Seneca Growth Capital VCT

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 is launching a new – and 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.

Read important documents and apply

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 60 investment rounds across over 30 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

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 60 investment rounds across over 30 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.

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.

Previous investee company examples

Examples of such companies are Yü Group and SuperCarers. To clarify, these are part of Seneca’s existing EIS portfolio. They’re only mentioned here 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. Any future investments may be more or less successful than those mentioned here. 

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.

Seneca Partners invested c.£900,000 in March 2016 and the most recent valuation (16 August 2018) shows an unrealised return of around 5.7x the original investment (see above for annual performance figures for the EIS funds overall). 

Seneca believes the company is an attractive investment because it’s highly scalable, has a proven track record and high visibility of revenues. 

Revenue soared nearly threefold in 2017 compared to the previous year and adjusted pre-tax profit rose from £195,000 in 2016 to £3.1 million in 2017 as the group focused on mid-sized corporate customers like office buildings, football stadiums and shopping centres.

The group has good visibility for the year ahead with £50 million already contracted. 

The founder is still the major shareholder. Other significant shareholders, besides Seneca Partners, include Octopus Investments, Miton Group, Legal & General and Artemis. 

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 Drinks 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. 

Risks

Please remember capital is at risk. VCTs are high-risk investments and are not suitable for everyone. Investors should not invest money they cannot afford to lose. 

Tax rules can change and tax benefits depend on individual circumstances.

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.

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 3.25%
Loyalty discount for existing shareholders 0.5%
Net initial charge through Wealth Club (new investors) 2.25%
Net initial charge through Wealth Club (existing shareholders) 1.75%
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. May 2018.

Read important documents and apply

The details

Type
Generalist
Target dividend
Unspecified
Initial charge
5.5%
Initial saving via Wealth Club
3.25% (3.75% for existing shareholders)
Net initial charge
2.25% (1.75% for existing shareholders)
Annual rebate
-
Funds raised / sought
£3.6 million / £10 million
Deadline
4 Apr 2019

News about Venture Capital Trusts. Read all