Member Info for steph

Yes there is some benefit to have a team buying in the unlisted sector and at as early stage as possible. Imagine the nightmare if we were buying on the market post IPO? Even my RR is well down in spite of international travel coming back (they are dependent of aircraft engine leasing hours). IAG holding nicely but I only had a small position.

Not included in our half year results was 26.1m of disposals of Trustpilot and UIPath shares at a much better price than now. Hopefully they continued to dispose of UIPath, trustpilot and now cazooo (is now beyond 6 month embargo on sales) before this last drop. So we might not find ourselves much affected by the drop in SP of our 3 traded shares come year end results in May. We can receive an update on disposals at any time which might help our sentiment.

Of course the SP is in a place I never imagined without a much stronger general market drop but we are where we are. I’m probably out of cash to top up further but not selling either. Just hang on for better days whether that is in spring summer of fall.

Only 1 buy of the 5 was at a package price. they other 4 transactions were open market.

Even CEO has compensation below 500,000 and with taxes to pay as well. Annual report page 113 states that all 6 directors who have posts get 2.1m between them. So 70,000 after tax is not small change. Maybe 2 months salary. Even our CEO is not earring millions as is common elsewhere.

3 directors bought. NIce to see. They got a great price. Must be frustrating for staff and directors to see this dip which they probably think is not rational. Great share great future.

My take on this dip is it is jitters on what is in our black box valuation of our portfolio and to what degree is these valuations are going to be affected by the new mood music. Lack of information means we can undershoot when jitters start.

ONly formal updates from GROW can calm some of these jitters. We can get an update at any time around further sales of our 3 listed companies. That would certainly help. I suspect not much else will move the needle much until the year end results preliminary comes out in May or a general tech risk on change in sentiment.

I’m battened down waiting for year end results. Volatility can be a friend but I don’t play it much and in any case on the last dip I’m 20k down thus far so maybe stupid to even try. As Sage keeps saying a long term hold for sure but who knows what will happen in the short term.

For my money I think the downside of interest rate hikes is now priced in to the market. It wil be volatile until inflation starts to dip but this is as big as a retrace it gets. Rises to 1 or 1.5% bank rates is not a reason for a sustained pivot to bonds. Just not enough. We are to have sub 2% central bank rates for the foreseeable future and the asset price inflation that is the mirror side of that is also here to stay.

I suppose the 40% of nazdec have fallen over 50% since highs says one big thing. There is a flight to quality as the market becomes risk adverse rather than a wholesale flight out of equities. We are considered the riskier side of the tech sector rightly or wrongly.

What our sp would be if there was a wholesale flight out of equites is an interesting question. We had a taste of it on the initial covid panic in late March 2020. We can dip below trailing NAV/share.

I do think that the lack of information on how the core portfolio is valued and is performing hurts when there is a flight to quality. Flight to quality is also a flight to the better known risks. We are an unknown risk due to black box valuations. Just saying we follow IPEV is not much transparency. If we had the grow profit margins, revenue history and multiple per company and the runway length per company (if they had a burn rate) would add transparency and market confidence. I get the feeling we are undervalued because of a lack of information on the risk we are taking.

Maybe at the AGM we can raise these questions. I once spoke to someone and they were very guarded about saying much at all even what I wold not judge as market sensitive. I had just asked for confirmation about the revenue multiples over the years.

I note our 3 traded shares are now all well down on IPO price -even trustpilot . Hopefully grow will announce they made some more disposals before the recent big dip. THe market is maybe assuming the resort of our portfolio is down in value in proportion to our traded 3.

Grow is about 97% of my portfolio at present. No intention of diversifying below 12 quid however long that takes. Might buy rr if I get fresh funds.

Interesting. Yes logically we should fall less due to 40% on uninflated multiples if nothing else. I find we rise and fall related to the US tech index more than any other including the FTSE. If US each futures are done we usually fall. Ditto the reverse.

I’ve concentrated a bit by selling most o fly non-molten shares in my spread. RR, polar, Ballie Gifford, etc). Risk management more than an investment decision. No way will I sell Molten at these levels even for risk management. I expect they will recover fully when the time is right which could start tomorrow or might not be for a few months.

Anyhow I am in batted down the hatches mode for now. Probably will not top up more just for risk management on my spread reasons. Now at 60% leverage. At 60% can take a 40% dip I without a margin call or any forced sales. I think that is enough safety margin. Rest of my GROW is fully paid for and in my ISA and I will not be touching that for many years. 10 at least so well beyond this recent volatility.

Page 153 note 207 fair value measurements states that for 2021 final results 326m of NAV was done using a revenue multiplier.

https://investors.moltenventures.com/storage/uploads/PLC/Results-and-Reports/14.06.21%20Annual%20Report%20and%20Accounts%202021_vrcxt.pdf

It also states that the weighted average of the multiplier is 4.8x when the previous (covid impacted) multiplier was 5.1. So on that part of our portfolio the valuation we have become more conservative not less in spite of booming valuations of traded tech. Hidden value to me.

ALso not all the last round valuations that trade up the remaining 450.5 million of NAV would have been “frothy”. SOme late last rounds might have been influenced by the high tech prices in the general market but not all especially early round EU valuations.

So we are better protected than most tech to a change in sentiment. No reason to believe revenue in the component companies will be down since September 2021 so those valuations based on multiples of revenue will continue to climb year on year.

YOu would not think so based on how volatile our SP has been but that volatility is driven by superficial assessments and when our results for 2022 come in facts will have a chance to speak out. As a result even if last round valuations are flat because of the large section based on revenue I think our NAV will be up as Molten predicted by 10% or more in the second half for a yearly upgrade of NAV/share nicely north of 40%.

WHen these market jitters on interest rate rising subsides is obviously key in the short term to our SP and the sector.

https://www.theguardian.com/business/2022/jan/15/another-interest-rate-looms-but-britain-doesnt-need-this-one-either?CMP=Share_iOSApp_Other

Jitters on interest rate rises I think is starting to overshoot real risk,

https://24htech.asia/uk-based-molten-ventures-leads-25m-bet-in-synthetic-data-startup-mostly-ai-s473947.html

Topped up but shocked we hsvd dipped below nav/share. Never thought possible without a major general market dip such as 30%

https://medium.com/pretiosum-ventures/the-most-important-metric-for-early-stage-startups-in-a-recession-1198f748cb4e

steep learning curve for me. The above is an excellent article. With high growth and 65% gross profit margins the Molten portfolio sails over the "rule of 40".

We have too little information to separately understand the portfolio valuations and risks in a slow down. We don't know runway lengths, burn rates or what portfolio companies have already achieved net profitability. Might be all or none. We don't know. Lot of blind trust in the management team in buying a trust of this sort. Our SP would surely be higher with more transparency and more information.

Thus going into a jittery period where a recession is a distinct possibility investors will be spooked and stop focusing on our fabulous potential and start worrying about our defeasibility in a slow down. Teh lack of transparency on key metrics of vulnerability like runway length will mean we wild dip even on the suspicion we might have short runway companies n our portfolio.

In miniature I've been there. A close friend did a tech start up and we've been through all the angst at family funding and the shift to first round VC. The runway length was absurdly short over a long period of time and it crippled the company diverting core team time to constant fund raising rather than product development. Fabulous world beating product and companies that bought it loved it but it struggled. At it's core was a new patented algorithm that enabled world beating data search results. It could have been a unicorn so easily but sadly no go.

Maybe 4 months to wait for more news that will punch us higher. Maybe an earlier announcement they have sold down more of the traded 3 at a not bad price. Maybe earlier sentiment shifts again upwards.

This is more your area than mine and I feel like a student challenging my professor. Never-the-less here goes.

https://medium.com/craft-ventures/the-gross-margin-problem-lessons-for-tech-enabled-startups-e2aefab8a0d4

Molten portfolio is not pure software developers who will have very high gross margins. All development cost and little distribution. MOlten are a mix with significant sales support costs on average more like service companies. TO have a very positive gross margin from the start shows they have a product that can be sold at a competitive price already. Many start ups do not achieve that and have a burn rate to get the product out there.

Very generally it is easier for large companies to have large gross margins than start ups finding their way in marketing a new product or service. they will be inefficient and advertising costs concentrated on few sales.

A gross profit margin of 65% for the type of companies the core are I think proves they will scale. It is only if a competitor in their same niche has a higher profit margin is there a medium term problem.

In theory any very innovative tech start up will have massive sunk development costs. It’s share distribution and price will reflect who funded and developed that. Then comes the marketing phase where we generally are in Molten portfolio. We buy in to the company with the initial development cost as a given. Thus gross margins show the product can be sold profitably and thus scale can be achieved. The big question is. How the completion will react and how much of those gross profits need to be constantly reinvested in product development to remain competitive. So as we do looking at the quality of teh Molten portfolio is important. If it is a bit of a so what company with lots of potential competitors (maybe Cazoo) then caution needed. If it is a genuine new product difficult for competitors to duplicate great.

SO far Molten have picked more accurately although not perfectly in the sector than any other.

https://smallbusiness.chron.com/gross-profit-margin-important-company-60365.html

“Why Does It Matter?
Gross profit margin is generally important because it is the starting point toward achieving a healthy net profit. When you have a high gross profit margin, you are in better position to have a strong operating profit margin and strong net income. For a newer business, the higher your gross profit margin, the faster you reach the break-even point and begin earning profits from basic business activities.“

Also gross profit margins above the big tech players is surely significant. It indicates that each of the Molten portfolio has found on average a market nich they are able to dominate and thus can price their product accordingly. Pricing that produces above gross profit margins for say Microsoft is hard to do. Yet we have our portfolio at much lower multiples of sales or “profits” than the big tech shares. Hidden value surely?

https://investors.moltenventures.com/storage/uploads/PLC/Results-and-Reports/04.06.19%20Annual%20Results%20and%20Accounts%202019_dujgo.pdf

Wise words as always.

https://www.investorschronicle.co.uk/news/2021/07/15/uk-tech-investors-forget-darktrace-and-stick-to-the-trusts/

It is a confusing picture out there but for me best option is to use the trusts that specialize in pre ipo and pre late round tech stock even if these are not making profit yet. True that in a major retrace stocks not making profit yet may fall out of favour but if on modest multiples of sales why does this matter?

Back in the 2019 year end results page 25 it was stated:

"The gross profit margins of the core holdings average approximately 65%, and demonstrate teh ability of companies to reinvest for future revenue growth"

This is higher gross profit margins than big publically traded tech. Thus the portfolio in 2019 was choosing to reinvest profit and grow fast. They were on average fully able to generate high profit and pay tax if they so chose. A very different portfolio than one unable yet to generate profit.

I don't know why Molten does not shout this key finding from the rooftops but to the best of my knowledge this brief mention in 2019 was the only time. I think there is lots of hidden value in the portfolio and unsurprising this is recognized when they go to IPO.

Worth listening to this podcast on Japan. It might be our future.

https://youtu.be/pU_yyadYgG8

Wage expectations are not about to get locked in. Workforce insecure and with much lower rates of unionization than in the 70’s when inflation proved hard to get rid of. ALl other increases in costs such as imported energy or goods has spiked due to short term support disruptions not long term trends.

So all this angst on inflation and the need to hike interest rates because of will fade. Will it fade before a major market correction is triggered? I think so but there is a risk to be sure. THus volatility right now.

For a buy in price of 9 quid for Molten I think the risk is well priced in. Even at 10 quid nicely priced in.

As always good to have a contrarian view. Prevents group think.

I think we are agreed that the sales growth of the Molten portfolio will continue roughly at the fast clip we have had so far. We have very conservative multiples of sales used for valuation purposes so I have no worries of any bubble on the valuations made by estimates. Quite the opposite some hidden value compared to USA multiples used.

For post IPO holdings and last round close to IPO there is certainly a risk that valuations have become influenced by the wider froth. A major tech pullback will hurt us but in theory less than large traded tech on high multiples of profits. Granted as we are small and not understood volatility might be high for us.

For my money I don’t think we are in for a major tech pullback nor do I then interest rates will rise much. Much angst and volatility though for the next few months. SOme token bank rate increases to satisfy the baying mob but nothing that will make large government debt harder to service. Real G7 medium term risk is deflation and stagnation as in Japan. IN that scenario new tech may be the only growing sector beyond old age heath care. There are some severe deflationary pressures coming down the pike not the least demographics as with Japan.