Foresight Enterprise VCT (formerly Foresight 4 VCT)

Foresight Enterprise VCT (previously Foresight 4 VCT) is a generalist trust managed by Foresight Group, a specialist regional manager.

The VCT has a portfolio of 36 companies and net assets of £128.5 million (September 2021). Currently, the portfolio has a bias towards technology, media and telecoms and focuses on regional opportunities – approximately 91% of new investments in the 18 months to the end of September were in businesses headquartered outside of London.

The current offer is seeking to raise £20 million with an overallotment facility of £10 million.

Highlights

Established, mature VCT portfolio with a bias towards technology, media, and telecoms
Target dividend of 5% – not guaranteed
Experienced, well-resourced regional manager
Available for the current tax year (2021/22) and 2022/23
Minimum investment £3,000

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.

Read important documents and then apply

The manager

Foresight Group was founded in 1984 as a specialist technology venture capital manager. In total, the group has £8.4 billion under management and over 28,000 clients.

The VCT is overseen by Russell Healey, Head of Private Equity. Russell has more than 25 years’ experience in venture capital investing and fund management. He is supported by a team of over 30 investment professionals whose backgrounds range from corporate finance to hands-on operational experience. Foresight has invested significantly in the team in recent years, doubling the headcount since 2016. Currently, the team manages three VCTs (including Enterprise) and the Foresight Williams EIS Fund.

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

Investment strategy

Foresight Enterprise VCT has a long history of takeovers and mergers, the most recent of these being the merger with Foresight 3 VCT in 2017. There have also been several strategy changes: the trust originally specialised in technology opportunities before moving into MBOs and replacement capital deals. Today, the fund follows a generalist growth capital approach.

While the investment team will not target specific sectors, it has a defined set of characteristics against which all potential deals will be 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

Deals are sourced from Foresight’s regional network of 1,300 intermediaries as well as internal follow-on opportunities from the Foresight Williams funds which target earlier stage investments. Foresight favours regional opportunities as it believes these can generate superior value compared to competitive deals within London and the Southeast. Approximately 91% of new investments have been in businesses headquartered outside of London over the last 18 months (September 2021).

In addition to its VCTs, Foresight also manages six 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. As a result, Foresight believes they offer a valuable source of co-investment capital for the portfolio.

Exit track record

Mologic - example of previous exit

Mologic is developing a new generation of diagnostic devices to improve accuracy for target diseases for which Point of Care diagnosis is underdeveloped. Its first two products have received an EU CE mark.

In March 2020, Mologic received £1 million UK Aid to develop a rapid diagnostics test for Covid-19. In April the company launched its Covid-19 laboratory-based antibody test and entered into a manufacturing agreement to supply up to 46,000 tests per day. In June 2020, Mologic’s rapid diagnostic test was certified with a CE mark. The antibody test provides health professionals with an accurate indication of the presence of antibodies within ten minutes.

Foresight Enterprise VCT invested in 2018 and exited its position in July 2021 after Mologic was acquired by Global Access Health, a not-for-profit company launched in collaboration with the Soros Economic Development Fund and the Bill & Melinda Gates Foundation. The exit generated proceeds of £3.3 million and a return of 3.1x (including a £0.5 million deferred consideration). 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 ‘clean eating’ restaurants.

With a focus on health-conscious meals, the restaurants provide a range of gluten, dairy-free, vegan and paleo dishes. Its 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.

Covid-19 impact

The portfolio experienced a number of significant revaluations in response to the pandemic, with the NAV falling 14.5% to 55.8p in the six months to March 2020. The loss was driven by the portfolio’s exposure to hard-hit sectors including travel, retail, and leisure which at the time represented 16% of the portfolio by value.

In the 18 months to September 2021, the NAV recovered to 66.3p after paying out 7p in dividends. This increase was supported by a combination of successful realisations and valuation uplifts in life science holdings, Mologic and Biofortuna, with both securing manufacturing contracts for Covid-19 testing kits. The VCT successfully realised its stake in Mologic (see above) earlier this year and Biofortuna is now its fourth-largest holding.

Current portfolio overview

The VCT has 36 holdings with net assets of £128.5 million (September 2021).

The holdings are split across five main sectors, with more than a third allocated to technology, media, and telecommunications. The portfolio is a mixture of established legacy investments (completed pre-2015) and growth capital investments, although there is still a significant weighting towards the former (68.8%).

In the last 18 months, the VCT has invested £14.7 million into nine new investments and £5.1 million into follow-on opportunities.

Datapath - largest holding

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

Picture a traffic control room. Several people are sat behind desks in front of a large video wall. Datapath provides the hardware and control box which manages the whole video wall.

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 around half the total global market share of the controllers for video walls.

Datapath is currently the largest holding in the VCT, representing around 12% of NAV (September 2021).

Crosstown Dough - recent investment

Since opening its first market stall on Leather Lane in 2014, Crosstown Dough has become known in London for its artisanal doughnuts.

Established by JP Then and Adam Wills (founder of Gourmet Burger Kitchen), Crosstown is a premium London bakery brand. With a focus on quality ingredients, the company prides itself on an ‘in-house ethos’. Everything from the jam to the dough is made from scratch.

Having outgrown its market stall, the business now has 16 locations in London and Cambridge. In response to the pandemic, Crosstown launched a next-day nationwide delivery service, increasing its direct-to-consumer ordering revenues by 600% compared to 2019. Foresight Enterprise invested £1.5 million into the business in December 2021, in total Foresight has invested £3 million across all Foresight funds.

Performance and dividends

In the five years to September 2021, the VCT generated NAV total returns (including dividends reinvested) of 19.72%. The trust had a challenging year in 2020 with revaluations for several key investments, including Ixaris, TFC, and Datapath – all top five holdings. the portfolio has since shown signs of recovery, with several profitable realisations in 2021 . Past performance is not a guide to the future.

The VCT aims to pay annual dividends of at least 5% of the NAV per share. The VCT has paid 19p in dividends in the five years to December 2021, equivalent to 25.8% of the starting net asset value on 31 December 2016. Please note, dividends are variable and not guaranteed.

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

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 – 31 Mar 2022.

Dividends paid per calendar year

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.

Average dividend yield (% of NAV) history

	Foresight Enterprise VCT
2017	5.59%
2018	5.75%
2019	6.05%
2020	4.75%
2021	6.40%

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

Full initial charge	5.5%
Early bird discount	—
Wealth Club initial saving	3%
Loyalty discount for existing shareholders	0.5%
Net initial charge through Wealth Club (new investors)	2.5%
Net initial charge through Wealth Club (existing shareholders)	2.0%
Annual charge	2%
Annual administration charge	See offer documents
Performance fee	15%
Annual rebate (for three years)	0.10%

More detail on the charges

Deadlines

Final allotment in 2022/23 tax year: 30 June 2022 (noon)

Share buy backs

Foresight Enterprise VCT operates a share buy-back facility at a discount to net asset value of 5% over the medium-term. This is subject to availability and Board and shareholder approval. Please see the offer documents for details.

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.

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.

The chart shows the five-year discount to net asset value history of Foresight Enteprise 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.

Foresight Enterprise VCT – average five-year discount to NAV history

Source: Morningstar, 31 March 2022. 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 Foresight 4 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

Foresight Enterprise VCT is a generalist trust, focusing on regional opportunities with a preference towards technology, media, and telecom companies.

The VCT has been through several strategy changes and mergers over the years and approximately 70% of the portfolio is still invested in legacy assets. However, while the VCT’s portfolio is still a work in progress its current mandate has been in force for over five years and is now starting to generate its first realisations.

As part of Foresight, the VCT benefits from the group’s resources, large investment team and strong regional network. In addition, the trust has the ability to co-invest alongside Foresight’s other VCTs and six regional funds which could help secure deals in the current competitive market.