Member Info for steph

There will always be a value chain from idea (developed with individual effort and family and friend money), to for mal institutional seed money, to VC and PE rounds a to e (and then for some an IP))on a large amount of new niches within tech. It is the nature of tech and the innovative ecosystem in support (including Universities and government grants) that many of the new economic opportunities will be developed from outside the big existing companies R&D departments.

That has not changed. Pricing a tech start up before it has net profit and scale is dependent on a number of variables.

One big variable is the supply of promising tech start ups and the “dry powder” of funds willing to invest wiht a long term return in mind knowing anything pre IPO is not liquid. The “dry powder is somewhat influenced by the prevailing interest rate but not massively. It means dry powder investments will be less leveraged but not massively as it was never massively leveraged in the first place -maybe due to illiquidity.

SPAC’s have always existed but clearly under the COVId boom in some tech they became more active and increased the flow of funds into the sector. Not sure a strategic level change but one to watch. A SPAC is an alternative way to our GRWO trust model for retail to buy unlisted tech. The SPAC must complete the deal within 2 years or return the investment to the owners.

Anyhow my point is that the money available to the sector is about the same and the opportunities about the same. There wil clearly be a dearth of IPO’s for a couple of years so lucrative cash outs off the table for now but steady growth of value seems to be unaffected by interest rates.

GROW management and analysts indicate a slow down on NAV/share growth for a couple of years and then a pick up nearly to the levels of the past 2 years. At this SP that is fantastic value. Only a substantial downgrade of our NAV/share justifies the current SP. A big downgrade is not happening. In time this will be better reflected in our SP.

Grwos portfolio should be largely immune to the impact of inflation on sales. They should be able to pass on any rise in inflation to customers. Indeed inflation flatters sales in nominal terms if it can be passed on.

Of course inflation leads to higer interest rates and thus competition for funds that otherwise would have gone into our sector. THat said no evidence of less funds going into private equity sector. The players are flush with cash due to a lot of exists through IPO’s in the last 2 years. Sitting on the sidelines as “dry powder” . SO even if leverage of borrowing used less maybe still lots of money around but getting more selective. WIll grows portfolio pass the now higher bar for quality? So far so good with lots of post crash last rounds at NAV increases in our portfolio. Sure a slow down in nav increases but I expect NAV to hold and hold credibly and transparently and with that our SP is way too low.

We are near our 5 year low at this level -although I’m optimistic a turn will come shortly. been topping up a bit. Even in a flat market I think our half yearly results will help.

PIty UK banks though. Barclays was over 3 quid pre 2007 crash and is 147 today with no obvious way up. Nearly 15 wasted years if you had invested there or in Lloyds.

Us tech (which we track to some extent) very volatile but showing signs of turning up.

Agreed but overall I am somewhat reassured by looking at the lst round valuation dates for the core portfolio. If they had all been just before the crash a 25% haircut not enough. However, the dates a wide mix and many key ones with the 4 largest uplifts totaling some 400m post crash. The post crash and pre crash valuations should hold nicely going forward.

More transparency this update much appreciated on valuations though. It is like looking for needles in a haystack.

Even if the 91 m Revolut fair value increase was entirely reversed (which assumes zero haircut was applied) it does not mean that we will have a nav/share dip. The other 4 of the 5 larges core holdings by uplift some 500m in total have last rounds post crash post results. I think 2 of those last rounds were in process close enough to be included in march 31 2022 year end results but even so the 25% average haircut applied in our last results means our NAV/share for the half yearly results about to come out is not about to have a major downgrade.

Fair value decreases:

In our annual results 6 core companies registered fair value decreases. 3 of them we know about as they are the publicly listed CAZOO, UI path and Trustpilot. The remaining 3 are smava, freetrade and lyst.

Lyst had a pre crash last round may 2021 so logical a GROW imposed haircut.

Smava had a pre covid boom funding round may 2020. So any decrease in nav must be GROW’s applied haircut or the impact of switching to revenue multipliers.

Freetrade got up to 650 valuation after a November 2021 crowdfunding round. It went the crowdfunding route as it did not like the valuation that might have occurred if the traditional pe route. Revenues were well up though due to covid on line boom form 2m to 12 m for fiscal year ending September 2021. That does not sound like much revenue for a valuation of 650m. Glad on our annual results freetrade was “downrounded” but was it enough?

Very important is note 28 page 162 on annual reports . Stated that on 52% of investments have had a calibration downwards to reflect movements in publicly listed peers multiples, etc. The calibration was on average 25% but varied from 15% to 89%. SO maybe free-trade was the 89%??

I can see why GROW are under pressure from it’s portfolio companies to not make a public statement they do not have faith in the last round valuation but it is us who get thrown under the bus by GROW’s coyness. We have the twin disadvantage of the discount on our NAV/share applied without the market confidence that this is enough. I think market confidence requires a share by share understanding of the share specific valuation and any discount applied.

In descending order by total nav Aiven (60 m in fair value increase) , thought machine (65m fair value increase) , ledger (40m) , revoulut (76m) , coachub (58m), aircall(26m) form3 (11m), lyst (0) mfiles (8) and ravenpack from the backbone of our NAV/share increase from 2021 plus the realizations elsewhere. 4 out of 5 of GROW’s largest uplifted shares by nav increase in annual report had a last round post crash so should be safe from any down round due to current market conditions. Also growing fast so time on our side.

Low Risk of down-round- Aiven’s last round was may 2022 post crash giving Aiven a 3 bn valuation. This was an increase on the 2bn valuation pre crash on October 2021. There is no reason to believe that a funding round if it occurred now would be a downround for Aiven.

Low risk of downround: Thought Machine had a series D funding round post crash in may 2022. This brought it’s value up to 2.7 bn a doubling from it’s series c which was completed pre crash December2021.

Low risk of downround: Ledger rasied 100m august 2022 post crash and very very recently giving it a valuation of 1.5bn . Previous 380m round c pre crash june 2021 gave a value of 1.0bn.

High Risk of downround: Revolut raised 800m in july 2021 series e which is pre crash value of 33bn. This is way up on the series d round just a year earlier that gave it a value of 6bn. This in turn was way up on the 2018 fundraising. Our poster Sage has targeted Revolut as vulnerable to a substantial down-round. Not clear what % haircut GROW applied to Revolut in NAV calculations but I assume substantial -maybe sufficient maybe not.

Low Risk of downround: Coachub rasied 200m dollars in a series c round june 2022 post crash. This came after a September 2021 110 round b. Does not say what the total valuation would be.

Possible risk of downround: Aircall raised 120m dollars in 1bn valuation june 2021 pre crash. Revenue well up in 2022 to 132m from 81m in 2021 and 48 in 2020. ARR went from 1m to 100m in 6 years.

Risk of downround: Lyst raised 85m dollars in may 2021 pre crash. No clear what haircut in last nav valuation applied.
Possible risk: Mfiles raised 80 m jan 2021 pre crash round c. Early part of covid boom.

Low risk: Last funding round for ravenpack was 10m in October 2019 pre covid surge. Was an undisclosed vc funding round April 2021

2022 results
1) 6% of our nav is cash and 31% is emerging portfolio where there is no suggestion that valuations ever became “frothy”. P17
2) Of the core companies 3 are publicly traded. Trustpilot, Uipath and Cazoo. None showed any fair value increase. They are post crash nav in our results. . Ui path logged 49m in realizations and trustpilot 23m. Cazoo has declined further since year end results but was only 12m on the books in the first place. . Assuming no further realizations from Cazoo in the last 6 months the worst case is we lost 6m in fair value.
3) In descending order by total nav Aiven (60 m in fair value increase) , thought machine (65m fair value increase) , ledger (40m) , revoulut (76m) , coachub (58m), aircall(26m) form3 (11m), lyst (0) mfiles (8) and ravenpack from the backbone of our NAV/share increase from 2021 plus the realizations elsewhere.
Aiven’s last round was may 2022 post crash giving Aiven a 3 bn valuation. This was an increase on the 2bn valuation pre crash on October 2021. There is no reason to believe that a funding round if it occurred now would be a downround for Aiven.
Thought Machine had a series D funding round post crash in may 2022. This brought it’s value up to 2.7 bn a doubling from it’s series c which was completed pre crash December2021.
Ledger rasied 100m august 2022 post crash and very very recently giving it a valuation of 1.5bn . Previous 380m round c pre crash june 2021 gave a value of 1.0bn.
And so on it goes.

The idea that all these shares and many more in our core portfolio suddenly inexplicably have lost 80% of their value is farcical.

There is no solid evidence of downrounds within the sector nor our portfolio. Our sp assumes massive down-rounds that simply are not going to happen. Also time is on our side as the core portfolio is growing sales and thus market share at 65% on average.

Yes at these levels we might come out of FTSE 250 and back into AIM. Embarrassing for sure. As you say just the threat of that happening might be triggering sector independent sales. On the way in supposedly our “elevation” was helpful to our SP so dropping out the reverse I suppose.

I’m stil hopeful we have been oversold on negative sentiment exacerbated by the opaque and smug way our NAV is calculated. Just saying it follows EBITDA guidance and rules and is done cautiously with a average 25% haircut to reflect current conditions just not enough in the market we have. Need to show more detail share by share (or maybe an fully independent nav calculation by a well known third party) so investors can make their own judgements.

Our SP is 80% dependent on confidence in our NAV/share calculations. Our reported profit or loss 100% dependent . Much more transparency needed in these choppy market conditions. the whole strategy to take GROW public but not sharing detail on NAV calculations share by share is being challenged by the market and in my opinion the current GRWO policy to share very little is causing unnecessary volatility. .

Never know. Whole ftse 250 getting shorted (about 2% of value shorts) so probably us included. We will need some share specific buying to buck the rest of the 250.

Half yearly update coming soon. Maybe that will give usa share specific boost.

Wonder what the shorters will make of Jeremy Hunt saying he will balance the budget by October 31. Must help a bit I’d think. Truss no longer in charge of fiscal policy.

watched press conference. im not sending my kids to Oxford if that is the quality of graduates. she comes across as thick as s plank and in denial.

Welcome aboard sage. I have placeholder stakes in RR and IAG. My stake here might be called a ball and chain right now -averaging half I bought it for even in my ISA - but I hope will over the next year evolve again into a great joy again. Soar like a glider on a big mountain updraft. .

I’m calling 2.39 as bottom an bought a couple just so I can frame them a nd put them on the wall when this gets back beyond 10 quid where it belongs. Within 3 to 4 years we should be 23.90

US tech dipping 3% on obviously bad inflation news and then recovering same day to plus 2% is a clear signal for me that the “dry powder” sitting on the sideline is calling bottom and used the bad news day to buy strategically.

I belvie our dip below 2/3rds NAV/share in current market conditions or abound 6 quid is not rational based on real assessments of our future or value. It is driven by retail investors wish little long term perspective anticipating dips in the retail market that will cause GROW to also dip.

As I understand it there are two pots of money in the market that rairly cross over. There is true pr tech investment posts who buy private in rounds a to e and have no expectation of being able to get their money our for at least 5 years. The expected returns need to compensate for the lack of liquidity.

Then there are retail investors who can pop in and out of a share in seconds. The share will then follow short term sentiment and not long term value.

You would think the long term value investors in the same private companies GWOW are invested in would see the arbitrage available at this SP and “cross over” -but they don't and for the whole the fund structures and strategies don’t allow them to. The don’t want the volatility of retail end and they don’t want a fund packaging up the PE tech firms for them. SO we sit below an implied discount to what they are perfectly willing to buy for in any future rounds.

That is why our institutional investors are not buying or selling their % of GROW. It was sort of a hybrid longer term investment for them and they don’t review the % on a short term basis. Surely some individuals from this sector have have a punt but they are not enough volume to compensate for the retail crown. With the retail crown you get charters and momentum investors not even looking at the intrinsic value of GROW itself . Just retail SP patters than can become self fulfilling and overshoot on both ends. If a stock i going up momentum investors buy if going down they sell.

I did no realize we could be as volatile as this or I would have had a more diversified portfolio which would have allowed me in current market conditions to pivot into GROW at sub 6 quid levels. I thought we had the advantages of the stability and returns of growth of the long term investors in PE tech with the short term advantages of retail to put in or out when we felt like it. Always a catch and the catch is volatility under stressed conditions larger than the traded or private sector.

Private sector tech investors awash with cash right now as they had 2 very good years for realizations. They are deplying at pre pandemic levels which is high but looking for good value.

Consensus forecasts updated
The consensus outlook for 2023 has been updated.

2023 revenue forecast increased from UK£79.8m to UK£115.0m.
EPS estimate unchanged from UK£0.26 at last update.
Capital Markets industry in the United Kingdom expected to see average net income decline 1.9% next year.
Consensus price target broadly unchanged at UK£9.37.
Share price fell 21% to UK£2.47 over the past week.
See Future Growth

https://www.fao.org/worldfoodsituation/foodpricesindex/en/

That is large traded growth stocks which have never taken the dip we did and are very sensitive to interest rates as they are assets with dividends.

Our market is un traded pE VC tech. Valuations according to last rounds have not gone down much in our sector but there have been fewer last rounds and will be a drought of IPO’s for sure. Valuations based on multiples of sales which is calibrated to those in the sector that have a last round have not not gone down because last rounds have not resulted in many downrounds. .

Our sp has gone down on anticipation of extensive down rounds are in the pipeline and with it our 9.29 NAV/share. We show a loss the minute our NAV/share dips below current 9.29 which as not happened in our 5.5 years of public trading.

I believe GROW have calculated NAV quite conservatively and not at all stretched the limits of what EBITDA allows. They applied a self imposed haircut on last round valuations to be on the safe side.

I wish GROW would now submit their valuations to some independent review process. market does not trust them to do it themselves even though no evidence they are acting recklessly.

Whey does some fund who currently own us not simply pick up some discounted shares if our sp implies a discount to any future last round? That is the million dollar question for me. My best guess is they don’t buy on the retail market in our sector -even retail trusts with the same assets.

It hurt our value to move frm AIm to f250 when we did (aim was a more specialized professional investor group) and to retain what was 20% of our portfolio in post IPO shares just before the crash. The crash in those 3 shares can do little damage to our results now as most of the decline was in the last NAV calculations but the reputational damage is huge.

Looks like we can’t pick winners and if we can’t pick winners in times of market stress we will have down rounds even if down rounds are not that common. Also if we can’t pick winners it devalues the benefits of a trust for those who can invest directly in their preference of the core portfolio. As retail investors we don’t get a choice but the institutions can buy a private company directly with patience. So our trust structure has temporarily destroyed not added value. It will pass but for now a bumpy ride.

My big fear is a management or PE buy out of GROW at these distressed levels. 5 quid might do and with that my losses locked in with no chance of full recovery. My average buy in price across my holdings is about 5.5.

Jamie Spaman: Much of this year’s volatility has settled down, and the market has held together better than initial expectations, given current events. From a valuation perspective, areas that were a little gray earlier in the year due to factors such as geopolitical conditions or supply chain disruptions have started to clear up. The private market tends to move a little less drastically than the public markets, so private company valuations have not been hit quite so hard. And earnings and revenues have generally held up well, so valuations are holding up, too.
Jamie is a managing director in the Valuation Advisory group and leads Stout’s Portfolio Valuation practice. He has over 15 years of experience providing valuation services and financial opinions to private equity, corporate, venture capital, and commercial banking institutions.

Jeff Zellner: I am cautiously optimistic. While the public market has been volatile, the M&A market has remained strong. There’s still a considerable amount of capital ready to be invested in the private equity space, so I think there will continue to be deals over the final quarter of the year and moving into 2023. The state of the economy at the end of the year will certainly drive people’s investment strategy going forward.
Jeff is a managing director in the Financial Due Diligence practice of the Transaction Advisory group. He has over 13 years of experience in professional services, including 10 years focused on leading due diligence engagements for both private equity and strategic clients.

No way money for the PE tech sector is “drying up”
See below extracts:

“PE-led deal activity finally felt the bite of higher interest rates that have been rising for nearly a year now. The fact that we are anywhere near 2021 levels this late into the year is no small feat. Last year, after all, was an aberration. The combined forces of fiscal and monetary stimulus unleashed a torrent of deal activity for most of 2020 and all of 2021, with certain areas of capital markets doubling—and sometimes tripling—from pre-COVID-19 levels. A fairer comparison would be to benchmark today’s activity to the three-year period heading into the COVID “bump.” Even on that basis, Q3 activity is flat to slightly up when compared with the “old” normal of 2017 to 2019, which at the time was considered a blistering pace for US PE dealmaking.

Take-privates are on track for a second consecutive year at $100 billion or more in deal value, a first for the industry in more than a decade.

Despite the headwinds in the broader market, investor appetite for IT deals remained robust. Although deal activity declined compared with the frenzied pace of investments seen in 2021, YTD deal value is higher than the average values seen in the three years before the pandemic.

Floating rates for loans on leveraged buyouts averaged 4.8% in February before doubling to 9.8% in September. For the old 70/30 LBO template of 70% debt, 30% equity, that means taking the equity component to 50% or more to keep interest costs in check, and we are seeing early evidence of that playing out. The other remedy, of course, is to find assets at a 50% haircut to what they were once valued at. Sellers are resisting that for now,

Fundraising has tracked surprisingly close to 2021’s pace when a record $366.1 billion was raised for PE strategies. Last year also featured a record number of PE fund closings. That will not be the case this year as a thinning of the herd has prevailed, resulting in more mega-funds and fewer closings.”

You all really should read the report . Money not drying up in private tech sector at all. Indeed more likely there will be some movement from traded back to private in this choppy market as some traded now represent good value for private equity funders who can take a long view.

Leveraged buy outs will be effected by new interest rates. % of debt wil go down from 70% to 50% or even less. even wiht less leverage there is a lot of money wanting private tech although they may want better deals than they got last year. .