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Spac effect on VCT's

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barchid
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Spac effect on VCT's

#400384

Postby barchid » March 30th, 2021, 5:24 pm

Having seen the recent Cazoo deal at Titan, the City Pantry and Simply Cook deals at Apollo, not to mention Gousto now HH vct's largest holding due to it being elevated to unicorn status, plus other seemingly generous exits from various vct's makes me wonder if the game is changing ?
Five years or so ago sensible vct investors were worrying about the lack of recurring revenues in the future with MBO's in particular being banned, now perhaps with the impact Spac's appear to have had on US valuations in particular do we need vct's which go for, or have access to, early stage companies in the hope that one or more is picked up at, to me anyway, a seemingly ridiculous price ?
If so which vct's ? Clearly Octopus is firmly in that space, but their size means you need a few very good exits annually in Titan, notice Apollo is now growing fast too and goes for slightly more mature companies than its bigger brother.
Northern are now owned by an eis specialist but seem to be doing little since selling out, though I believe they have a good exit soon too, so what of the other generalists ?
Maven seems to go for low risk propositions which make money quickly such as crematoriums, I have no problem with that but hardly likely to go for a large multiple.
I wonder how Albion's shift to tech start ups might work out, they seem diligent there as managers ?
Seneca vct is owned by a potentially rather interesting parent but they currently are very small, BSC, certainly by their very modest fund raises since the new rules appear to be very cautious, perhaps Pembroke might throw out something to appeal to a Spac, they have a good heritage, certainly.
Given most tech enthusiasts are saying that UK valuations are about half those of similar US companies (Dr Jourdan of Amati for one said that very recently), perhaps we investors might need to rethink which trusts we support in future ?

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Re: Spac effect on VCT's

#400533

Postby sinterklaas » March 31st, 2021, 10:40 am

I’d agree with your overall feeling here.

barchid wrote:…makes me wonder if the game is changing ?

It already did, a while ago – coinciding with the 2015 rule changes.

The post pandemic effects have arguably accelerated some of the effects on VCT portfolio companies that otherwise might have taken ten years to develop rather than five (or two… #Cazoo)

So it's been a fair wind.

barchid wrote:…perhaps we investors might need to rethink which trusts we support in future ?

Ones that look to the future and have ambitious companies that to accelerate it. I understand, but have never subscribed to, the 'asset backed' risk averse attitude when it comes to VCTs. If that is the guiding rule then buy blue chips or a REIT? VCTs exist to support ambitious growth companies. The tax relief is icing, not the cake. For 5–10% of your portfolio, don't you want exposure to high growth?

Can completely understand the aversion to change among VCT investors whose past picks have done well and provided reliable dividend based off the older style holdings such as MBOs. The rule changes must have come as a disappointment. Hence the ‘end is nigh’ feeling.

However, I’d contend (and frequently do) with the attitude sometimes expressed here that there are 'too few good opportunities' for the money being raised by VCTs.

The UK entrepreneurial scene is throwing out plenty of good investable opportunities in my view – more so than ever before. Why? Mainly two reasons: (1) second generation founders and entrepreneurs – already exited or piloted high growth – behind many new companies being founded, and also in the investment managers themselves. They know the way. (2) Technology developments continue to support faster establishment, iteration, scaling. Oh, yes, you will see rubbish too (fluffy ideas funded on paper-thin rationale) – these are easy to seize upon, but are not the whole story.

This view puts me at odds with some of the Albion diehards who are sniffy about its tech investments and wedded (no pun intended) to its venues / property backed holdings. I don't hold Albions, and mildly dislike the manager generally, but their new direction is not unwise IMO.

I prefer (and hold) ProVens, Mobeus, Titan, Apollo (latest addition).

ProVens and Mobeus have a few things in common: Trevor Hope obviously (he moved from former to latter)… but they both go for slightly more mature businesses and they both have an eye for the unusual.

Titan back outright rocket ships, or rather, seeks the type of entrepreneur that tends to build them. The charges are higher and the NAV is always, let's say, priced to perfection rather than allowing for pleasant surprises – but nobody does more to support ambitious founders/management and enable fast, international growth.

Apollo is now a good buy IMO, since (in keeping with the theme of this thread) it ditched the conservative style and began to focus on B2B tech.

The AIM VCTs have also done well and can sell whenever they like; one could argue valuations here have already had a boisterous run.


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