Excerpts from the FT article link provided earlier11 Apr 2023 07:31
Whether you like it or not, venture capital has become ever more widely available as an opportunity — albeit a risky one — for private investors.
Until just a few years ago, those who put their money to work in early-stage private businesses did so through tax-efficient venture capital trusts (VCTs) where they benefited from an immediate tax subsidy to help compensate for the higher risks implicit in these assets.
Venture capital has since worked its way into more mainstream investing via investment trusts. The most high-profile example is the venerable UK listed fund, Scottish Mortgage, which recently attracted attention after a boardroom bust up — much of it centred on that burgeoning private assets book of VC investment.
RIT Capital Partners, another venerable City institution, booked big profits in 2021 courtesy of its VC investments, but analysts at Investec recently pointed out that subsequent returns have been poor — while payments to the fund managers have been rather generous. That follows unflattering scrutiny of Jupiter’s Chrysalis Investments, which suffered huge losses when valuations crashed to earth in the wake of the pandemic.
These high-profile cases highlight a trend towards democratisation that has taken place as more experienced VC groups have listed their vehicles on the London market. These include not only Chrysalis Investments but also Molten Ventures (formerly Draper Esprit), Augmentum in the fintech space and Seraphim Space in, you guessed it, the space space.
Most of the attention on main market VC investments has been focused on issues of fees and liquidity — how quickly can you sell a position that has gone wrong?
But the real focus should be on how on earth do you value these private assets and businesses? In the table below I’ve listed the current discounts to stated net asset value for the main listed VC funds. As you will notice, the market is telling us something. If the fund managers value something at, say, £1, the market is saying it’s probably worth between 60p and 50p on that £1.
Valuation of venture capital trusts
Fund Discount to net asset value at 1/4/23 (%)
Molten Ventures 73
Schiehallion 40
Schiehallion C 48
Seraphim Space Trust 58
Augmentum 38
Chrysalis Investments 53
The main reason for this valuation conundrum is the funds are reporting historic numbers and the markets are discounting future haircuts as the funds’ valuation models react to a worsening in some sectors of private markets.
hat makes me more cautiously optimistic about the Chrysalis position and share price — and I have started very slowly buying more stock. I rate Molten Ventures highly, as an all-round, all-stages VC, and it has made a decent start to revaluing its assets — although arguably there’s not been enough red ink in my view.
But that chunky discount is offering you some protection and Molten is also adamant that its focus on investing via preference shares — a share class that gives investo
Sign In
Follow the stocks
