Member Info for steph

https://www.ft.com/content/11ce4193-f489-42fe-aa45-d4b7cbbbad58

If only:

“4. Less Volatile Price Range: Unlike listed equity shares, the values of unlisted equity shares are typically less volatile, so the investor does not need to be concerned about price changes on a daily basis.”

https://www.livemint.com/market/stock-market-news/should-investors-blindly-follow-the-trend-and-invest-in-unlisted-shares-11669283467661.html

I was genuinely expecting GROW, in spite of the retail wrapper, to similar or less volatile than larger listed tech. Thus no need to diversify beyond what grow covers (Uk, EU wide unlisted tech in all sectors and all stages of development). Moe fool me.

Going forward it is clear there can be substantial under and overshoot on any rational assessment of fair value. I think the dip of our retail wrapper is leveraged by the illiquidity of the bulk of the sector. Money wanting out can only quickly sell us. Speculators do the rest of the volatility damage. Sort of the opposite effect that grow management said we would have when we joined the FTSE main market.

Anyhow for my money I think it is up from here. Unaudited results by 28 April. I expect we will take 1.5 years to get back to 11.82 just as it took 1.5 years to go down. We do not need as “frothy” an exit market in late 2024 (as we had in 2021) to get to the same SP as the portfolio will be 3 years more mature in development and we never had valuations in the first place that fully reflected the frothy 2021. Firstly our seed funds and round a’s were never part of the froth. Secondly we were simply a bit conservative on valuations. .

https://www.telegraph.co.uk/technology/2023/04/02/ai-future-artificial-intelligence-change-the-world/

“Still, some industry participants maintain that the concerns around private market valuations are overblown. In Hamilton Lane's 2023 market overview, the private market asset manager said valuations are generally accurate across most industry sectors, citing its own data showing that exits in 2022 were above valuations despite the public market downturn.”

https://pitchbook.com/news/articles/how-private-equity-valuations-are-set

Opps missing number. 10 year p/E ratio of 28.1.

Us tech (100 biggest us listed tech companies) has a 10 year p/E ratio. This spiked in 2021 beyond 50 but came down and bottomed about 25. . It is now 37.9.

If interest rates do not bring US tech 100 down to it’s 10 year average why such a catastrophic impact on GROW. Yes GROW company 100% profit return on nav further out but the two should be related. Lets add 10 years to GROW company maturity . 48 years instead of 38 years to return in profit NAV. Overshoot I think.

“US consumer inflation expectations for the year ahead fell sharply to 4.2% in February of 2023, the lowest since May of 2021, and compared to 5% in the previous two months. Consumers expect prices to rise at a slower pace for gas (-0.4 percentage point to 4.7%), food (-1.7 percentage point to 7.3%), medical care (-0.3 percentage point to 9.4%), college education (-1.2 percentage point to 8.1%), and rent (-0.2 percentage point to 9.4%). On the other hand, median home price growth “expectations increased by 0.3 percentage points to 1.4%. Meanwhile, inflation expectations for the three-year horizon remained unchanged at 2.7% and increased by 0.1 percentage point to 2.6% at the five-year-ahead horizon. At the same time, improvements were seen in labor market expectations and households’ perceptions and expectations for current and future financial situations. “

https://www.cnbc.com/2016/06/15/want-to-get-into-tech-investing-vc-firm-draper-esprit-has-just-gone-public.html

worth looking at reasons for GROW float back in 2016. They talk about 10 year investment cycles. 5 to get he companies going and 5 to exist.

Worth looking at Grow's behavior after launch in terms of SP and background market news.

Launched June 16 2016 and London market got the Brexit vote on June 23 2016 and dipped sharply.

Grow however hardly dipped and maintained a value close to nav/share slightly above issue price. Back then we had both the Irish and Chinese sovereign wealth funds. I presume all investors were taking a longer term view and saw GRWO as a retail wrapper for assets they normally would hold in a much less liquid and long term form.

During the covid dip GRWO dropped with the market and was well below nav/share (but not as below as now) but within 5 months had fully recovered.

Gaining entry to FTSE 250 has probably meant more fickle and short term retail investors and much more volatility. I don't think anything has changed beneath the bonnet. Indeed back in 2016 half year interims the portfolio had a 30% sales growth in aggregate and we now have 70%. Just we have picked up enough retail investors and speculators that come in and out depending on their view if we are going up or down on the day, week or month. None are taking a 10 year view.

Probably never been a better buy in price to get a long term position in these. A much bigger, more mature and healthier portfolio than 2016 when the launch price was 3.00, the trading price was about 3.50 and the NAV/share was 3.50 by interims September 2016. 2016, expect for low interest rates, was not a "frothy" year. Brexit was weighing down on the FTSE big time.

For my money I think this fear of the impact of interest rates at 4.5% is well overdone. Plus this period of Plus 2.5% central bank interest rates is not expected to last more than a year or so. I a 10 year cycle that is a blip.

tech100 now back to April 2022 levels and we normally track them

sp behaving as if some shorters need to come out.

Thats why in theory we had so many funding rounds and IPO’s in 2021. Can’t observe that and not assume the reverse that our portfolio will try to avoid raising money now. The fact that those so far that are doing so have not experienced a down round is very positive. Yet one more bit of solid evidence our discount to NAV/shafe of 70% is right silly and way overdone.

Now we have a bad year (starting first half of 2022, in ful swing by last half of 2022 and in full swing right now first half of 2023 and probably pretty bad for rest of 2023)

https://www.altfi.com/article/10464_thought-machine-to-expand-headcount-20-mostly-in-london

Sage I think it is the reverse. ALL portfolio companies will delay asking for more money until next year (or beyond) when all central banks predict lower interest rates and with that an assumed better risk on investment climate for our sector.

ONly those companies who are running out of runway (regardless as to whether they are confident thy can maintain valuation or not) will g to market now.

SO in theory our healthier companies will not go to market on average this year. they may even tactically slow growth a bit laying off some staff to extend the runway so they have the option to wait. Doing so should not be interpreted as a kpi of failure.

“All three fundraising rounds took place at valuations that are supportive of Molten’s fair value holdings as at 30 September 2022”

excellent news

Due to a seller we are now seriously out of line in the recovery of mature tech which we normally track.

For my money I don’t think there is any grow specific reason for the seller. Irritating but it will pass. GROW fantastically diversified over geography, sector and complete tech value chain from seed to almost mature. No major holding of GRWO portfolio is in trouble. Can argue about the specific valuations of some specific core companies at any one moment but that is not the same as some failure of a majority of the core portfolio that would justify our discount to NAV/share.

Roll on results.

Lot of factors pulling us up not down right now yet we are on circa 2.50 historical low and last were there when the market was much more disturbed with real fear of hyperinflation with plus 10% interest rates to match. We now have:

1) interest rates will not go above 6% in any major economy. UK and EU wil peak at 4.5 or below. IN spite of all the panic those rate are pretty close to long term norms and no major impediment to long term investment -like unlisted tech. Hurts valuations for sure compared to zero rates but not necessarily by a massive amount.

2) US tech 100 index well off lows and we are not. we tend to track US tech 100 and it is now pulling us up.

3) No portfolio company ahs reported any seriously bad news that justifies more than a 50% discount on last round valuations which we broadly already have baked into our Sept 2022 NAV calculations. So unless the market dips further it is upwards form here on NAV/share.

4) seed funds are holding value nicely with no discount needed. Maybe government support, maybe an asset class that is so long term it sidesteps a 2 year spike in interest rates.

Graphcore has been on our books at 86.8 m in March 31 2020, It increased modestly to 108m March 2021 based on the December 2020 series e that valued it at 2.77bn. So we own approximately 4%. We added a few in that round.

Then march 31 2021 in the middle of the froth we had our 4% on the books as 113 a quite modest increase considering the market. Then in Sept 2022 we wrote it down to 73.3m reflecting the bad market conditions.

Graphcore was on our books for 78.6m in March 2019

SO we have not increased our valuation of graph core for several years. Not since March 2018.

SO either the valuations in 2018/9 were silly on the upside or they are not unreasonable now. Graphcore is much bigger than it was in 2018. Yes it is not conquering the world yet but is a highly successful tech start up.

https://pitchbook.com/news/articles/europe-deep-tech-vc

Role of government and universities in early stages of tech pipeline

Multiples of sale for the truly innovative not a good kpi. Quite natural to test the market and develop the product with limited sales in the progress from seed to mature. relevant maybe late rounds but GROW say they avoid late rounds so not relevant to GROW. GROW specialize in seed and taking seed through a b and c funding rounds. then GROW sit back and wait for a good time sell - including into a late round. .

It is from notes item 19 fair value measurements in the annual and half yearly reports. Can go back as far as 2016.

It is only applied to when there is no calibrated price of recent investment (last round) to go on. For 2023 interims it was only 239m of value against a GROW total of 1.425b so only 16.8% of nav total calculated this way.

I’ve kicked the tires from every angle I can do wiht the information availabe. Can’t justify the discount to NAV/share we ahve.

We have dipped in the past below nav/share in the past during the COVID panic and then not as deep nor as long. . We have never dipped so for for so long and even with an updated NAV/share in the current market conditions to go on.

It is easy to reverse engineer a justification for the SP. “If x then y must be true”. But for my money I just think it is an overshoot based on a poor understanding of GROW’s complex ownership of the complete value chain for new tech from see to IPO.

Overshoots can last though so I don’t know when we will turn -or if this really is true bottom. Feels like it but who knows.