Seneca Growth Capital VCT

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Seneca Partners has launched a new VCT offering, raising up to £10 million with an overallotment facility of £10 million. Despite being new, it could potentially start paying dividends in the early years. 

This is possible because rather than launching from scratch, Seneca has partnered with the existing Hygea vct plc (now renamed Seneca Growth Capital VCT plc) and has launched a new, separate B share class. 

Crucially, this new share class will have access to distributable reserves on its balance sheet. Seneca plans to use them potentially to fund dividend payments for the first few years, until the investments held within the B shares mature and can be realised to help fund dividends. Please note dividends are variable and not guaranteed.

Highlights

  • New VCT offering with potential for dividends from the early years – dividends are variable and not guaranteed
  • Experienced and well regarded manager – since 2012 Seneca has participated in more than 70 investment rounds across over 39 companies, often investing alongside the likes of Octopus Investments, Northern, Mobeus and Baronsmead.
  • Seneca has a history of delivering gross average annual returns of 8.9% (7.3% net) in its two growth capital EIS portfolios, although please note past performance is not a guide to the future – see annual performance below.
  • Lowest initial charge through Wealth Club – no other broker or intermediary offers a better deal
  • You can apply online
  • 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.

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The manager

Although Seneca is new to the VCT market, it is an experienced and well regarded growth investor. 

It started making growth investments in 2012 and since then has participated in more than 70 investment rounds across over 39 companies, often investing alongside the likes of Octopus Investments, Northern, Mobeus and Baronsmead. Today it manages in excess of £50 million of EIS capital through the Seneca Growth Capital EIS Fund and the Seneca EIS Portfolio Service.

During the 5 years to 31 March 2018, the Seneca Growth Capital EIS Fund and the Seneca EIS Portfolio Service have together delivered a combined average (unaudited) NAV growth rate of approximately 8.9% per annum (or an estimated 7.3% per annum after fees and charges), although please note past performance is not a guide to the future.

  Financial year ending 31 March
  2014 2015 2016 2017 2018 5-year average
Annual growth rate 3.3% 28.5% 0.1% 10.2% 2.5% 8.9%
Source: Seneca Partners, March 2018.
NAV (Net Asset Value) calculations include quoted companies at year-end closing share prices, cash from realisations, private companies valued in line with the share price of the investee company’s most recent fundraise (unless otherwise impaired) and represent gross performance before Seneca‘s stated fees. The Annual Management Charge and Performance Fee are contingent and only due on the realisation of investments, after return of capital to investors. Due to the lower number of exits relative to the number of investments, limited fees are due up to 31 March 2018. For illustrative purposes only, if all investments were to be realised at their prevailing values as at 31 March 2018 and the fees apportioned over the investment period with reference to the funds under management at each March year end, the combined average (unaudited) NAV growth rate for the 5 year period to 31 March 2018 would be approximately 7.3%.

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

Members of Seneca’s senior management team are investing £200,000 of their own money in the new VCT offering. 

The existing Hygea VCT plc investment portfolio will be realised when the opportunity arises and its performance will not influence the performance of the new share class.

Watch a video interview with investment director John Davies:

Investment strategy

Broadly speaking, the VCT is likely to invest in businesses similar to those targeted by the Seneca EIS funds. It will benefit from the same deal flow and mirror the investment process. 

Seneca tends to invest in businesses to help them expand, rather than at a very early stage. It enjoys a strong flow of growth capital investment opportunities from its network of introducers, professional contacts and entrepreneurs.

Seneca typically reviews hundreds of investment opportunities a year and meets many of the businesses involved but transacts with only a fraction of these. The VCT intends to make between seven and ten investments initially if the fundraise is successful.

The VCT will aim to split its investment broadly 50:50 between AIM-listed and unquoted companies. These will be in a variety of sectors, but typically share some essential traits:

  • strong leadership teams
  • robust business models
  • attractive growth prospects
  • capability to deliver a timely and profitable investment exit.

What kind of companies might be held in the VCT?

Three examples are SuperCarers, LoopUp and Yü Group. To clarify, these are part of Seneca’s existing EIS portfolio. They’re mentioned to help give a flavour of the type of investment VCT investors might expect. Please remember past performance is not a guide to the future.  

Seneca VCT SuperCarersSuperCarers Ltd (unquoted)

SuperCarers is an online matchmaking service for people in need of care (or their families) and vetted, reliable, local carers. 

It was founded by brothers Adam and Daniel Pike after witnessing the difficulties their mother encountered when trying to arrange care for their dementia-suffering grandmother. 

In 2012 Adam Pike was working on policy to improve care for the ageing population as a policy advisor in the Cabinet Office and Treasury, on secondment from Deloitte. Unsatisfied with the outcome, in late 2015 he launched SuperCarers with his brother, from their father’s small office. 

SuperCarers has created technology that cuts out the middleman, i.e. care agencies, thereby cutting costs and improving the experience for both care workers and customers. 

Demographic trends support demand for services of this kind: 4 million elderly people are estimated to need help by 2025. 

SuperCarers was originally backed by the founders of Innocent Smoothie via their JamJar Investment Fund and Sir Tom Hughes-Hallett, the former CEO of Marie Curie, now the Chairman of Chelsea and Westminster Hospital.

Its advisory board includes Alan Rosenbach, until recently Director of Strategy of the Care Quality Commission (CQC); Paul Burstow, former Minister of State for Community and Social Care; Jan Burns MBE, Chair of the National Dignity Council; and Andrea Pope-Smith, Ex-Director of Adult Social Services at two Councils.

SuperCarers has grown consistently since its launch and has a clear path to profitability.

Seneca Partners invested £1.25 million in March 2018, in a funding round led by Mobeus VCTs. 

Seneca VCT Yu GroupYü Group plc (AIM quoted)

Yü Group, which trades as Yü Energy, is a gas, electricity and water supplier to SMEs. 

Bobby Kalar, the entrepreneur founder, started the company in 2012 to ‘take on’ the “Big Six” utility suppliers which control 85% of that market. 

At the time, he ran his own care home business and experienced first-hand the frustrating combination of crippling prices and poor service SMEs tend to receive from utility suppliers. This gave him the idea for Yü Energy, which he funded through the sale of his care home business and personal savings.

The idea is simple: help SMEs manage their energy with great service and transparency. Practically this means each customer has a personal account manager and the call centre works on a three-ring guarantee, with an average query-resolution time of 90 seconds. Yü Energy provides flexible contracts and payment terms, and the billing and account platform has been designed to be as simple as possible.

The founder is still the major shareholder. Other significant shareholders, besides Seneca Partners, include Octopus Investments, Miton Group, Legal & General and Artemis. In October 2018 an internal review highlighted Yu had underestimated the number of bills unlikely to be paid and overestimated the energy consumption of several of its customers. This has had an impact on expected profits for 2018 and caused the shares to fall in value.  

Loopup - SenecaLoopUp Group (AIM quoted)

In 2016, business users spent 163 billion minutes on conferences calls in the U.S. and U.K. alone. It is estimated that in each call 15 minutes are wasted on problems getting started and distractions throughout. LoopUp was created to address this. Its premium software aims to make audio conferencing simpler and more efficient. 

Unlike alternatives, LoopUp doesn't offer a myriad of features. Its software is aimed at mainstream users, who just want something that works. So LoopUp is simple and intuitive and doesn't require any training. It alerts you when your first guest joins the meeting, calls out to your phone when you wish to join, shows you who’s on and who’s speaking, and lets you share your screen with a click. 

LoopUp sells direct to enterprises as well as using major distribution partners including Alcatel-Lucent Enterprise, BT, and Cable & Wireless Communications. Over 2000 enterprises worldwide use LoopUp, including Travelex, Kia Motors America, Planet Hollywood and National Geographic. 

Seneca Partners invested in August 2016, when LoopUp floated on AIM. It was floated at 100p back then and was up to 175p within a year. The share price currently sits around the 400p mark, helped by rising profits over the past 18 months and the recent acquisition of competitor MeetingZone Group in June 2018. Please note though past performance is not a 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. 

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.

Whilst the distributable reserves of the Hygea VCT allow the potential for dividends earlier than if Seneca had launched a brand new VCT, there is no guarantee that dividends will be paid early.

If fundraising is slower than expected, or does not reach its anticipated targets, there may be a delay in allotting shares, and fewer investments will be made overall.

Seneca’s expertise to date has only been in EIS investments. 

Fees and charges

A summary of the fees and charges is shown below. The net initial charge shown includes the Wealth Club discount.

Full initial charge 5.5%
Wealth Club initial saving 5.5%
Loyalty discount for existing shareholders n/a
Net initial charge through Wealth Club (new investors) 0%
Net initial charge through Wealth Club (existing shareholders) 0%
Annual charge 3%
Performance fee 20%

More detail on the charges

Our view

Seneca is an experienced growth investor, well poised to take advantage of new VCT restrictions. Since 2012 Seneca has participated in more than 60 investment rounds across over 30 companies, often investing alongside the likes of Octopus Investments, Northern, Mobeus and Baronsmead. Whilst VCT investing is new to Seneca, its EIS funds have delivered encouraging performance to date – note this is not a guide to the future. The distributable reserves of the existing Hygea vct plc offer the potential for dividends from the early years, although again this is not guaranteed.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. Nov 2018.

Read important documents and apply

The details

Type
Generalist
Target dividend
Unspecified
Initial charge
5.5%
Initial saving via Wealth Club
5.5%
Net initial charge
0%
Annual rebate
-
Funds raised / sought
£4.2 million / £10 million
Deadline
14 Dec 2018 for ZERO initial charge

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