Molten Ventures VCT (formerly Draper Esprit VCT)

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Previous offer review

Below is our review of the previous offer, which closed in January 2022. As an when a new offer will open, the review on this page will be updated. 

This review refers to the VCT as Draper Esprit VCT plc. It was renamed to Molten Ventures VCT on 4 February 2022.

Draper Esprit VCT invests in early-stage digital technology businesses, often co-investing alongside FTSE 250 listed Molten Ventures plc (previously Draper Esprit plc), which acquired the management of the VCT in 2019. 

Molten Ventures is a renowned investor in cutting-edge digital technology businesses and has backed several highly successful companies, from AI processor developer Graphcore to Revolut, the digital challenger bank, and Wise (formerly TransferWise), the recently listed money transfer service.

Since the acquisition, the VCT portfolio is progressively transitioning towards Molten Ventures’ early-stage digital technology focus.

As at September 2021, Molten Ventures-sourced investments account for 48.5% of the trust (including commitments). The rest of the portfolio is split between cash (22.8%) and legacy investments (28.8%). Molten Ventures-sourced investments include Thought Machine, which has built a core banking platform and recently joined the ranks of the UK’s growing herd of unicorns, companies valued more than $1 billion; Endomag, one of Britain’s 50 fastest-growing private tech companies, which has developed technologies to improve breast cancer care, and Freetrade, an innovative share dealing platform. 

In our view, the new management and investment strategy could reinvigorate the portfolio, although there are no guarantees. 

Draper Esprit VCT has net assets of £88.7 million. The current offer seeks to raise £20 million with an overallotment facility of £10 million.

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

  • Established VCT which now focuses on unquoted technology investments
  • Managed by one of Europe’s leading venture capital managers
  • Sector focus on consumer and enterprise technology, deep tech, and digital health
  • Portfolio now transitioning towards digital technology
  • Target dividend of 5% of NAV – variable and not guaranteed

The manager

The VCT was founded in 1998 and was named Elderstreet VCT until 2019 when the manager, Elderstreet Investments Ltd, was acquired by Molten Ventures (at the time named Draper Esprit plc). 

Molten Ventures was founded in 2006 with the ambitious goal of empowering Europe to create the technology companies of the future and compete with the US and Asia. In the past year, it has added 14 individuals, bringing its headcount to 58. The investment team consists of ten executives and six venture partners, who in turn are supported by ten deal processing and origination support staff. 

Today, FTSE 250 listed Molten Ventures plc has a market cap of £1.5 billion (Sep 2021) and is one of the most active venture capital firms in Europe. It has a reputation for backing some of Europe’s most innovative growth companies, having invested in several tech unicorns, including Wise, Revolut, Graphcore, UiPath, Peak Games and Cazoo. 

The manager tends to invest in Series A and B funding rounds of knowledge-intensive, early- and growth-stage technology companies. Molten Ventures also manages an EIS fund and its plc balance sheet alongside the VCT – it is expected that the EIS and VCT will co-invest on some deals.

Investment strategy

The collaboration with Molten Ventures plays a key role in the investment strategy. 

Its reputation could allow the VCT to punch above its weight, enabling it to attract deals normally out of reach for a small VCT. Indeed, the VCT’s investment strategy focuses on four sectors in which Molten Ventures has considerable experience and an impressive track record. 

1. Consumer technology

This includes companies the manager believes have exceptional growth opportunities in international markets underpinned by new consumer-facing products, innovative business models and proven execution capabilities. 

Free share dealing service Freetrade and IPO platform PrimaryBid are two examples. Both companies were backed by Molten Ventures plc, and both are held within the VCT.

2. Enterprise technology

This includes companies developing software infrastructure, applications and services that could improve productivity and reduce costs for enterprises.

Form3, a payments-as-a-service platform, and Thought Machine Group, a core banking platform are examples. Both were backed by Molten Ventures plc, and both are held within the VCT.

3. Hardware and deeptech

This includes companies developing differentiated technologies that underpin advances in computing, consumer electronics and other industries.

Ravelin, which uses machine learning to help its users detect fraud, and Riverlane, which is developing an operating system for use in quantum computers, are examples. Both were backed by Molten Ventures, and both are held within the VCT.

4. Digital health and wellness

This includes companies using digital and other technologies to create new products and services for the health and wellness markets.

Examples are online medical consultation service Push Doctor, and Endomag, which has developed technologies to improve breast cancer care. Both have been backed by Molten Ventures and both are held within the VCT portfolio. 

In addition to supporting deal flow and co-investments, the association with Molten Ventures plc provides potential exit routes and follow-on funding, particularly if a company becomes too large to continue to qualify for VCT investment.

Exit track record

Over the last two financial years to 31 March 2021, the VCT realised investments worth £5.5 million, generating gains of £158,000. £2.5 million of this was derived from short-term non-qualifying investments outside of the VCT’s core investment strategy. 

Pod Point – Draper Esprit VCTPod Point – recent exit

Pod Point is an example of a new investment sourced by Molten Ventures which recently achieved an exit. Draper Esprit VCT invested £0.86 million into the business in 2018 alongside other Molten Ventures funds, Barclays Capital and QVentures.

At the time Pod Point was becoming a leading provider of electric vehicle charging points, having installed more than 40,000 throughout the UK. Since the investment, Pod Point has continued to grow rapidly, partnering with leading housebuilders, car manufacturers and supermarkets.

In 2020 Pod Point was acquired by EDF Energy. The acquisition returned approximately 2.2x gross multiple on investment cost to the VCT. Past performance is not a guide to the future. 

Droplet Computing – example of failure

As is to be expected with early-stage investments, not all succeed. One example is Appux, trading as Droplet Computing.

Droplet Computing has developed software that enables fully featured applications to run on any device, online or offline. The founders of Droplet included Steve Horne and Peter Von Oven who, between them, had over 40 years combined experience in delivering computing solutions.

Draper Esprit VCT invested £326k alongside the Molten Ventures EIS fund in 2018. The stake in the business has since been written down to zero and both Steve Horne and Peter Von Oven have resigned as directors of the business. 

Covid-19 impact

Covid-19 impacted the net asset value of the trust, which fell from 57.1p per share in September 2019 to 46.0p in March 2020, after paying 3p in dividends. 

In its year-end report to March 2020, the VCT reduced the value of several of its holdings, total impairments amount to £5.7 million. StreetTeam Software Limited, trading as Pollen, which operates a social ticketing system for travel, festivals and nightlife, and previously one of the UK’s fastest-growing companies, accounted for £3 million of this reduction. Its holding value stood at £0.14 million. However, the business has since raised a substantial new funding round in May 2020 and the value of the holding has since been written up to £2.5 million (September 2021). 

The NAV per share has now risen above pre-Covid levels to 61.0p (September 2021), after paying a further 4p in dividends. The two key drivers of this recovery were Back Office Technology, trading as Form3, the VCT’s largest Molten Ventures-sourced investment and AIM-quoted Access Intelligence plc, one of the VCT’s legacy investments and currently its largest holding.

Current portfolio overview

The Draper Esprit VCT has net assets of £88.7 million, with the top 10 holdings accounting for 57.1% of net assets (September 2021) .

The current portfolio is split between legacy holdings (made prior to the manager’s acquisition by Molten Ventures plc), newer technology-focused investments sourced by Molten Ventures, and cash, which will be invested in further technology investments. 

As the new investment strategy is implemented, it is expected that the legacy portfolio will continue to decrease.

As at the date of the prospectus (September 2021), investors in the offer will by buying into a portfolio made up of 48.5% Molten Ventures-sourced investments (including commitments), 22.8% cash, and a legacy portfolio of 28.8%. The latter is 28% of which is almost entirely invested in five companies: two are AIM quoted (Access Intelligence plc, and Fulcrum Utilities Services plc) and three are unquoted (Fords Packaging Topco Ltd, Macranet Ltd and Lyalvale Express).

Asset allocation (%)

Source: Elderstreet Investments, September 2021.

Sector breakdown (%) – Molten Ventures technology portfolio

Source: Elderstreet Investments, September 2021.

Examples of portfolio companies

Form3 – Draper Esprit VCTForm3 – largest Molten Ventures-sourced investment  

Founded in 2016, Form3, the trading name of Back Office Technology Ltd, is a fast-growing cloud-based payment platform. It allows financial institutions to outsource the payment infrastructure function altogether, from payment processing to clearing, and settlement, all through a single API.

The business operates in 20 countries around Europe and appears to be growing strongly with revenues reportedly increasing by 233% in 2021.  

Form3 received backing from Draper Esprit VCT in 2017 and Lloyds Banking Group and Mastercard in 2020. 

In September 2021, the business raised $160 million, bringing total funds raised to $220 million, from a consortium of investors including Goldman Sachs, Barclays, Lloyds Banking Group, Nationwide Building Society, Mastercard and Molten Ventures. CEO Michael Mueller has stated the funding round marks the beginning of a global rollout for Form3, with the US identified as a key target market. 

Following a funding round in September 2021, the value of the VCT’s holding has risen to £8 million, up from £2.4 million in March 2021. Form3 is the largest Molten Ventures-sourced investment and accounts for 9.0% of the net assets (September 2021).

Access Intelligence – Draper Esprit VCTAccess Intelligence plc – largest investment 

Access Intelligence plc provides Software-as-a-Service (SaaS) solutions in the PR, marketing and communications industries.

The company uses AI technologies combined with human expertise to analyse data and create insights to help enterprises get a single, real-time view of their reputation. This includes where risks or opportunities are emerging and when and how to engage with the tools to evaluate how effective activity is against commercial objectives.

Access Intelligence technology is used by 6,000 organisations every day, from global blue-chip enterprises and communications agencies to public sector organisations and not-for-profits.

Throughout the pandemic, the business has experienced high demand for its services. In its recent six-month interim results, the business reported growth in revenues of 29%, 25% of which was organic (May 2021). In December 2020, the business completed a £10 million fundraise to support the expansion of its North America sales and marketing activity.

Draper Esprit VCT first invested in the business in October 2008. The holding has risen in value to £12.1 million, (up from £3.7 million in March 2020) and accounts for 13.7% of net assets (September 2021).

Performance and dividends

Over the last five years to 30 September 2021, the VCT has generated a NAV total return (including dividends reinvested) of 16.4%.  

The dividend target for the VCT is 5% of NAV per annum, not guaranteed. Dividend history, including special dividends, is shown below. 

The portfolio is transitioning towards a new investment strategy deployed by a new investment manager. The management of the VCT is likely to diverge significantly from its historic activities, with any future dividends increasingly reliant on successful exits from the new digital technology investments.

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

Source: Morningstar. Past performance is not guide to the future. Dividends are variable and not guaranteed. The bar chart shows net asset value and cumulative dividends (paid out) per share for the period 31 Dec 2015 – 30 Sep 2021.

Dividends paid per calendar year

Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows dividend per share paid in each calendar year to September 2021.

Average dividend yield (% of NAV) history

Calendar year Dividend as % of NAV
2016 7.27%
2017 4.86%
2018 2.55%
2019 5.25%
2020 6.14%
YTD 4.75%

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 5.5%
Early bird discount
Wealth Club initial saving 2.5%
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 2%
Annual administration charge See documents
Performance fee 20%
Annual rebate from Wealth Club (for three years)

More detail on the charges

New: Dividend Reinvestment Scheme

Alongside this offer, the VCT is introducing a new dividend reinvestment scheme (DRIS). 

Investors will have the option of receiving their dividends directly in cash to their specified bank account or can elect to have their dividend reinvested into the Company for additional Ordinary Shares. 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 buy-back policy

From time to time the VCT may buy back their own shares through the market. From 1 April 2019 it aims to maintain a mid-share price discount of approximately 5% to NAV. However, there is no guarantee that the VCT will buy back shares and the discount to NAV could be greater or less than this. In the 12 months to March 2021, the VCT bought back 524,183 shares.

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 Draper Esprit VCT 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.

Draper Esprit VCT - Five year discount to NAV history

Source: Morningstar, 30 September 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

There is no annual rebate for this offer. 

Our view

This is a VCT in transition. Molten Ventures, which has in the past backed some of the most successful UK tech startups – from Graphcore to Wise and Revolut – is starting to make its mark on the VCT. Now 48.5% of the trust portfolio is in Molten Ventures-sourced investments (including commitments), including some of the UK's fastest-growing early-stage tech companies.

Recent Molten Ventures-sourced additions to the portfolio include Thought Machine, one of Europe’s leading fintech companies and expected to join the UK’s growing number of unicorns; Form3, a fast-growing payment technology provider; and Endomagnetics, a developer of innovative cancer treatment. Each of these is held within the larger Molten Ventures plc investment portfolio and could perhaps provide a guide as to the types of company investors might expect in the portfolio as the new manager deploys its investment strategy.

The legacy portfolio now accounts for 28.8% of net assets of the trust and is performing strongly. The legacy portfolio is expected to be diluted further as the VCT continues to raise new capital. In addition, the more challenging legacy investments, which weighed heavily on returns in the past, are no longer in the portfolio. 

The offer may appeal to long-term investors who are keen to gain exposure to early-stage digital technology businesses, backed by one of Europe’s leading venture capital managers. 

How to invest

The latest share offer has closed. You can browse other VCT offers here:

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
£30.0 million / £30.0 million
Deadline
CLOSED
Last updated: 16 November 2021

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