Member Info for steph

I got lucky on rates as I locked in 5 year fixed mortgages just before they started to rise. Only smart decision I have made in the last 2 years.

Inflation will come down down faster than that. Our current inflation went up in 3 stages which are now reversing themselves in inverse order

1) a commodity price shock.
2) a few months later anything that uses commodities.
3) a few months after that wages that lagged the first two try to catch up and recover lost real earnings.

The reverse is happening.
1) Commodities are coming down fast from highs. .
2) Goods and services that use substantial % of commodities and energy coming down
3) Goods and services that use a high percentage of labour lagging and still elevated.

3 will stay elevated until wage catch up in real terms achieved and then will slowly come down. May take a year or two more to complete the cycle. All ready in motion so no need for punitive interest rates. NO way wages can lead inflation in spite of low unemployment. The transmission mechanism of strong unionization in the 1979’s is not there. Some echoes for well organized workers in vital services such a health and transport but these are outliers and not drivers. .Most workers will lose ground and not be able to make it up.

“Reason 2: The growth of divisia M4 money in the economy, a key measure of liquidity, turned negative in early 2023. The last time we witnessed that was during the 2008 financial crisis. The Bank’s decision to raise interest rates further today will push money growth into further negative territory and hit UK growth.
Can we afford that when questions about the fragility of the banking sector remain unanswered? “

Subtle but dovish statements form BOE and Fed after 1/4 rate rises. FOr BOE probably the last For Fed probably the second last.

What will really make our sector jump is the first cut but that is some months away. For my money I think we will be fighting deflation again in 2 years time with interest rates and QE to match. .

Must say there are merits for this asset class not to have an instantly tradable retail wrapper. In a stressed market it will become untethered from the real potential of the component companies and bounce around like a yoyo. We had relative stability from 2016 when GRWO went retail to last year than all h.ll broke loose. How can it dip to 2.4 and recover to 4.8 in only 2 weeks and then give up most of that recovery only a few weeks later in an identical market with no company specific news changes? SP is just untethered right now and bouncing about in a wide range.

Hopefully year end results will restore some order. Sang I agree that in normal times why should they provide more info at the company level but this volatility is damaging as it deters long term holders such as many of ourselves who put it into a ISA. If the value bounces too much about than it can only be a small part of an ISA as you don’t know if your money is there (even discounted to a reasonable degree) when you need it even if in the really long run it all averages out.

Putting money into an unlisted start up with no expectation of exit for at least 5 years is probably the correct time frame.

Thanks for the debate. I’d love for GROW on results to give the multiples of NAV/gross revenue all our companies are on as well as history of multiples against all fundraising points so we can see if current is in any way unusual. Ditto for gross margins by company on those sales. It is a pain for us to try to work this stuff out from the scattered info available. I’m convinced more transparent info would help our SP. The market assumes the worst when a vacuum which is not helpful. . Screw company sensitivities for GROW to review the true NAV company by company it has on it’s books after discounting whatever valuation they may have had in the past based on whatever information.

For my money I trust the current NAV/share but I’d rather than be based on hard comparable numbers and not a leap of faith.

Should be up a bit. US tech up a bit after gyrating wildly up and down reacting up to FED Powell dovish comments and then down on Yellen’s hawkish comments. The biggest determinant of our sp right now seems to be US interest rate expectations. Even more than UK interest rates.

Late stage tech private and vc will not recover it’s mojo until the exit market repaired and that will not happen until interest rates start the journey down.

Fortunately in the meantime for us no significant holding in our core portfolio (CAZOO no longer in core) seems to be doing anything else but go from strength to strength. So we are bigger and more valuable by every metric, except sp, than we were 3 years ago before all the covid and interest rate excitement started.

Of course runway lengths mean our core need money soon. Maybe not 12 months but for sure within 18. Uncertainly on market. Of course they can get money but on what terms? Will grows preference shares get diluted a bit? Time will tell.

Well let us hope one of our medical portfolio find a way to reverse dna damage and we can all live to a healthy still traveling skiing and jogging 200 and enjoy GROW returns of 15% pa compounded over the next 140 years. 1000 pounds in grow with 15% growth pa compounded over 100 years is 3.2bn pounds. We will all be billionaires.

I saw a pitchbook webinar yesterday that had a chart that showed the multiples of sales VC company unlisted valuations have had at IPO over the last 20 years. Quite a wild ride varying from 37 to 3. 2021 was a peak and now a all time low.

GROW’s valuations never wen up that much but the market may be falsely assuming we did. Indeed for the 40% to 50% of our portfolio valued at multiples of sales the ratio has not changed much since 2016. Indeed we were down a bit during hte froth 2021 period.

OUr NAV was flattered in September 2021 and year end march 2022 by the frothy market due to our 3 IPO’s and a few late rounds -but not massively so compared to our trends. We average 15% or so NAV/share increases and we had a spike of 30% or so. Wind that “surplus” back as we have and we are in our long term trend line -not 3x above it as our SP might suggest.

For my money I think our sp irrationally take into account sector 2021 forth that was not in any way part of our valuations beyond 15% or so overall.

Sage

Yes of course that is reason number 5. Even I can’t argue that there has to be a reason for training at 35% of an already trimmed NAV/share. I prefer “hidden value” but we are where we are to be sure. Why in October did we shoot up from 2.4 to 4.8 in 2 weeks? It is all pretty irrational and assuming the market knows what it is doing in our case is a surprisingly bold assumption.

I think we are massively undervalued at this SP.

The big question for me is why do the big funds who invest directly yin our core portfolio companies not use the arbitrage available to them to buy (or buy more) of our retail shares and get a package of the same shares at a big discount to what they paid previously.

best i can come up with are:

1) They are different pots and cross over not easy for them from private to retail even if the same asset underneath to do as they represent wealth on agreed criteria.

2) They do not want someone else packaging up the companies they choose to invest in as we need to in GROW.

3) A retail wrapper over the unlisted firms just not a major asset class big enough or transparent enough to attract attention. Plus if they invest directly that may get preference shares. At a minimum they get a lot more information than we do.

4) a bit of self interest. The wealthy individuals often behind these funds do not want to see their investment going into a spot of the market they could invest in directly without fees. So a bit of vested interest to avoid retail wrappers even when it might be in the interest of the ultimate clients.

https://www.investorschronicle.co.uk/ideas/2022/11/24/ideas-farm-what-comes-after-molten-s-meltdown/

“Public companies are valued on a whole raft of short-term aspects,” notes Martin Davis, chief executive of listed venture capital fund Molten Ventures (GROW). “But even if the UK economy went into decline in April, it won’t affect the value of a company growing at 50 to 100 per cent a year.”

https://www.investorschronicle.co.uk/news/2022/06/23/lessons-from-high-growth-investors/

https://www.theguardian.com/commentisfree/2023/mar/22/money-technology-sector-interest-rates-startups-svb?CMP=Share_iOSApp_Other

I’m expecting a 1/4 % rise tomorrow with lots of dovish forward guidance to say this might be the last “depending on the data”.

More balanced is the FED tonight. They have a choice between hold and 1/4% rise. They may split the difference with a 1/4 rise plus lots of dovish forward guidance so look for the statement and not just the headline rate. Could do the reverse with a hold and some hawkish guidance on need to remain vigilant.

Tomatoes, tomatoes. What is clear is interest rates are near terminal height and will plateau and come down from around here probably by year end and decline throughout 2024 until under 2. Then depending on the economy stop there but real risk inflation will go negative again and risk of Japanese stagflation. Good for our stock to have deflation as we seem very sensitive to interest rates but not good for UK plc.

Just as rapid inflation driven by commodities, bottlenecks in production and logistics was bad for real earnings Deflation good for real earnings as wages very sticky at zero. That is why most economists prefer 2% inflation to zero as a long term ideal. Allows for modest wage deflation in real terms from time to time.

Interesting times. Anyhow I’m expecting we (GROW SP) will surge soon. Just don’t know exactly when.

True but it is still an injection of capital to make up the differential between nominal value of the bonds and the actual mark to market value. that differential may not be 2 trillion but is still 100’s of billions.

“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”

Interesting. So the fed is doing QT and QE (by a different name) simultaneously. Meanwhile the treasury is stimulating trying to create a BIden boom. No wonder the markets are volatile.

Allowing devalued bonds to be priced at par in any swap is clearly “creating money” and a lot of it.

One of my buy signals is looking at mature tech. I use Polar cap and US tech 100 as representative.

US TEch 100 is well off inflation dip lows. Bottomed out at 10500 october 2022 same bottom as us and are up to 12700 which is the level it had at the beginning of the covid boom. December 2020. US TEch peaked at 16600 at the covid peak December 2021.

Same pattern for Polar Cap (unsurprising as 70% of weighting is us tech the rest global -just shows dominance of a few big us tech firms in any global index). Polar cap was 2000 June 2020 in the beginning of the covid boom. Now is circa 2000 again. Peaked at 2800 in the covid peak and bottomed at 1700 in the interest rate trough December 2022.

I don’t even count the 2.4 we had October 2022 in the interest rate trough so silly it was and so quickly it recovered in just 2 weeks to 4.82. Just irrational volatility unlike polar and us tech that had just bottomed and were showing slow signs of recovery by then.

Anyhow GROW SP is lagging the recovery in big tech. Big tech back to valuations they had before the covid boom.

Valuations in all stages of a start up to big tech over a 25 year period goes in 3 big stages 1) for a great fundable idea/ IP but no sales to 2) some sales at positive margins to test the market to 3) net profitability at a company level

All evidence is that stage 1 has not had any hit on valuations due to interest rate crash. Nor would it in theory as at that stage there was no revenue expected for at least 5 years so the risk free capital changes did not affect value. It was the value of a good idea/IP only. So long as exit was still possible (such as by big tech buying the idea/IP) no reason for decrease.

Final stage tech dipped with interest rate crash as clear relationship between P/E ratios and returns of risk free return. Roughly up to 50% dip possible in theory due to this factor.

ALl of Grow’s portfolio except for our seed funds is in the middle sector. Companies advancing towards net profitability with sales with good margins but with burn rates due to funded rapid expansion. This sector seems to have been hit by interest rate dip more than big tech as profitability further in the future. Also as funding needed becomes more uncertain a “worst case” fear pushes values down below the big tech dip. Our retail wrapper exaggerated dip for us as rest of sector had severe barriers to exist so those who wanted to exist our sector sold us disproportionately. That negative will become a positive on the other side of the interest rate dip.

Actual evidence of downrounds thin on the ground. Mostly a theoretical possibility not rear view mirror fact. IN any case as big tech recover and complete value chai restored fear of down rounds should subside. Our SP may lag

Anyhow I think for us the market about to turn. It could be quite sharp so hang on

Sang

I’ve seen no slowdown in growth in any portfolio company with the exception of CAZOO. Actually historically this is better than normal as we have always had 2 or 3 that decreased in NAV under stable market conditions I assume for a slowing of market penetration reasons.

“And this is why tech stocks, Bitcoin, and similar “liquidity momentum” trades have taken off again. The market knows the Fed can’t keep tightening, and will soon have to ease to support the economy. It’s all very reminiscent of the 2010s, when we had chronically low growth and deflationary concerns--not hyperinflation--for more than a decade post-financial crisis. Apparently, the Fed wants to put us through that entire experience all over again. “

NOt much sign of that for our sp yet. I have previously noted we often track bitcoin and bitcoin up nicely recently. Indicates risk on. US TECh 100 well off lows now. We were 4.82 after our bottom of 2.4 way back in November under much worse market conditions with only early signs of inflation peaking. OUr interim year end results come out end of April. I’m expecting our NAV to increase a bit in line with guidance and for there to be some helpful detail to reassure markets our NAV/share is solid and refects market conditions.

Thanks what a great list of positives. GROw control more than anybody else the information gained by holding a market leading position in EU UK seed funds.

So as stock pickers on which ones they fund in series A to C they are the best informed. Thus portfolio should be much better than sector averages. Add to that advantage that they normally get preference shares and we should not be at this SP. Too much bad news that is unlikely to happen is priced in.

Yes they saved up to 17bn of public money. UBS was not offering to pick up the tab.

No wonder the market dipped this morning until EU confirmed that nifty move was not an EU policy and the CoCo’s in the EU are priority over equity.