Blackfinch Spring VCT

Blackfinch Spring VCT is managed by Blackfinch Ventures, a division of Blackfinch Group, which has over £700 million assets under management (February 2024). 

The VCT launched in 2020 and targets tech-enabled businesses with the potential to grow quickly by disrupting their end markets. The VCT invests in a mixture of follow-on and co-investment deals alongside Blackfinch’s EIS fund.

The VCT has net assets of £29.4 million, of which £25.8 million is invested in a portfolio of 25 early-stage companies, and £3.6 million is in cash (December 2023). 

In the three years to March 2024, the VCT achieved a NAV total return of 11.7%. Past performance is not a guide to the future. 

• Seeking to raise up to £20 million with a £10 million overallotment facility 
  
• Target dividend of 5% of NAV (not guaranteed)
  
• Available for 2024/25 tax year
• Minimum investment: £3,000 – you can apply online
• Deadline: 21 August 2024 (5pm) for final allotment in 2024/25 tax year

The manager

Founded in 2004, Blackfinch Group has over £700 million under management (February 2024). 

The group launched its first EIS fund in 2015, focusing on asset-backed or media investments. In 2017, to adapt to new EIS rules, Blackfinch started its transition towards growth-style investments: it made changes to its team and launched Blackfinch Ventures. Blackfinch Ventures has around £96 million under management (December 2023).

Since April 2019, Blackfinch Ventures has been overseen by Reuben Wilcock, who previously worked as an IP specialist for the University of Southampton as well as founding and running the accelerator programme Future Worlds. Blackfinch has continued to expand its Ventures team, which now includes nine investment professionals.

In addition, Blackfinch Ventures has an external network of Venture Partners: 109 experienced senior professionals and entrepreneurs, who can provide deal flow and advice to the investment team, as well as serve as non-executive directors for portfolio companies. Currently, 80% of companies have a Venture Partner on their board. 

Investment strategy

The VCT aims to invest in early-stage technology-enabled companies that have a strong focus on R&D and innovation and have already met milestones set in previous investment rounds. Companies will also need to show evidence of product-market fit, often via revenue, and an ability to acquire new customers. 

Blackfinch intends to invest across a variety of sectors and stages of maturity, although it prefers Series A funding rounds. As the portfolio continues to develop, the trust is likely to favour follow-on investments and co-investment opportunities with Blackfinch’s EIS Fund. In the last year, the VCT invested in five new companies, all of which were co-investments with the EIS fund (December 2023).

Deals are sourced from Blackfinch’s distribution network as well as accelerator programmes such as Future Worlds. Blackfinch receives between 1,000-2,000 leads each year, from which the VCT is expected to select approximately 5-15.

Blackfinch assesses companies’ financials, technology, and VCT eligibility. After investment, each company is monitored by a board observer from Blackfinch, and a non-executive director may also be appointed from Blackfinch’s network of Venture Partners. Blackfinch’s portfolio team will work together with NEDs to collect monthly financial and KPI data from the companies. 

Current portfolio overview

The VCT has net assets of £29.4 million, of which £25.8 million is invested in a portfolio of 25 early-stage companies, whilst £3.6 million is in cash (December 2023).

In the 12 months to December 2023, the VCT invested £5.1 million across 13 follow-on and five new investments.

The portfolio is invested across a variety of technology companies engaged in a range of activities from human resources to marketing and business supply chain management. There is a strong focus on business-to-business, with only a small number of companies targeting consumers. That said, the VCT is still comparatively young and is building up its portfolio, which is currently relatively concentrated, with the top 10 holdings accounting for 53.7% of net assets.

Illuma Technology — largest holding

For decades, websites and online advertisers have relied on information collected through digital third-party cookies to target users. However, with cookies laws tightening and Google, Mozilla, and Apple announcing plans to phase-out support over privacy concerns, advertisers are looking at alternatives to connect with the right audiences. 

Illuma circumvents this. It bases targeting on content rather than people. Its AI technology analyses webpages to find the content most relevant to its adverts. It then continually monitors engagement and uses these patterns to optimise campaigns in real time.

The business has received investment from venture capital firm Praetura Ventures and already counts some of the world’s biggest advertisers such as Coca-Cola, AT&T, and Sky, as clients. In 2023, Illuma signed an agreement with the Guardian newspaper to support contextual advertising on its website while protecting its intellectual property.

Blackfinch first invested in 2021, since then, the business has grown revenues by over 4x. To date, the VCT has invested £1.2 million, currently valued at £3.7 million, 12.6% of net assets (December 2023). Past performance is not a guide to the future.

Quin AI — recent investment

Quin AI has created a no-code Audience Engine for e-commerce sites. Easily and quickly added to a website, Quin AI analyses every visitor in real time and predicts intent, so the website can deliver “in-the-moment’ interactions, improving customer experience and increasing conversions and revenue. 

The company already works with major retailers including Marks & Spencer, IKEA and Under Armour, where its platform has helped drive revenue uplifts of up to 21%. 

Blackfinch Spring VCT invested £200,000 in December 2023, alongside the Blackfinch and Startup Funding Club EIS Funds, with the position accounting for 0.7% of the VCT’s net assets. The VCT invested a further £100,000 after the end of its financial year. 

Exit track record

The VCT is still comparatively young, so the track record remains limited and it has yet to experience any cash exits.

However, as is to be expected when investing in young businesses, failures often precede successes, and to date the VCT has experienced one failure (detailed below).

Movebubble

Movebubble was a rental app that aimed to tackle some of the biggest issues renters have when searching for new homes. Rather than spending hours dealing with bad landlords and estate agents, the platform helped renters search through thousands of properties, see video walkthroughs of potential homes, and make offers 24/7.

While the business initially performed well during the first lockdown, it suffered in the second, leading to the departure of the founding CEO. Blackfinch supported the company in appointing a new CEO and provided a small additional investment to fund a recovery plan. However, despite good progress, revenue continued to decline, and the company could not secure a rescue deal.

The company appointed a liquidator in May 2022, resulting in a loss of the full investment value of £0.55 million for the VCT.

Performance and dividends

The VCT targets a dividend yield of 5% of NAV and recently announced its first dividend, paid in April 2024. Please note dividends are variable and not guaranteed. 

The dividend is being paid despite the VCT not yet reporting any positive exits and is funded from the conversion of the VCT’s share premium account. However, the VCT board believe it is “supported by increases in the value of investments that [the board] expect to be realised in future ” – not guaranteed.

In the three years to March 2024, the VCT achieved a NAV total return of 11.7%. Past performance is not a guide to the future. 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)

Dividend reinvestment scheme

The VCT intends to operate a dividend investment scheme that allows shareholders to reinvest future cash dividend payments in new shares if desired. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit. 

Share buyback policy

The VCT may operate a buyback policy at a 5% discount to the shares’ 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.

Investors should note the VCT has less than a five year track record. Trading of the VCTs shares will be immaterial and any consideration of the share price movements in relation to the net asset value per share will be inconclusive. The discount history will be published once the VCT has a five year track record.

Investors looking to sell their VCT shares may get a better price using the VCT’s share buyback facility, 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 Blackfinch Spring 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 

• Final allotment in 2024/25 tax year: 21 August 2024 (5pm)
  

Our view

The VCT has made good progress in developing its portfolio – now including 25 tech-enabled, mostly B2B, businesses. 

The team’s ability to maintain its rate of deployment, while sticking to its proposed strategy is encouraging and has been supported by co-investment and follow-on opportunities from Blackfinch’s EIS service. However, concentration risk is likely to remain high while it continues to build its portfolio.

While it may still be too early to draw conclusions on the merits of this offer, Blackfinch has a track record of being able to both attract and deploy capital efficiently. However, please note that although this young VCT has now paid its first dividend, it has yet to achieve any positive exits.

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.