Foresight Enterprise VCT

Foresight Enterprise VCT, formerly Foresight 4 VCT, is a generalist venture capital trust managed by Foresight Group.

The VCT has a portfolio of around 40 companies and net assets of £148.2 million (June 2023). Currently, the portfolio has a bias towards industrials &, manufacturing, healthcare, and technology, media & telecoms. It focuses on regional opportunities – approximately c.70% of new investments by Foresight across its VCTs in the year to June 2023 were based outside of London. 

Over the five years to 30 September 2023, the VCT generated a NAV total return (including dividends) of 32.6% – past performance is not a guide to the future.

• Seeking to raise up to £20 million with a £10 million overallotment facility 
• Targets annual dividends of 5% of NAV – not guaranteed 
• Available for 2023/24 and 2024/25 tax years
• Minimum investment: £3,000
• Deadline: 3 April 2024 (noon) for final allotment in 2023/24 tax year

The manager

The trust is managed by Foresight Group. Founded in 1984 as a specialist technology venture capital manager, it now oversees c.£12.2 billion, of which £1.4 billion within its private equity division, which manages the Foresight VCTs, EIS, and institutional private equity funds (September 2023). 

The VCT is overseen by Russell Healey, Head of Private Equity, who has over 25 years’ experience in venture capital investing and fund management. He is supported by a team of over 47 investment professionals, whose backgrounds range from corporate finance to hands-on operational experience. 

Foresight aims to be a regional specialist and has nine offices across the UK, which it uses to drive deal origination.

Investment strategy

Foresight Enterprise VCT has a long history of takeovers, mergers and strategy changes. The fund has followed its current generalist growth capital approach since 2018.

The investment team has a defined set of characteristics against which all potential deals are vetted: 

• Strong management teams
• Technology-enabled and scalable
• Well formulated strategies
• Attractive entry valuations and structures
• Growing, non-cyclical markets
• Strong market positioning reflected in margins 
• Low cash burn 

While the VCT does not target specific sectors, it aims to limit exposure to consumer and leisure businesses.

Deals are sourced from Foresight’s regional network of 1,300 intermediaries as well as internal follow-on opportunities from the Foresight WAE Technology funds which target earlier-stage investments. Foresight believes regional opportunities can generate superior value compared to deals within London and the South East. In the 12 months to June 2023, approximately 70% of new investments by Foresight across its VCTs have been in businesses based outside of London.

In addition to its VCTs, Foresight also manages eight institutional regional funds. These target similar investment amounts to the VCTs but have greater flexibility in the types of transactions they can pursue, such as buyouts. Foresight believes they offer a valuable source of co-investment capital for the portfolio. 

Portfolio overview

The VCT has around 40 holdings with net assets of £148.2 million (June 2023).

The holdings are split across six sectors, with almost half the portfolio allocated to industrials & manufacturing, and healthcare. The portfolio is a mixture of growth capital investments (43.5% of net assets), established legacy investments (28.9%) and cash (27.6%).

In the six months to June 2023, the VCT invested £6 million into five new investments and £2.6 million into four follow-on companies.

Sector Allocation

Examples of portfolio companies 

Specac – largest holding (legacy investment)

Founded in 1971, Specac designs and manufactures accessories for spectroscopy machines. 

Spectroscopy is used to analyse the molecular composition of materials. It measures the absorption of infrared light reflected back from a sample (different molecules absorb different amounts of light). Depending on the wavelength of the reflected light, the spectrometer can translate the results into specific elements, making it possible to identify the chemical structure of a sample. 

Specac's broad catalogue of products is designed to improve and extend the applications of spectroscopy. Its market-leading technology is suitable for advanced applications in research and academia and is used in biomedical research, clinical diagnostics, and pharmaceutical analysis to name a few.

Foresight invested in April 2015, as part of a management buyout. Specac is now the VCT’s largest holding, valued at £10.9 million, and represents 7.3% of NAV (June 2023). Past performance is not a guide to the future.

KSL Clinic – recent investment

KSL Clinic is one of the UK’s leading hair-loss clinics, founded by former football manager, Lloyd Hume, in 2016.

The clinic provides a range of surgical and non-surgical options for hair loss prevention and treatment. Its main procedure, Follicular Unit Extraction Hair Transplant, uses microscopic needles to transplant whole hair follicles from one area to another. Compared to other methods, this is less invasive and requires no incisions or sutures, meaning patients often heal in a matter of days. The individual follicles are implanted to grow in the same direction as the rest of the patient’s hair to create a natural-looking hairline. It usually takes patients 12 months to see the full results. 

The business has been endorsed by a range of high-profile clients - including reality TV personalities, Jake Quickenden, Jack Fincham, and sports stars Stuart Hogg and Paul Robinson.

The Foresight funds invested a total of £8.8 million in April 2023, of which £1 million through Foresight Enterprise VCT. The capital is expected to be used to invest in facilities and open new sites.

Exit track record

In the six months to June 2023, the VCT achieved two full exits. Both were previously top 10 holdings, and both were made under the legacy investment strategy. These generated proceeds of £16.9 million, with potential for a further £2.3 million in deferred consideration payable over the next two years. 

In July 2023, the VCT announced the sale of Protean Software, another historic top 10 holding, generating proceeds of £3.5 million, a 2.4x realised return. Past performance is not a guide to the future. 

Meanwhile, the current growth-capital investment strategy has also started to bear fruit. An example is Edinburgh-based software development company Codeplay, which was acquired by Intel in June 2022 for £48 million, generating a 16x return for the VCT.

Datapath – recent exit 

Datapath is a Derby-based manufacturer of multi-screen computer graphics cards and video capture hardware, specialising in video wall and data wall technology. 

A video wall can be anything from four TVs in a square to sixty-four. Video walls have multiple applications: they are used in advertising, universities, betting shops, and retailers. Datapath has a global market presence across five continents, with customers from a range of sectors located in more than 100 countries. 

Datapath was one of the VCT’s legacy investments, having first received funding in 2007. Since then, the company has grown revenues over 250% to £25 million. It was acquired by Gilat Satellite Networks in March 2023, delivering proceeds of £10.1 million for the VCT (with an additional £2.3 million in deferred proceeds payable in the next two years). Including £10.8 million in cash already returned, the exit represents a total cash-on-cash return of 11.6x. Past performance is not a guide to the future.

The Naked Deli – example of previous failure

The Naked Deli is a Newcastle-based group of restaurants with a focus on health-conscious meals, including gluten, dairy-free, vegan and paleo dishes. The first site opened in Newcastle in 2014 and following initial success the business launched a second site as well as an outlet in Fenwick’s food hall. 

Foresight Enterprise VCT invested £750,000 in 2018 to support the rollout of additional sites. However, following the onset of Covid-19, the business was forced to close its stores in line with government guidance. The VCT realised its position in 2020, generating net proceeds of £50,000 in addition to a £0.1 million initial loan repayment. Overall, the investment generated a return of 0.2x.

Performance and dividends

In the five years to September 2023, the VCT generated NAV total returns (including dividends reinvested) of 32.6%, strengthened by recent exits. 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.

The VCT aims to pay annual dividends of at least 5% of NAV. The VCT has paid 25.6p in dividends in the five years to September 2023, equivalent to 36.2% of the VCT’s starting net asset value. Please note, dividends are variable and not guaranteed.

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

Dividends paid per calendar year

Dividend Investment Scheme (DRIS)

There is a Dividend Reinvestment Scheme which 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 buybacks

The board intends to buy back shares at a 5% discount to the prevailing 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 September 2023 was -4.57%. Over the previous five years the average discount to NAV was -11.03%.

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 Foresight Enterprise 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.

Deadlines

• Deadline for final allotment in 2023/24 tax year: 3 April 2024 (noon)
  
• Deadline for final allotment in 2024/25 tax year: 30 April 2024 (noon)

Our view

Foresight Enterprise VCT is a generalist trust with a bias towards regional businesses in the industrial, manufacturing and healthcare sectors. 

The VCT’s growth-focused investment strategy has been in place for more than five years now and has started to bear fruit. A recent example is Codeplay, acquired by Intel in June 2022, generating a 16x return for the VCT. Callen-Lenz, a drone specialist and currently the VCT’s second-largest holding, also shows promise. The proportion of legacy investments (29.3% as at June 2023 ) has continued to decrease. This has been accelerated by several positive exits in 2023, including the VCT’s previous largest holding, Datapath and historic top 10 holdings GovGrant followed by, post-period end, Protean Software. Past performance is not a guide to the future.

The VCT benefits from a large investment team, strong regional network and access to the wider resources of Foresight Group. In addition, the trust can co-invest alongside Foresight’s other VCTs and eight regional funds. This scale may provide the VCT with a competitive advantage when seeking to attract compelling deals.

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.