Northern VCTs

The Northern VCTs – Northern Venture Trust (NVT), Northern 2 VCT (N2VCT) and Northern 3 VCT (N3VCT) – are among the longest-standing in the industry. 

The VCTs have combined net assets of £343 million (June 2023) across a portfolio of 62 companies. 81.2% of the portfolio is in growth capital investments made after 2015, and 18.8% is in legacy MBO investments.

In the five years to 31 December 2023, the VCTs have generated NAV total returns (including dividends reinvested) of 28.1% (NVT), 27.0% (N2VCT), and 28.3% (N3VCT) – past performance is not a guide to the future. 

• Seeking to raise up to £42 million (£14 million per VCT) with an overallotment facility of £18 million (£6 million per VCT)
  
• Targets annual dividends of 4.5% to 5% of NAV, not guaranteed
• Minimum investment £6,000

The manager

The Northern VCTs are some of the longest-established, having launched in 1995 (NVT), 1999 (N2VCT) and 2001 (N3VCT). 

Since December 2019, the three Northern VCTs have been managed by Mercia Fund Management. Mercia is an AIM-quoted company responsible for £1.4 billion across venture capital, private equity, private debt, and its own balance sheet funds (March 2023). 

The VCT team comprises 16 investment professionals and sits within Mercia’s Venture division, which is led by Managing Director Peter Dines, manages £630 million and has a 50-strong investment team in 11 offices across the UK. 

Each team member maintains a local network to help source opportunities and support portfolio companies post-investment. The team has access to the wider resources of the Mercia group.

Investment strategy

The manager seeks companies offering good growth potential, strong management teams and the ability to generate cash in the medium to long term. The manager has access to a wide selection of investment opportunities through its dedicated investment team of 16 and 11 UK-wide offices.

While the VCTs are generalist, and don’t target any particular sector, Mercia has built a strong track record within the healthcare and technology sectors. Both are expected to feature strongly in future investment activity.

Current portfolio overview

The three Northern VCTs have shared the same investment strategy since inception and currently have a combined portfolio of 62 companies and net assets of £343 million (June 2023). The vast majority of the investments are common across all three portfolios. 

In the 12 months to March 2023, the VCTs invested £30.2 million in nine new companies and £18.5 million in follow-on investments. 

81.2% of the portfolio is in growth capital investments made after 2015, and 18.8% is in legacy MBO investments.

Combined sector breakdown (%)

Examples of portfolio companies

Grip-UK – largest holding

Bouldering – or indoor climbing – is growing in popularity. Around a million people in the UK climb indoors each year – 100,000 at least twice a month. And that number is growing by around 15-20% a year.

Grip-UK is looking to capitalise on this. Trading as The Climbing Hangar, Grip-UK was founded in Liverpool in 2011 by CEO Ged MacDomhnaill. 

Despite disruption during the pandemic, when climbing centres had to close, Grip-UK has continued to expand. Today it operates eight centres across the UK, with 165 employees welcoming 16,000 climbers a month (including 10,000 subscription-paying Hangar members).

The Northern VCTs first invested in August 2018 and provided further funding in 2019 and 2021. By June 2023, the three VCTs had invested a total of £10.9 million. The holding is currently valued at cost.

Social Value Portal – recent investment 

Social Value Portal was founded in 2014 by Guy Battle, a former lead sustainability partner at Deloitte, to help public and private sector organisations measure the social good they do for communities, people and the environment. 

The company offers a procurement and contract bidding portal that measures projects against the National Themes, Outcomes and Measures (TOMs) framework. It allows buyers to assess and quantify the positive social impacts of various options, while also helping bidders demonstrate the positive impact of their projects. Portal users include Balfour Beatty, Fujitsu, the NHS and a host of local councils. 

The Northern VCTs invested a combined £5 million in April 2023 as part of a £8.5 million round alongside existing investor Beringea, the manager of the ProVen VCTs.

Exit track record

The VCTs reported six exits in the 12 months to March 2023: four with positive overall returns, one returning 0.6x cost and one being written off. In May 2023, the VCTs’ largest investment, Evotix (detailed below) was acquired for 4.6x cost.

Over the two financial years to March 2023, and including the Evotix exit in May 2023, the VCTs have completed 14 complete or partial exits, generating proceeds of £154.6 million. 

Please note, past performance is not a guide to the future.

Evotix – example of previous exit

Evotix is an Environment, Health & Safety (EHS) platform that helps firms maintain and demonstrate compliance with EHS regulatory requirements. Employees can log incidents and access health and safety systems via an app in real-time, whilst senior management can gain a comprehensive view of a firm’s EHS data, manage its workforce, and identify areas for improvement. 

In March 2022, Evotix announced its eighth successive year of greater than 40% revenue growth. The business now operates across North America, Europe and Australia and has more than 140 employees, serving over 400 companies globally. 

The Northern VCTs first invested in February 2018 and have since supported the business through several follow-on rounds, investing a total of £7.8 million. The business was sold to ESG cloud provider SAI360 in May 2023, with the VCTs realising £35.6 million, or a 4.6x return. Past performance is not a guide to the future.

No 1 Lounges – example of previous failure

As can be expected, not all investments go to plan. An example is No 1 Lounges.

Founded in 2006, No 1 Lounges is an independent airport lounge provider. The company’s founder, Phil Cameron, used his experience as a frequent traveller to create a comfortable and convenient service.

The company opened its first lounge in New York’s JFK airport, then Heathrow, Edinburgh, and Gatwick. 

However, following the pandemic, the company was forced to close its locations and experienced significant periods without any income and subsequently entered liquidation. The VCTs invested approximately £6 million in 2014 and exited the business in January 2022 for a 0.2x return on cost.

Performance and dividends

Performance through 2022 was impacted by the downturn in the valuations of quoted technology stocks, upon which the valuation of much of the unquoted portfolio is based. In addition, weak performance from musicMagpie, historically the VCTs' largest holding, further weighed on returns.

Over the five years to 31 December 2023, the VCTs have generated NAV total returns (including dividends reinvested) of 28.1% (NVT), 27.0% (N2VCT), and 28.3% (N3VCT). Note, we show VCT returns over a five-year period as a minimum, where possible. 

The target annual dividend for NVT and NV2 is 5% of NAV and for NV3 is 4.5% of NAV, dividends are variable and not guaranteed. Over the five years to December 2023, the VCTs paid total dividends per share of 25.6p (NVT), 23.7p (N2VCT), and 28p (N3VCT) equivalent to a cumulative dividend yield of 37.5% (NVT), 36.5% (N2VCT) and 30.3% (N3VCT) based on the starting NAV of each VCT over the period. Dividends are variable and not guaranteed.

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

Dividend payments in the calendar year

Dividend Investment Scheme

A dividend investment scheme is available if shareholders wish to reinvest dividend payments by way of subscription for new 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 buybacks

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 average discount to NAV across the VCTs as at 31 December 2023 was -4.98%. Over the previous five years the average discount to NAV was -7.30%.

The discount history is based on the closing share price of the VCTs 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. Both existing shareholders and their spouse or civil partner can benefit from the existing shareholder saving. 

Annual rebate when you invest through Wealth Club

The Northern VCTs include 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

The Northern VCTs continued their recent string of exits in 2023, with Evotix sold after the end of the VCTs’ financial year. Total exit proceeds since March 2021 have now topped £154.6 million from 14 exits. However, overall performance has been held back by weakness from certain large holdings within the VCT – notably musicMagpie, once the VCTs’ largest holding, whose share price has fallen by over 90% since listing. 

The remaining portfolio is well diversified, with the VCTs’ largest investment accounting for around 3% of net assets. Following the raft of recent exits, the investment portfolio is much younger today, so the investments may take time to mature, potentially leading to fewer exits in the short term. The investment strategy is expected to place a greater emphasis on supporting its investee companies through follow-on investment. 

The VCTs are managed by a well-resourced team and have a long track record of meeting their dividend targets – although past performance is no guide to the future and dividends are not guaranteed. Access to support from the wider Mercia group may enhance deal flow and provides portfolio companies with greater potential liquidity through Mercia’s institutional funds. 

The Northern VCTs are among the longest-established VCTs, and remain a quality offering, in our view, that could appeal to those looking to add to their core VCT holdings. Experienced investors should form their own view.

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.