Molten Ventures VCT (formerly Draper Esprit VCT)

Molten Ventures VCT invests in early-stage digital technology businesses, usually alongside listed Molten Ventures plc (previously Draper Esprit plc). 

The VCT favours businesses in the consumer technology, enterprise technology, deep tech & hardware, and digital health & wellness sectors. In May 2022, the VCT’s largest holding, Thought Machine, achieved “unicorn” status after raising $200 million at a $2.7 billion valuation – past performance is not a guide to the future.

The VCT has a portfolio of around 35 holdings and net assets of £123.9 million, of which 67% is invested in early-stage technology companies, 10% in legacy investments, and 23% is held in cash (July 2023).

Over the five years to 30 September 2023, the VCT has delivered a NAV total return (including dividends) of 10.4% – past performance is not a guide to the future.

• Seeking to raise up to £20 million, with a £20 million overallotment facility 
  
• Target dividend of 5% of NAV – variable and not guaranteed
• Invest in the 2023/24 and 2024/25 tax years 
• Minimum investment £6,000 – you can apply online
• Next deadline: 30 November for 1% early bird saving 

The manager

The VCT launched in 1998 and has been managed by Molten Ventures (formerly Draper Esprit plc) since 2017.

Founded in 2006, Molten Ventures is a listed company with a market capitalisation of around £300 million (September 2023) and one of the most established venture capital firms in Europe. It has a reputation for backing some of Europe’s most innovative growth companies, including technology unicorns Graphcore, Wise and Revolut. It has also backed 75 seed venture funds, giving it exposure to over 1,700 companies from which it can source new investments. 

The VCT is managed by the same team that oversees the plc’s own balance sheet investments. It’s well resourced, consisting of 10 executives and five venture partners, aided by a 16-strong platform team that provides support to the plc and its portfolio.

Molten Ventures also manages an EIS fund and it is expected that the EIS fund, VCT and plc will co-invest in most qualifying deals.

Investment strategy

The size and reputation of Molten Ventures plays a key role in the investment strategy, potentially allowing the VCT to punch above its weight and attract deals normally out of reach for a small VCT. The VCT focuses on four sectors in which Molten Ventures has considerable experience and a strong 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. Commission-free share dealing service Freetrade and IPO platform PrimaryBid are two examples. Both were backed by Molten Ventures plc, and 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 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. Paragraf, which makes electronic devices out of graphene, and Riverlane, which is developing an operating system for use in quantum computers, are examples. Both were backed by Molten Ventures, and 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. An example is Endomag, which has developed technologies to improve breast cancer care; it has been backed by Molten Ventures and is 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.

Current portfolio overview

The Molten Ventures VCT has net assets of £123.9 million, with the top 10 holdings accounting for 42.5% of net assets (July 2023).

Currently, 67% of net assets are invested in early-stage technology deals, the remainder is split between legacy investments (10%) and cash (23%). Legacy investments are those made prior to the manager’s acquisition by Molten Ventures plc, with 95% invested in three companies (Access Intelligence plc, Fords Packaging Topco and Macranet).

In its last full financial year, covering the 12 months to March 2023, the VCT invested £17.4 million across five new and five follow-on opportunities.

Asset allocation (%)

Sector breakdown (%) – Molten Ventures technology portfolio

Examples of portfolio companies

Thought Machine – largest investment

Thought Machine is one of the UK’s leading fintech companies. It was founded in 2014 by former Google engineer Paul Taylor, along with a senior team of ex-Google employees, to try to “fix the foundations of banking”. 

They saw banks tend to run on outdated technology, which is expensive to maintain and doesn’t allow for fast innovation. To address this, Thought Machine has built a core banking engine, Vault, which uses cloud-native technologies – the same technologies that underpin Google, Netflix, and Spotify. 

Thought Machine’s technology is cheaper to run and scale up than legacy systems, could give better insight into customer data and makes it easier to launch new products quickly. Customers include established institutions like Standard Chartered, Lloyds Banking Group, and Sweden’s SEB, as well as challenger banks like the UK banking startup Atom. 

The VCT invested £2.4 million in 2020 alongside Molten Ventures plc, which invested £16 million and led the $83 million Series B funding round to fund a major expansion drive in the US and Asia. In November 2021, the company achieved unicorn status (passing a $1 billion valuation) after it closed a $200 million Series C funding round. It has since more than doubled this, reaching a $2.7 billion valuation in further funding round in May 2022, and the VCT’s holding is valued at 4.3x cost. Past performance is not a guide to the future.

Binalyze – recent investment 

Cybersecurity breaches are frighteningly common – and once cybercriminals gain access to a corporate network, they work quickly. But traditional tools to help enterprises detect and respond to threats can be slow or require expertise that’s in short supply.

To address this, second-time cybersecurity founder Emre Tinaztepe set up Binalyze – a “lightning-fast”, comprehensive and automated Digital Forensics and Incident Response (DFIR) solution. Its technology detects when a breach occurs and creates a detailed forensics report in minutes – not days or months, as is typical. This helps dramatically speed up remediating the breach, and prevents the financial and reputational losses associated with cyberattacks.

The company launched its DFIR solution in October 2019. Its global customers now range from Fortune 500 companies – including banks, auditing companies, airlines and telcos – to military and government contracts. The company saw a significant increase in Annual Recurring Revenue (ARR) from the end of 2021 to the end of 2022, and has ambitious targets for 2023.

The VCT invested £2.1 million in August 2023 alongside Molten Ventures Plc and Molten EIS funds, leading a $19 million round that also included Cisco Investments, Citi Ventures, and Deutsche Bank Corporate Venture Capital.

Exit track record

In the 12 months to 31 March 2023, the VCT achieved three profitable exits from legacy investments, generating proceeds of £7.7 million at a combined multiple of 1.7x. There was also a failure from a new investment. Past performance is not a guide to future returns.

Lyalvale Express – recent exit

Established in 1983, Lyalvale Express is the UK’s No.1 manufacturer of shotgun cartridges. 

The company uses its relationships with manufacturers around the world to source the best components for its range of more than 100 products. Rather than a one-size-fits-all formula, Lyalvale uses a bespoke blend of powders across its ballistic range. As a result of its quality components and rigorous testing, Lyalvale is the only British-produced shotgun cartridge to have won an Olympic gold medal.

Lyalvale was a legacy holding from the VCT’s previous manager and has been in the portfolio since 2007. The company was acquired in April 2022 by Fiocchi Group, an Italian ammunition manufacturer. The exit delivered a return of 3.1x on cost and proceeds of £6.0 million which funded a special dividend of 1.6p per share in August 2022. Including both the exit and income received over the lifetime of the investment, total returns were £8.67 million, equivalent to a 4.6x return on cost. Dividends are variable and not guaranteed.

Cervest – example of failure

Cervest was founded in 2016 to develop a climate intelligence platform. Its EarthScan product allowed companies, governments and charities to assess climate-related risks for individual assets, to help them make climate change resilient investment decisions.

The company won backing from Molten as well as a number of other large investors, and landed work for consulting group Accenture and DIY chain Wickes among others. It was also named among the top 10 UK companies at the forefront of AI by the Department for Science, Innovation and Technology. However, in early 2023 an attempt to raise further funding failed and the company was forced into administration.

The VCT invested £1.3 million into in 2021, since written down to nil.

Performance and dividends

Over the five years to 30 September 2023, the VCT has generated a NAV total return (including dividends reinvested) of 10.4%.

The dividend target for the VCT is 5% of NAV per annum, variable and not guaranteed. In the 12 months to 30 September, the VCT paid dividends of 1.5p, falling short of its dividend target. This was due to VCT regulations that restrict the use of recently raised funds for distribution payments. The manager believes the effects of this to be temporary as it expects an additional £11.5 million of distributable reserves to become available by April 2024.

In the five years to September 2023, the VCT has paid out 14.6p in dividends, equivalent to 24.3% of the starting net asset value. Dividends are variable and not guaranteed. 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)

Dividends paid per calendar year

Dividend Reinvestment Scheme

The VCT operates 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 boards intend to buy back shares at up to 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 -5.7%. Over the previous five years the average discount to NAV was -7.1%.

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

There is no annual rebate for this offer. 

Deadlines 

• Deadline for early bird saving of 1.00%: 30 November 2023
• Deadline for early bird saving of 0.75%: 31 December 2023
• Deadline for early bird saving of 0.50%: 31 January 2024
• Deadline for early bird saving of 0.25%: 28 February 2024
• Deadline for final allotment in 2023/24 tax year: 5 April 2024 (10am)
• Deadline for final allotment in 2024/25 tax year: 28 June 2024 (4pm)

Our view

Molten Ventures has in the past backed some of the most successful UK tech startups – from Graphcore to Wise and Revolut – and is making its mark on the VCT. Over half of the trust’s net assets are now in early-stage technology investments, including some of the UK's fastest-growing companies, such as Thought Machine, a leading European fintech recently valued at $2.7 billion.

Meanwhile, the legacy portfolio has continued to drop and now stands at under 10% following the successful exit of Lyalvale Express, one of the last significant legacy positions. Past performance is not a guide to the future.

As the VCT continues to build out its portfolio it should benefit from Molten Ventures’ reputation within the industry, helping it access companies normally out of reach for a smaller VCT. Furthermore, the similarities between the VCT and EIS fund should facilitate co-investment opportunities, with later-stage support offered by the Molten Ventures plc balance sheet.

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. 

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.