Seneca Growth Capital VCT

Launched in 2018, Seneca Growth Capital VCT (B Share class) looks to invest in a mixture of AIM-quoted and unquoted companies with a preference for later-stage opportunities. 

The share class has net assets of £15.4 million, of which £10.4 million is invested in a portfolio of 25 companies, including 16 AIM-quoted investments (December 2023). While the trust is sector agnostic, it currently has a large weighting towards software and life sciences.

Since launch, the VCT has achieved two full exits from its unquoted portfolio, with its most successful investment, ADC Biotechnology (detailed below) achieving a 3.6x return. There have been several realisations from the AIM quoted portfolio. 

These returns, along with existing distributable reserves, have helped the B Share class pay cumulative dividends of 15p since launch (March 2024). Over the five years to 31 March 2024, the VCT delivered a total return (including dividends) of -23.8%. Past performance is not a guide to the future; dividends are variable and not guaranteed.

• Seeking to raise up to £10 million with a £10 million overallotment facility
• Targets a dividend of at least 3p per share – not guaranteed 
• Invest in the 2024/25 tax year
• Minimum investment: £3,000; you can apply online 
• Offer closes 15 August 2024 (noon)

The manager

The VCT is managed by Seneca Partners Limited. In 2018 it took over the management of Hygea VCT plc, renamed it, and launched a new and separate B Share class. 

Seneca is an experienced growth capital investor and has raised and deployed more than £120 million of EIS and VCT growth capital into over 75 SME companies through 140 funding rounds since 2012 (December 2023).

The Seneca Growth Capital VCT is managed by the same team behind Seneca’s EIS funds, including shareholder directors Richard Manley, Ian Currie, and Tim Murphy. All three are SME specialists. Their previous experience includes KPMG, NM Rothschild, Cenkos Fund Managers, Altium, Apax, RBS, Deloitte and HBOS.

Investment strategy

Seneca seeks well managed businesses with strong leadership teams that can demonstrate established and proven concepts and are looking for growth capital to support their continued development. 

The trust is sector agnostic, although the VCT currently has a large weighting towards the life sciences and technology sectors. It will consider both unquoted and quoted companies and does not target a particular split between the two. 

When investing in quoted businesses, the team relies on strong relationships with national brokerage firms to access fundraising rounds. In particular, it benefits from co-founder Ian Currie’s previous experience of raising capital for many AIM-quoted businesses. Depending on price targets and market outlook, Seneca is willing to realise its quoted positions after a short holding period to reduce downside risk and manage liquidity. 

Seneca will use its network of non-execs and industry partners to conduct technical due diligence where necessary, while the investment team focuses on valuation and the ability of investee company management to deliver on the growth plan.

Since the VCT follows the same generalist investment strategy as the manager’s two EIS funds, the funds often share the same deal flow and co-investment opportunities. 

Current portfolio overview

The Seneca Growth Capital VCT (B Shares) has net assets of £15.4 million, of which £10.4 million is invested in 25 companies, including 16 AIM-quoted. The remaining £5 million is split between cash and three money market funds (December 2023).

In the year ending December 2023, the VCT invested £2.4 million into four follow-on and two new companies.

Examples of portfolio companies

Oxford BioDynamics (quoted) – largest investment 

Oxford BioDynamics was spun out of the University of Oxford in 2007 and joined AIM in 2016. The company uses ground-breaking technology to diagnose a range of conditions and measure the probability of treatment success. 

To date the company has three commercially available tests: EpiSwitch® PSE, a prostate cancer test with 94% accuracy, EpiSwitch® CiRT a test for cancer patients to assess likely reactions to common treatments, and EpiSwitch® CST, a test which assesses a patient’s risk of severe illness after contracting Covid-19.

EpiSwitch® PSE has been recently issued with a reimbursement code in the US – allowing tests to be easily billed to insurers – whilst in the UK CiRT will be available through Bupa. The company also intends to explore monetisation options for other tests within its development pipeline and has already started discussions with third parties on two assets. 

The VCT first invested in October 2022 and followed on in August 2023. It recently sold a third of its original holding at 2.5x cost, with its remaining stake currently valued at £1.4 million against a cost of £775,000. Past performance is not a guide to the future. 

Bright Network (unquoted) – recent investment

While running his first business, James Uffindell (Bright Network’s founder) noticed that companies in a rush to fill jobs end up hiring people who are right on paper but not the best fit. This experience led him to launch Bright Network, a recruitment platform that helps employers easily connect to the UK’s brightest graduates.

The business has a presence in every UK university and builds its membership through hundreds of career-focused workshops and events. In return, its 1 million+ members receive free career advice, access to its e-learning platform, and pre-vetted graduate jobs with top employers.

Bright Network then uses its advanced data analytics and AI ‘matchmaker’ platform to connect employers with its most relevant and engaged members. Alternatively, companies can create adverts, using more than 300 million data points to reach the right people at the right time. The platform is used by blue-chip clients including Goldman Sachs, Google, and Deloitte. 

The VCT has backed the company since March 2020 and most recently invested in July 2023. In total it has invested just under £600,000 and the position is currently valued at £1.1 million, past performance is not a guide to the future. 

Exit track record

Since launch, the VCT has achieved two full exits from its unquoted portfolio, and several realisations from the AIM quoted portfolio, which are more easily bought and sold than private (unquoted) companies. Collectively these have generated proceeds of £5.3 million on an investment cost of £2.4 million. 

ADC Biotechnology – example of an unquoted exit

ADC Biotechnology is a commercial developer of antibody-drug conjugates (ADCs). ADCs are a class of drugs designed to deliver potent chemotherapy agents to cancer cells. Using its patented ‘Lock-Release” technology, the company aims to speed up and simplify the ADC production process while significantly lowering costs.

The company has two distinct revenue streams: proprietary drug development and external support services. Currently, ADC Biotechnology has one product commercially available along with a pipeline of four other treatments, at various stages of clinical trials. 

In 2021, the company was acquired by Sterling Pharma Solutions, a UK-based pharmaceutical company. This generated c.£550,000 in proceeds for the VCT, equivalent to a 3.6x return on investment cost. Past performance is not a guide to the future.

Ten80 – example of a failure

As can be expected, not all investments work out. Ten80 is one example.

Ten80 was set up to reduce the cost of SAP (which stands for systems, applications, and products) and technology projects by offering clients an on-demand, remote workforce while improving the quality of programme delivery. 

SAP is one of the best-known developers of business management software and solutions in the world. Using Ten80’s platform, companies could outsource SAP projects to its bank of over 120,000 consultants, with payment and monitoring tools all centralised in one place.

The VCT invested £400,000 in March 2020. However, the holding was provisionally revalued to zero in 2021 following poor commercial traction and uncertainty over the outcome of future fundraising efforts. The company entered liquidation in February 2023, resulting in a full loss for the VCT.

Performance and dividends

The VCT’s AIM-quoted exposure has hindered performance following significant market volatility. Over the five years to 31 March 2024, the VCT delivered a total return (including dividends) of -23.8%. 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 targets dividends of at least 3p per annum in relation to the B Shares. Over the last five years, the VCT has paid out 15p in dividends per B share, equivalent to 15.2% of the starting net asset value. Please note, past performance is not a guide to the future and dividends are variable and not guaranteed. 

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

Dividends paid per calendar year

Dividend Reinvestment Scheme (DRIS)

There is currently no Dividend Reinvestment Scheme. The company is considering launching a dividend reinvestment scheme in due course.

Share buybacks

The board intends 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 31 March 2024 was -5.0%. Over the previous five years the average discount to NAV was -4.5%.

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.

The VCT has significant exposure to AIM. AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply. The difference between the buying and selling price of AIM-quoted companies is often wider than those listed on the main market.

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 Seneca Growth Capital 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 closing date 15 August 2024 (noon)
  

Our view

The VCT is managed by Seneca, an established regional asset manager. The VCT’s strategy is a combination of Seneca’s two existing EIS funds, allowing all three to share deal flow and resources. Seneca believes this collaboration helps the trust participate in larger deals and invest in more established businesses than might otherwise be possible for a VCT of its size.

Similar to the EIS funds, the VCT follows a generalist strategy. However, at present there is a significant weighting, particularly within the quoted portfolio, towards life science businesses. Although Seneca does not promote itself as a sector specialist, it has developed a network of technical partners in this field.

While the portfolio is still developing, the VCT has used exit proceeds, along with existing distributable reserves, to pay an annual dividend of 3p per share since 2018. Please note, past performance is not a guide to the future and dividends are variable and not guaranteed.

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.