million. In a trading update to September 2021, the business reported record levels of new orders and backorders. As a result, the business expects revenues and profits ahead of market expectations and believes it is well positioned heading into 2022. 

The VCTs first invested in Cerillion in November 2015. The VCTs invested a combined £4 million into the business, taking a 17% equity stake. As at 30 September 2021, Cerillion was the largest AIM holding, the combined position was valued at £30.1 million. Past performance is not a guide to the future.

Moteefe – Baronsmead VCTsMoteefe (Custom Materials Ltd) 

Moteefe is a leading social commerce platform providing digital marketers and influencers with an instant opportunity to sell customised on-demand products globally, with Moteefe taking payment, organising fulfilment and logistics whilst providing a suite of data and analytics to the sellers. 

The Baronsmead VCTs initially invested £500k in 2017 and have since followed on in a further three funding rounds, taking the total investment to £4.5 million. The Baronsmead VCTs are now the largest shareholder. 

Since the initial investment, Moteefe has grown gross sales from £2.9 million in the year to December 2016 to £32 million in the year to December 2019. In 2020, the business made it into the Deloitte Fast 50 for a second year running, confirming its position as one of the fastest-growing technology company in the UK. The Baronsmead VCTs’ combined holding is currently valued at £5.9 million, accounting for 1.3% of the combined net assets of the VCTs (September 2021). Past performance is not a guide to the future.

Performance and dividends

Over the last five years to 30 September 2021, the VCTs have generated a NAV total return (including dividends reinvested) of 37.25% (BVT) and 38.15% (BSVT) respectively. Both VCTs have delivered strong performance in 2021, with the portfolios’ AIM exposure being a key driver of returns over the period. Past performance is not a guide to the future. 

The current dividend policy is to pay dividends twice yearly. When setting the dividend for the financial year, the board will use, as a guide, the sum of 7% of the opening net asset value of the current financial year. In 2021, both trusts have distributed 6.5p per share in dividends. Please note dividends are variable and not guaranteed. Over the five years to September 2021, the VCTs have paid out 32.85p (BVT) and 34.05p (BSVT) in dividends per share, equivalent to 39.7% and 39.9% of the average NAV over the period.

As at 30 September 2021, the VCTs had a net asset value of 82.4p (BVT) and 87.77p (BSVT) indicating a target dividend of 5.8p to 6.1p, respectively. The legacy unquoted portfolio along with the larger AIM holdings will be key to supporting the dividend payments in the short term whilst the portfolios’ early-stage investments have an opportunity to mature – not guaranteed.

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

Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows net asset value and cumulative dividends per share for the period 31 Dec 2016 to 31 Dec 2021.

Dividend payments in the calendar year

Source: Gresham House. Past performance is not a guide to the future. Dividends are variable and not guaranteed. Dividends paid per calendar year to 31 Dec 2021.

Average dividend yield (% of NAV) history

  Baronsmead Venture Trust Baronsmead Second Venture Trust
2016 15.89% 17.04%
2017 3.32% 3.21%
2018 10.41% 8.25%
2019 9.54% 9.40%
2020 8.91% 12.72%
2021 8.05% 7.61%
Source: Morningstar. Average dividend yields are based on the dividends paid over the period divided by the monthly average NAV of the VCT over the same period. Past performance is no guide to the future.

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.

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.

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.

Full initial charge 4.5%
Early bird discount
Wealth Club initial saving 1.5%
Existing shareholder discount
Net initial charge through Wealth Club (new investors) 3.0%
Net initial charge through Wealth Club (existing shareholders) 3.0%
Annual management charge Up to 2.5%
Annual administration charge
Performance fee 10%
Annual rebate from Wealth Club (for three years) 0.10%

More detail on the charges

Dividend reinvestment plan

There is a dividend reinvestment plan which allows shareholders to reinvest future cash dividend payments by purchasing existing shares in the secondary market. As these are not new shares they will not be eligible for income tax relief.

    Share buyback policy

    From time to time the VCTs may buy back their own shares through the market. The VCTs aim to maintain a mid-share price discount of approximately 5% to NAV. However, there is no guarantee that the VCTs will buy back shares and the discount to NAV could be greater or less than this. Historically, the discount on both Baronsmead VCTs has been closely managed, averaging 5% or less for much of the previous five years to 30 September 2021.

    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 the discount (or premium).

    The charts show the five-year discount to net asset value history of the Baronsmead VCTs based on the closing share price 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 VCT’s share buyback facility, although this is not guaranteed.

    BVT – Five year discount to NAV history

    BSVT – Five year discount to NAV history

    Source: Morningstar, 31 December 2021. Discount is the closing share price at the end of each month, divided by the latest net asset value at the time. Rolling 12 month average is this figure averaged over the year.

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

    Our view

    The two Baronsmead VCTs are amongst the largest and most diversified of all VCTs. The combined portfolio is spread across AIM-quoted companies, legacy MBO investments, newer early-stage growth investments, three Gresham House equity funds, and money market funds. 

    Investors continue to benefit from exposure to the legacy MBO investments, which generate income and provide a source of realisations for both VCTs. This exposure has to date helped the board maintain one of the most generous dividend policies and support a 7% dividend yield (not guaranteed). The AIM exposure has also been both a source of liquidity and performance for the VCTs, with profits from strong-performing stocks used to fund dividend payments.

    The current unquoted investment strategy, deployed since 2015, seems to be embedded within the team’s process. The VCTs have made a number of new and follow-on unquoted growth capital investments in the last twelve months. One in particular, Moteefe, is showing potential, although there are no guarantees. The team expects its unquoted portfolio to begin contributing strongly to deal flow as the portfolio matures, and as companies look to raise capital to take advantage of the changes in corporate and consumer behaviour caused by Covid-19.

    For investors considering adding to their VCT portfolio this year, in our view the Baronsmead VCTs are a high-quality offering that could add diversification to a wider VCT portfolio.

    How to invest

    The most recent share offer closed on 28 February 2022, having raised £75 million (including overallotment) in 116 days.

    You can browse other open VCTs here – or register your interest in the next Baronsmead VCTs share offer below. 

    Register your interest – Baronsmead VCTs

    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.

    The details

    Type
    Generalist
    Target dividend
    -
    Initial charge
    -
    Initial saving via Wealth Club
    -
    Net initial charge
    -
    Annual rebate
    -
    Funds raised / sought
    £75.0 million / £75.0 million
    Deadline
    CLOSED
    Last updated: 5 November 2021

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