The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
PitchBook’s Q3 2023 European Venture Report shows that startups have raised €43.6 billion in the first nine months of this year—nearly 50% lower than in the same period in 2022. While the drop is significant, this year’s annual deal value figure is on track to reach pre-2021 levels, signalling that Europe’s venture market has still experienced long-term structural growth
Yes. Any consistently optimistic blogger would have been right up to Summer 2021. Any consistently pessimistic blogger would have been right after Summer 2021.
I have a lot of respect for Sage. He was cautiously bullish until 2021 and then worried openly that valuations in the sector were getting away from reality. He had some influence on me setting my worst case scenarios for spread bet margin call avoidance. However not even Sage predicted the depth of this dip. Indeed the March 2020 covid dip was sharp but not this deep and the economy looked like it was at a standstill.
It was well beyond any bloggers foresight when we were above 10 that we might dip to 2. The underlying assets in our sector (unlisted tech) do not change fast and normally are a store of value on a short sharp dip. What seems to be hurting us is a possibility that the sector is permanently and substantially changed by higher interest rates. I have doubts on both counts but time will tell. I think the unlisted tech sector will outperform big near monopoly listed tech -which itself will still outperform the market in spite of already high P/E ratios.
SO GROW is the best play on the best sector for me. Especially at this SP.
best blogger is someone who is sometimes bullish and sometimes bearish and gives evidence or at least their rationall.
a consistently pessimistic or consistently optimistic blogger will be 100% right half the time. that is the nature of the market.
i am guilty for sure of not seeing the downside risk clearly at any one point in time. sadly i topped up a bit between the double peak 2 years ago buying gat 11.2 thinking it was just a short dip below 11.8. how wrong i was.
i really have kicked the tires on this one now and looked at all the downside scenarios and tried to understand the sector valuations. yes it can go down and on my spread i have pencilled in a quid possible maximum low which i think might happen with a sudden 30% general market dip due maybe to spreading war. however the odds of 1 quid is low on my books. less than 2%. even below 1.40 i put as under 5% risk.
on the upside i have 80% to 90% chance of doubling within 12 months and *****upling within 24. good enough odds to be fully in so long as i can take a dip to 1 quid without a margin call.
rough seas to be sure but lots of money to be made for the brave.
I am near 100% into grow which with hindsight was overcocentrated to be sure. I though as a braod trust in across 4 tech sectors across whole of UK EU and in a growing area but with future not fully priced in potential it was the “goldilocks” long term holding. Not too volitile but with sp growth much faster than listed index.
Sadly the retail wrapper and the black box of info on valuations mean we are more volitiel then the market.
I get stuctred notes form Devere I wil invest in. OIl sector yes for stuctutred note. I would short oil right now if I had funds.
Longer term any good ai listed sector. Yes p/e ‘s look silly but they will grow to justify.
Some interesting movments on carbon capture and use, synthetic fuel and green amonia. If i see a way to play I will do so. Seems to be all big boys like aramco but if I cn find a more specialized vechile wil be attractive. I see a big future for direct co2 air capture for localities with cheap storage, good grid infrasutcture and potential green use.
Stil think GROW best play on the market right now and will wait for our sp recovery to 12 quid before diversificaion.
One thing that is hurting us is the fact we invested almost all of our 2022 cash realizations immediately upstream. Hindsight, which is always 20/20, says we should have held back half that cash. We are not out of cash but don't have the investable cash it would be nice to have in this market nor do we have lots of cash to aid our portfolio if they need it.
Fortunately our portfolio hare weathering the storm nicely and (graphcore excluded) have been able to extend runways without fresh cash. Last fiscal year sales growth of portfolio slowed due to cash preservation tactics and we may see a bit of that this year as well. I'd be surprised if we really do get 70% weighted sales growth but we shall see.
NO good reason for 70% discount to NAV/share but we are where we are. Opportunity for the brave. My remortgage almost compete and I'll happily top up at this levels and then hunker down for the 18 month to 2 year wait for us to get back to summer 2021 highs ( presume). Don't need valuations at 2021 comparable levels to achieve that with the organic growth of our portfolio (as measured by sales growth). 60% sales growth pa is 1000% over 4 years when compounded. So we can be in a tough market in summer 2025 yet still get back to previous highs quite credibly.
If the market not so tough we will fly higher.
Https://files.pitchbook.com/website/files/pdf/Q3_2023_PitchBook-NVCA_Venture_Monitor.pdf
Note page 7 for price to sales. Currently 5x for average IPO pricing. Was 13x during 2021/22 peak and has been generally between 4 and 8 over most periods. IPO pricing not necessarily GROW portfolio as no weighting by sector. GROW portfolio more weighted to the “serious” tech than consumer facing tech so has higher sales to price ratios.
True ui path on 8x earnings. But Trustpilot on 3.5 so it all depends on the sub sector and maturity. Post IPO companies are in theory more mature and thus should have higher earnings ratios.
That said we have a lot of core companies that are pretty large, in the hot sectors and even breaking into profitability (REvolut).
Rato higher than we have had historically and in a rougher market. Of course our portfolio is amore mature as well so maybe the two cancel each other out.
Anyhow even if a bit high our SP overcompensates massively so lots of upside. The 462m of NAV (that was an estimate based in part on revenue multipliers by sector ) will face price discovery sooner or later by fundraising, IPO or b to b sales and the proof will be in the podding. Estimates in a sour market will always be open to cynicism -probably excessively so.
Uber light volumes today and yesterday. Normally volume spikes when we go up or down much. Yesterday it was as if all sellers just went away and we drifted up. Historically the date on preliminary half yearly updates varies from no interim update to something just prior t half year close.
This time round will be watched closely and that may mean they might make the interim update later rather than sooner. I’m expecting a modest increase in NAV/share and so (and deemed credible) our SP will rocket. Several halves of NAV/share decreases priced in so we only need to stop the drop.
YOu all know I am a big fan of GROW and fully invested but the most worrying bit is buried on page 172 of the last annual report note 28 fair value measurement.
When calibrated price of recent investment is used -fair enough- lots of discount agains any that occurred in 2021 and 2022. I think enough given preference share effect. I’m 100% comfortable with the 668m of assets in our NAV under this methodology.
However when the 462 m of NAV needs to use a revenue multiplier I worry as probably do some investors. The weighted average multiple is 8.4x which is above market averages (maybe twice). the explanation is that on average our companies using this technique are larger than the market averages and maybe concentrated in the tech sectors that also have larger multiples such as fintech and cloud computing. Maybe we have a superior selection than market averages with better sales growth (circa 70% annually) so truly worth more as a multiple of current revenue.
Investors in UK chip innovator Graphcore, which has offices in Cambridge as well as local funders, are confident of effecting an imminent cash resuscitation.
Amadeus Capital Partners in Cambridge is among the VC backers of the Bristol-headquartered business which has just posted losses of $204.6 million for the year to December 31 – up from $184.5m year-on-year.
Respected tech media have reported that Graphcore needs to raise substantial new funds within months “to offset mounting losses incurred over the prior financial year and remain a going concern.”
Ironically, the UK government – which has been blowing the trumpet for a new Silicon Valley in the UK – has contributed to Graphcore’s problems. CEO Nigel Toon reportedly asked PM Rishi Sunak to look at the company’s technology and include it in the exascale computer project – ironically launched in Bristol. Its claims, as an AI thought leader, fell on stony ground.
Exascale UK and Europe project contributors are closely monitoring the situation at Graphcore and sources close to one of the key funders told Business Weekly a major cash raise is already in the pipeline.
One thing is certain. If Graphcore failed to raise new money and suffered the worst consequence, there would be an almighty scramble for its engineers in a Cambridge and UK war for top talent.
The company has already been forced to shut operations in Norway, Japan, and South Korea and scale back operations elsewhere; headcount has also tumbled 21 per cent year-on-year to under 500 – 494 to be precise.
Graphcore had been trumpeted as the UK’s answer to US giant NVIDIA which had a $40bn bid for Cambridge superchip architect Arm smothered by global competition authorities last year.
Arm has since completed a fabulous, multibillion dollar IPO on Wall Street and is recruiting big for a new Bristol office on Graphcore’s doorstep as well as expanding its high-end Cambridge teams.
Business Weekly understands that many international VC firms have fought shy of backing Graphcore because NVIDIA is such a far-reaching and powerful player in the sector.
Ironically, NVIDIA sources told Business Weekly two years ago that the company would inject $100bn into the Cambridge and UK economies following a takeover of Arm.
In another irony, Arm founder Dr Hermann Hauser – also co-founder of Amadeus Capital Partners – is now an influential voice in the fundraising efforts on Graphcore’s behalf.
• Graphcore’s Cambridge offices are at Kett House in Station Road.
Whole porrtfoilo seems oto be wwell chosen and growing as tehy stated in sales -the main indicator of progression to profitable maturity.
After massive write down of graphcore to 37m on our books in year end 2023 (from 113m year end 2022) there is not much left to go and quite a big upside potential for Graphcore. Worst case it is worth zero (intellectual property sold just to cover staff liabilities) but several credible scenarios where it is worth much more than 37m for us.
Even moderate commercial success in the new chip they are developing for release in 2024 will result in a valuation (tested by fundraising or share b to b sales) 10x current. Better than moderate success and it could be 100x. That is a lot of upside against a 37m risk for us.
Graphcore in real competition in AI sector with NVIDIA. I note AMD will try to do an AI chip as with others. 80% global market share by NVIDA not sustainable. US export restrictions and internal anti trust legislation will create openings for others. There is a deal to be stuck with China Graphcore can do that NVIDA can’t. Don’t count Graphcore down and out just yet.
Https://sifted.eu/articles/graphcore-finances
Last chance saloon. If new 2024 release chip does not make it then it’s over. If it does 10x valuation quickly. Inference computing seems to be graphcore’s sweet spot not raw number crunching. Too much focus on hardware and too much in house software. A bit like IBM in the 70’s when their minor contractor Microsoft MS Dot displaced IBM as the global giant.
Anyhow unless a juicy funding offer emerges in the next week Graphcore will not be helping our NAV/share. maybe by year end results. No doubt GROW helping look for interim funding for Graphcore so can be a helpful announcement at any point.
Biggest is a 1987 style sudden corection with FTSE down 20% and ourselves more.
https://www.telegraph.co.uk/business/2023/10/08/britain-heading-another-black-monday-stock-market-crash/
I had thought any volatility to the downside for us would decrease as we approach zero as economic theory predicts but that is not happening. We seem just as volatile at this low base level as we did when we were much higher relative to NAV/share.
Anyhow money to be made for the brave right now and a lot of it but not risk free. Poor time to be leveraged but I am where I am. With remortgage much of that will be to make my spread position crash proof and only adding more shares once that has been achieved. I’ve pencilled in 1.0 as the lowest we could possibly temporarily go under the worst crash scenario. Wish me luck
Could be worth an order of magnitude less or more than what we have it on our books for. We will only know when they have a completed funding round or a buy in.
Graphcore has intellectual property worth a lot but is struggling to commercialize it. Through my friends tech start up been there, done that , got the T shirt. Can turn on a dime though.
I love our grow portfolio AI exposure. Frustrating Graphcore has not flown but it wil find a way in such a large growing market with a product that is in some ways ahead of it’s time and, thus, mostly in universities.
I am a hybrid investor. IN my ISA most shares of GROW will be held for 10 years or so. IN my spread bet a 2 year horizon for most.
I deeply regret not selling more in my spread bet when they were over 11 quid but we are where we are. I expect they will be back there within 2 years and thus a 4 year scary value pause.
I’m an economist so lost decades are supposedly my area rather than short term market movements (which are difficult to time in any case).
Are we heading for a lost decade for value generated by tech start ups? No, no absolutely no. AI and tech by it’s nature is hard to predict and thus lots of space for new firms to find niches rather than old monopoly firms to crush the competition.
GROW by a having a dynamic balanced well chosen portfolio fed by seed funds across the EU/UK is in the best position to exploit the sector. Certainly from here we will have outsized returns for 10 years.
Are we looking at a lost decade for the FTSE 100 and DOW Jones Industrial Average? Maybe.
Deglobalization and higher interest rates than the last decade may weigh on them and produce flat returns. The de-coupling of China is a big downside and along with that a damaging division into trading blocks , not as rigid as SOVIET times but even more damaging as we are starting from a high base. P/E ratios in USA still higher than long term averages. Lots of room for SP stagnation.
Just as Brexateers in UK starting to admit Brexit causes GDP damage due to trade uncoupling the neocons in USA asking to uncouple form CHIna will find it has an economic cost in lost GDP. All driven by emotion not economics And that is all without war -in spite of the drums beating on that.
Thanks for posting. I do read you_hav as it is constantly pessimistic (I think overly so) good to have a look at that scenario. I fear from these levels a major sudden market correction could see a sudden 30% dip even from 2.10. In any case I need to set some sort of low possible on an assumed 2% risk to determine the allowable leverage on my spread bet. For me that is 1.40. Looking like a more solid assumption as we recover somewhat form historic low of 1.99 on open.
Sang I expect our October update will not show further losses and will start the reporting of gains. Will start modestly but accelerate over the next 2 half’s. Market fear of an unlimited series of losses is behind us trading so far below NAV/share and broker guidance but fear well overstated. Still if one looks at it in a shallow way 2 half's with losses may well be followed by several more given the market is jittery. Looking at is comprehensively means looking at the portfolio one by one and making a judgment if they are over valued, about right or conservative. For my money conservative so 4x 5x upside on offer if one can wait just 2 years.
I’ve not run any statistical analysis but it seems for the moment we move predominanlty in reverse to us 30 year bond rates. Up they go to long term highs and down we go. We don’t seem to be moving up or down on UK or Eu inflation or interest rate expectations -which are moderating. We are not moving with the tech sector which has substantially recovered from lows.
It may well b the linkage is logical and not random. The money that goes into our unlisted sector can and will pivot to 30 year bonds if they are high enough. Once there they can hold or pivot out if interest rates and inflation come down. EH Bonds wil be worth much more than they paid if long term interest rate expectations come down. Yes while there they give up some great value in our sector but they can make a risk free bomb.
WHy 30 year bonds? Because those will have the most dramatic uplift if interest rate expectation come down. THe uplift big enough to ignore the great buy in prices for Draper on offer at the moment.
Will all reverse itself quite quickly on a turn in interest rate expectations. Fed, BOE and eCb all still talking tough. they have to talk tough until inflation drops a bit more. Talk is cheap though. They all badly want to drop interest rates for fiscal reasons as well a systemic risk. Not to mention the staggering cost of QT.
SO for my money I think the pivot back will be earlier than the market anticipates. I also think this SP dip overdone even in this circumstance and other money will find a way in and give us some partial recovery in the near term. 2.08 is just silly.
Scarry roller coaster for sure. Wish I had a crystal ball and had sold 100% at our peak and was rebuying now. Sadly no. I did a bit of that but topped up on the way down much too quickly.