Europe’s leading pureplay listed VC

Draper Esprit 1 February 2021 Initiation
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Draper Esprit

Europe’s leading pureplay listed VC

Initiation of coverage

Listed venture capital

3 February 2021

Price

766p

Market cap

£1bn

Net cash (£m) at 30 September 2020

62.1

Shares in issue

139.0m

Free float

90%

Code

GROW

Primary exchange

AIM

Secondary exchange

Euronext Growth Dublin

Share price performance

%

1m

3m

12m

Abs

16.1

29.4

47.3

Rel (local)

15.0

11.2

62.0

52-week high/low

766p

269p

Business description

Draper Esprit is a London-based venture capital firm that invests in the European technology sector. Draper Esprit has a portfolio of c 70 investee companies and includes a range of funds (seed, EIS and VCT) within the group, as well as its flagship balance sheet VC fund.

Next events

Portfolio update

February 2021

Portfolio day

25 February 2021

FY21 results

June 2021

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Draper Esprit is a research client of Edison Investment Research Limited

Draper Esprit is the leading listed VC in Europe, committing £120m of funding annually to European start-ups, with a proven track record (over 125 deals since 2006, US$13bn of exits) and a high-quality management team. Since 2016 Draper Esprit has been scaling its model, building the breadth and maturity of its underlying portfolio, with multiple core holdings ready to exit in 2021, market conditions permitting. Through a diversified investment holding company, Draper Esprit provides liquid exposure to a growing portfolio of Europe’s leading, high-growth tech start-ups, an investment class that is hard to access for the public market investor. In our view, Draper Esprit’s 15.1% FY16–20 NAV/share CAGR, together with the latent value in its portfolio, justify a premium rating.

Period
end

plc cash*
(£m)

Gross portfolio value (£m)

NAV
(£m)

NAV/share
(p)

P/NAV
(x)

03/18

56.6

243.5

300.5

416

1.84

03/19

50.4

594.0

618.6

524

1.46

03/20

34.1

702.9

659.6

555

1.38

09/20

62.1

702.4

714.7

600

1.28

Note: *Includes restricted cash but not funds held on behalf of EIS/VCT investors.

Team with proven investment and exit track record

Draper Esprit is an active investor providing venture and growth capital to Europe’s fast-growing technology businesses. Early-stage investment requires specialist expertise and Draper Esprit’s investment team has proved that it can successfully identify, invest in and exit leading European technology companies. As well as having made over £500m of investments since IPO, the team has already realised over £200m of exits. We estimate the group had plc cash of c £109m at 31 December 2020 (March year-end) and undrawn facilities of £60m, leaving plenty of capacity for continuing investment as Europe catches up with the US tech sector.

High-growth portfolio with exit potential

Draper Esprit invests at seed through to Series C and beyond, across the UK and Europe, with investments in four broad technology sectors: consumer, enterprise, hardware and deeptech, and digital health and wellness. The group is looking to deploy c £120m annually (+£40m of EIS/VCT funds), taking minority stakes in c 15–30 companies a year at Series A+ (including follow-on investments). The investment team has built a portfolio of c 70 companies, with 15 core holdings representing 62% of portfolio value. Recent exits include Peak Games, PodPoint and TransferWise, yet the portfolio still includes late-stage companies ready to drive future NAV appreciation, such as Graphcore, Revolut, Trustpilot and UiPath (US$750m Series F funding round, 3x uplift, £78m gross fair value gain).

Valuation: 15%+ annual NAV/share growth since IPO

Investors increasingly recognise that Draper Esprit warrants a premium as a rapidly scaling leader in the technology sector, which has delivered a 15.1% FY16–20 NAV/share CAGR, with a promising portfolio of investments and a growing fund management business. As such, the company trades at 1.28x historical NAV (H121: 600p). Catalysts for a re-rating include further scaling of the business, a listing on the main market, growth in third-party fee income, and successful exits and IPOs.

Investment summary

Leading VC player with a proven track record

Draper Esprit invests in high-growth companies across the UK and Europe, and has built a direct investment portfolio of c 70 companies, including a number of Europe’s leading technology companies, across four technology sectors: consumer, enterprise, hardware and deeptech, and digital health and wellness. Its core portfolio comprises its 15 largest holdings, representing 62% of portfolio value.

Exhibit 1: Core portfolio by sector (H121)

Exhibit 2: Core portfolio by value (H121)

Source: Draper Esprit (30 September 2020)

Source: Draper Esprit (30 September 2020)

Exhibit 1: Core portfolio by sector (H121)

Source: Draper Esprit (30 September 2020)

Exhibit 2: Core portfolio by value (H121)

Source: Draper Esprit (30 September 2020)

The company has a proven track record of delivering successful investments, having deployed c £513m of capital in total since its IPO in 2016 and realised £212m of investments. Its portfolio was valued at £702.4m (gross portfolio value) in its H121 results at 30 September 2020, with a NAV of £714.7m. The group has delivered a 15.1% CAGR NAV/share in FY16–20, reporting 8.1% growth in H121 despite the impact of COVID-19. This compares to HgCapital Trust, which has delivered a 19.1% NAV CAGR over five years (12% over 20 years), Oakley Capital with a 14.4% five-year CAGR and 3i with a 22% five-year CAGR.

The group is well-capitalised, with more than £100m in plc cash (together with a £60m undrawn revolving credit facility) following a successful placing in October 2020 that raised net proceeds of £106.6m. The placing was completed at 555p per share (equivalent to the FY20 NAV), with the latest share price of 766p at a 28% premium to the H121 NAV per share of 600p.

Recent exits include Peak Games, PodPoint and TransferWise, still leaving a portfolio featuring a number of late-stage companies potentially also close to exit (such as Graphcore, UiPath, Revolut and Trustpilot). As the latest example, UiPath’s US$750m Series F funding round in February 2021, valuing UiPath at US$35bn, raises the fair value of Draper Esprit’s stake from £37m to £115m, a 3.1x uplift of £78m or over 50p per share (before carry deductions, FX and costs) to Draper Esprit investors. We expect to see further NAV progress in 2021 from exits from the core portfolio, market conditions permitting, but also, from funding rounds and revaluation across both core and emerging portfolios, despite the continuing challenges of the COVID-19 pandemic.

Draper Esprit’s key USPs

The following factors help differentiate Draper Esprit from competing investment propositions:

Rare pure tech exposure: unlike the US, the UK and European public markets offer only relatively limited exposure to the technology sector. Draper Esprit provides rare exposure to an alternative asset class, offering a diversified portfolio of leading, high-growth, private technology businesses from across Europe as the European sector accelerates to catch up with the US. For private investors, although options for seed investment are available, this asset class is hard to access at the growth stage (Series A+).

Established reputation: as an early mover and market leader in the European VC sector, Draper Esprit has cemented its reputation as an investor of choice. This creates a virtuous circle where the company can attract the best entrepreneurs, allowing it to invest in the best businesses and consequently deliver the best returns to investors.

Market-leading track record and history of exits: having delivered an average 20% annual IRR up to its IPO, management is targeting a 20% annual gross portfolio return through the cycle (H121: 10.4%). This has translated into a NAV/share CAGR of more than 15% since IPO. The group has realised c £212m of investments since IPO, with £105.6m realised in H121 alone. We estimate that this leaves the company with c £109m of plc cash to invest at 31 December 2020 (together with a £60m undrawn RCF). The group’s portfolio has matured and includes market leaders such as Graphcore, UiPath, Revolut and Trustpilot, with a number of core portfolio holdings ready to exit in 2021, market conditions permitting.

Exposure diversified by asset class, investment stage and vintage: Draper Esprit offers a portfolio diversified across both segment and stage of investment. It focuses exclusively on technology, investing in four separate segments (consumer, enterprise, deeptech and digital health). These allow access to emerging technology themes, including micro-satellites (ICEYE), quantum computing (Riverlane), artificial intelligence/machine learning (Graphcore, UiPath), consumer (Smava, Cazoo), digital health (Endomag, Push Doctor) and fintech (Revolut, N26). This broad approach means that Draper Esprit has been able to diversify its portfolio and ensure that it has investee companies ready for realisation as well as investment.

Targeting 20% annual portfolio return

Draper Esprit typically builds long-term stakes in companies, with initial investments often sourced through its network of seed funds investing across Europe. Draper Esprit has a strong track record of cash realisations, with £212m returned since IPO. Having delivered a 20%+ IRR prior to its IPO in 2016, management continues to target a 20% gross annual portfolio return over the cycle, which it appears to be on track to deliver in FY21 (H121: 10.4%), despite the impact of COVID-19.

Sensitivities: Technology valuations and exits

Draper Esprit has successfully built a robust business, with a broad portfolio of investments, in different segments of the technology sector, across a range of investment stages. However, as a people-based business, the company remains reliant on its nine-strong senior investment team (with over 100 years of combined experience) and the team’s market reputation to attract the best entrepreneurs and invest in the most sought-after businesses. Once invested, the company relies on the efficient recycling of capital, with regular realisations supporting reinvestment. Realisations are dependent on the state of the technology market, the valuations of quoted peers and investor appetite to continue to invest in technology companies at IPO or by way of a trade sale.

Outlook: A scaling, self-financing business model

Draper Esprit was one of the earliest VCs focused exclusively on the UK and Europe, and has built a strong reputation, with a supporting infrastructure and ecosystem that means it remains one of the leading VCs in Europe today. In FY20, Draper Esprit invested £90m from its own balance sheet. This is expected to increase to c £120m annually following the October 2020 placing (c 70% expected to be committed to Series B+ rounds), with additional third-party capital committed of c £40m from enterprise investment scheme (EIS)/venture capital trusts (VCT). With the launch of the co-investment fund (we anticipate in FY22), fees from which will make fund management a net profit centre, we expect to see continuing NAV appreciation with annual investment continuing to grow over the next three to five years, with regular exits from a growing, balanced portfolio of late-stage businesses. We understand the group is also considering a move to the main market.

Valuation: Track record + FM + latent value = premium

Draper Esprit offers an attractive way to access leading, private European technology start-ups, a high-growth asset class that is otherwise largely inaccessible to the public market investor.

Draper Esprit is a rapidly scaling market leader in the technology sector, investing in high-growth private companies. It has a growing portfolio of late-stage investments, a track record of exits that has delivered 15.1% FY16–20 NAV/share growth and a roadmap to a self-financing business model through scaling its fund management business (net operating costs already less than 0.2% of NAV). Investors increasingly recognise these credentials, with the company trading at 1.28x H121 NAV. Catalysts for a re-rating include further scaling of the business, a potential listing on the main market, growth in third-party fee income, together with the potential for emerging unicorns to deliver unforeseen material upside through funding rounds, successful exits or IPOs.

Company overview

Business description

Draper Esprit is a VC investment company dual-listed on AIM and Euronext Growth Dublin, with c 40 employees (H121: 33) based in offices in London, Cambridge and Dublin. Founded in 2006 as Esprit Capital, the company was renamed Draper Esprit in 2015, after joining the Draper Venture Network, before listing in June 2016 to become the first European VC to do so.

Draper Esprit’s core focus is on Series A+ funding from its own balance sheet to leading European start-ups, with the majority of capital targeted at later-stage rounds. However, the group comprises a number of historically independent vehicles, investing in UK and European technology companies in markets from seed to late-stage, pre-IPO capital. The other principal businesses within the group include:

UK EIS funds managed by Encore Ventures;

UK closed-ended collective investment scheme VCT funds managed by Elderstreet; and

a strategic partnership with Earlybird Digital (struck in 2018), a seed and Series A investor based in Berlin, Munich and Istanbul.

Management has also announced plans for a US$400m Series B+ co-investment fund, which we anticipate will be launched in FY22.

Investing in high-growth global leaders

Draper Esprit invests in high-growth companies with global ambitions and has built a direct investment portfolio of c 70 companies across four technology segments:

Consumer technology: new consumer-facing products, innovative business models and proven execution capabilities that bring exceptional capabilities enabled by technology.

Enterprise technology: the software infrastructure, applications and services that make enterprises more productive, cost-efficient and smoother to run.

Hardware and deeptech: the deeper technologies that will spark advances in computing, consumer electronics and other industries.

Digital health and wellness: using digital and genomic technologies to create new products and services for the health and wellness market.

This approach allows the group to access high-growth, emerging themes within the technology sector, including micro-satellites (ICEYE), quantum computing (Riverlane), artificial intelligence/machine learning (Graphcore, UiPath), consumer (smava, Cazoo), digital health (Endomag, Push Doctor) and fintech (Revolut, N26).

Exhibit 3: Portfolio by sector

Source: Draper Esprit (30 September 2020)

Management targets four technology segments in order to provide a degree of diversification across the cycle, with the group able to commit capital to segments with relatively lower valuations, while realising late-stage investments in segments where demand and valuations are higher.

At the end of H121, Draper Esprit’s core portfolio was weighted towards enterprise technology (41% of core portfolio by value) and hardware & deeptech (38% by value), with consumer 21% by value, while digital health and wellness, although a sector of active investment, is not currently represented in the core portfolio (Exhibit 1).

Core portfolio: Holdings with a fair value over £12m

Draper Esprit is looking to identify long-term winners in the European technology sector. Although the group commits funding to seed funds to secure a broad pipeline of future Series A+ investment opportunities, it still allocates the weight of its capital to a relatively small number of core holdings, as well as on opportunistic secondary opportunities.

At H121, the 15 constituents of the core portfolio (Exhibit 7) represented 62% of total portfolio value and on average deliver gross margins of around 60%. Although Draper Esprit does not disclose precise equity stakes in its investees, it held an average equity stake of 9.0% across the core portfolio, with an average fair value of £28.9m as at H121.

£110m October placing to accelerate investment

In October 2020, Draper Esprit raised £106.6m (net of expenses) from investors, to strengthen its balance sheet and supplement its cash resources, better positioning the group to benefit from the accelerated transition to digital driven by the COVID-19 pandemic. The raise was also a strategic reaction to the recent rapid growth of the European venture capital market.

Management expects the proceeds of the placing to enable the company to accelerate annual investment to £120m, with c 70% of future funds expected to be committed to Series B+ rounds. This allows the group to participate in larger, later-stage rounds and hold its investments closer to maturity, thereby enjoying more of the value uplift ahead of exit. Draper Esprit’s subsequent Series E investment in Graphcore, a core holding, demonstrates the benefits of the strategy.

In parallel with the placing, Draper Esprit also announced plans to launch a US$400m third-party co-investment fund (we assume in FY22) to invest alongside its balance sheet in later-stage growth rounds (Series B+), further increasing the overall size of rounds in which Draper Esprit can participate. The greater influence provided by the additional funding will enhance the group’s ability to lead deals and secure allocation, as well as generating additional income from management fees to cover central costs.

Funds from the placing will allow Draper Esprit to continue to support existing seed funds within the portfolio, as well as invest in further European funds. In particular, in the placing announcement, Draper Esprit confirmed an intention to invest in the next Earlybird fund targeting Series A investments in Germany and the DACH region.

Strategic networks

Draper Venture Network

Draper Esprit is a member of the Draper Venture Network (DVN), an international organisation of independent venture funds. Membership helps Draper Esprit to support its companies to expand beyond Europe, as well as cooperating on investment diligence, marketing intelligence, corporate relationships and co-investments. As a global network, membership of DVN enables Draper Esprit’s portfolio companies to access markets worldwide, with partners in Asia, the US and the Middle East. Draper Esprit joined DVN in 2015.

Seed fund strategy

In October 2017, Draper Esprit launched a fund-of-funds strategy focused on seed investment. By investing in seed funds, Draper Esprit is able to identify and secure a broad pipeline of attractive early-stage investment opportunities ahead of its core Series A and B investment rounds. Draper Esprit has now invested in 22 seed funds across Europe, which have collectively invested in more than 350 portfolio companies and raised £1.1bn in aggregate.

Earlybird strategic investment partnership

As well as its strategic value, Draper Esprit’s investment in Earlybird has already delivered a threefold return on investment (ROI), including exits such as Peak Games. As at 30 September 2020, Draper Esprit had invested a total of £116m in Earlybird, with a residual valuation at that date of £153m. As part of its October 2020 placing, Draper Esprit confirmed an intention to invest in the next Earlybird EB VII fund, targeting Series A investments in Germany and Europe.

In July 2018, Draper Esprit formed a strategic partnership with Earlybird Digital West to share deal flow, talent and resources. Earlybird invests from seed to Series A, with offices in Berlin, Munich and Istanbul. The partnership with Earlybird not only gives Draper Esprit’s platform greater reach and scale, but also offers access to a larger pipeline of deals and a larger pool of specialist investment expertise. Investing in secondary investments through its fund-of-funds strategy, deepens the group’s market insight as well as providing access to the best early-stage companies, extending the group’s geographic footprint.

Draper Esprit initially took a 56.5% stake in Earlybird’s EB VI fund for £16m in July 2018, guaranteeing to invest a further £15m a year until 2022. In January 2019, Draper Esprit also acquired a 27% interest in Earlybird’s EB IV fund for c £55m, together with a 5% interest in its Digital East Fund for £16m. These investments have allowed Draper Esprit to acquire holdings in Earlybird portfolio companies through direct investment in later-stage funding rounds for, eg smava, Peak Games (exited in H121), Nfon, B2X, Socialbakers and UiPath.

Experienced management team

Draper Esprit has an experienced management team, with the core investment team having helped establish the firm as one of Europe’s leading VCs from its foundation in 2006. The CEO, Martin Davis, was appointed in 2019, complementing the deep venture capital expertise within the firm with fund management and broader financial services expertise, particularly relevant to the next stage of development for the group. The CFO, Ben Wilkinson, is an experienced public market CFO who joined the group in 2016 and was appointed to the board in 2019.

Investment strategy

Where does Draper Esprit invest?

Exhibit 4 shows total European VC investment by year, broken down by round size. This highlights that the overall value of VC funding is rising each year, but also in 2019 and 2020, that more capital is being allocated to later-stage rounds with increasing numbers of the larger round sizes.

Exhibit 4: European investment by year and round size

Source: Atomico, The State of European Tech 2020. Note: 2020 data is for the period to Q320

As part of its strategy to deliver sustainable growth, Draper Esprit invests incrementally, building value over time, with its seed funds investing small amounts in early-stage seed companies and Draper Esprit making initial direct investments at Series A, while reserving more capital for later-stage rounds (broadly a 30/70 Series A/Series B+ split).

Seed funding/fund-of-funds strategy: seed funding is the first formal equity funding stage and typically represents the first money that a business venture raises to refine and develop its business proposition. This is the stage of highest risk, with seed investment typically below £1m. The group does not make direct seed investments, but nevertheless supports companies from inception by investing in funds that invest in earlier-stage businesses across Europe (eg Earlybird, Seedcamp and Episode 1). The fund-of-funds strategy acts as a sales funnel for Draper Esprit, allowing it to identify and monitor the progress of promising opportunities that it can support through its broader plc and co-investment strategy as they scale.

Series A: refers to investment after a privately held company has shown progress in building its business model and has demonstrated the potential to grow and generate initial revenues. Businesses usually raise their Series A once they have found product-market fit and need to scale their operations quickly. Only a minority of seed investments will complete a Series A round (Exhibit 5) but thereafter, attrition rates fall off markedly for investment sizes above US$5m (Series A typically ranges from US$5m to US$15m). With commercial traction still to be proven, Series A rounds are the earliest stage at which Draper Esprit will make a direct investment.

Series B, C and beyond: growth funding to help businesses scale and expand internationally. Draper Esprit’s capital is weighted towards later-stage, Series B+ funding, where funding risk has reduced significantly, and round sizes increased substantially. As the European venture capital ecosystem matures, Draper Esprit is seeing companies raising larger rounds to capture markets and fuel growth, enabling companies to remain private for longer. Draper Esprit is increasingly leading and investing in later-stage growth rounds, with round sizes rising from US$20m to US$100m+. With follow-on investments, Draper Esprit can back businesses at all stages of their growth – to very late stage (eg Graphcore Series E, US$222m) and even right up to acquisition or IPO. Of the group’s expected £120m annual investment following its placing, 70% is expected to be reserved for later-stage rounds where failure rates are lower.

Co-investment fund: Draper Esprit has announced plans to launch a US$400m third-party co-investment fund to invest alongside its balance sheet in later-stage growth rounds (Series B+), increasing the overall size of rounds in which Draper Esprit can participate. This will allow co-investors greater exposure to Draper Esprit’s portfolio, enhancing the group’s ability to lead deals and secure influence and allocation, as well as generating additional income by way of management fees to cover the group’s central costs.

Secondaries: as well as primary investment, Draper Esprit also has a team focused on secondary acquisitions, acquiring stakes or portfolios from third party funds. This can be to help companies find liquidity for early backers, or the sale of a portfolio for a fund that has timed out.

Exhibit 5: Darwinian fall-off in European start-ups reaching late-stage rounds

Investment process

Draper Esprit builds deal flow through its network of relationships, its broader ecosystem and through the team’s reputation in the market. Its team of specialists has the experience and sector knowledge to dig deep in its due diligence to help identify good investments from attractive marketing. Draper Esprit will only invest where it feels it has a competitive edge and where management can leverage its broader ecosystem to add value to the potential investee company.

Dual-platform investment approach

Operationally, the group has established an internal dual-platform investment process, with roles divided between partnership and platform teams. The teams work closely with one another; the partnership team members are the deal makers, focused on deal execution, portfolio companies and their founders, while the platform team provides the support functions, assisting with deal flow and collaborating with the entrepreneur community, other investors and the wider ecosystem.

The partnership team is made up of experienced investors – founders, CEOs, start-up advisors, private equity and investment bankers, with experience stretching back over 20 years. The team engages, supports and invests in entrepreneurs, focusing on securing new investments as well as supporting existing portfolio companies. To strengthen its offering, the group has recently added a new senior partner to its investment team, Will Turner (ex Vitruvian), as well as principal-level hires Christoph Hornung (ex-Rocket Internet) and Inga Deakin (ex-Touchstone Innovations).

The platform team has been established to support the entrepreneur community, other investors and the wider ecosystem. This starts from the early seed stage, while companies are developing their propositions, through to companies preparing for exit. The team run events and offers specific training for portfolio companies, including trend spotting, panel discussions and focused networking to support its companies.

An active investor offering more than just money

When Draper Esprit invests, it offers more than money. It is an active investor that typically takes a seat on the board of its portfolio companies (together with significant investor rights), to deliver support and guidance as the company grows and scales. Throughout the diligence process, as well as post-investment, Draper Esprit seeks to build and maintain strong relationships with portfolio company management teams to become the company’s preferred investment partner.

Investing in Europe’s leading tech companies

Draper Esprit targets private European technology companies with the potential to become market leaders. The investment team meets thousands of companies each year, of which it invests in only c 15–30, including follow-on investments.

Draper Esprit sources investment opportunities through three principal channels:

directly through the group’s strong market presence and established reputation;

through its membership of the DVN international network; and

via its seed funds.

Together, these channels deliver a strong pipeline of deals to ensure Draper Esprit has a market-wide view of the investment landscape.

Seed fund strategy: The fat end of the sales pipeline

In October 2017, Draper Esprit launched a fund-of-funds strategy focused on seed investment. By investing in seed funds, Draper Esprit is able to identify and secure a pipeline of attractive early-stage opportunities ahead of core Series A and B investment rounds, benefiting from the expertise of sector-specific funds and effectively expanding its sourcing network across Europe. This strategy also helps Draper Esprit identify and invest in emerging investment trends ahead of its competition.

In return, the seed funds receive additional capital to deploy in their core markets, and a direct and deep relationship with Draper Esprit, helping to ensure that promising investee companies have a natural port of call as they develop, scale up and need later-stage capital.

Exhibit 6: Draper Esprit’s pan-European seed fund footprint

Source: Draper Esprit

Draper Esprit has now invested in 22 seed funds across Europe, committing £41m to be invested over five to 10 years. The funds have invested in more than 350 portfolio companies and have raised £1.1bn. In total, £17m of commitments have been drawn down, of which £3.2m was drawn in H121.

Valuation methodology: Fair value vs value of last funding round

Draper Esprit follows the International Private Equity and Venture Capital Valuation (IPEV) Guidelines, as well as the IPEV Board’s Special Valuation Guidance issued on 31 March 2020 in response to the COVID-19 crisis, which together set out best practice where private investments are reported at ‘fair value’.

Typically, where a funding round has been completed in the last 12 months, management uses this as the carrying value, but where there has been third-party funding invested and a material change of circumstances, or the last funding round is more than 12 months old, management applies a multiples-based valuation. Updating the valuation from the basis of historical funding rounds arguably offers a better view of fair value, but still leaves NAV as a significantly trailing indicator for a high-growth portfolio. Since March 2020, Draper Esprit has updated its company valuations using revised forecasts to reflect the anticipated impact of COVID-19. Its portfolio is diversified across sectors and geographies, with the core portfolio held at conservative valuations based on realistic growth projections and captive market size.

As of H121, six (40%) of Draper Esprit’s core holdings are valued on the basis of peer multiples and nine (60%) are based on last valuation rounds. However, this balance will vary over time depending on the frequency of funding rounds and the maturity of the portfolio.

Irish substantial shareholding exemption

A participation exemption effectively removes the tax on Draper Esprit’s investment gains when it exits an investment held through its Ireland-based fund structure. The exemption allows an Ireland-based company (Draper Esprit (Ireland) Limited) to sell interests in trading companies free of tax where they are resident in Ireland, the EU or a country that has concluded a tax treaty with Ireland (eg the UK) and where the disposing company holds or has held at least 5% of the ordinary share capital and economic interest in the subsidiary company for 12 months, beginning not more than two years before the disposal. The latter time condition allows Draper Esprit to sell down a stake in an investee company tax efficiently to below 5% on a gradual basis. Where Draper Esprit’s stake in an investee company remains below 5%, the investment is held through the UK holding company.

Investment portfolio

Exhibit 7: Draper Esprit’s core portfolio (as at 30 September 2020)

Fair value of investments 31 Mar 2020

Investments in H121

Realisations in H121

Movement in fair value in H121

Fair value of investments 30 Sep 2020

Proportion of GPV

Cumulative share of GPV

Fully diluted shareholding

Basis of valuation

£m

£m

£m

£m

£m

%

%

30-Sep-20

1

Trustpilot

65.3

-

-

15.6

80.9

11.5%

12%

11–15%

Peer multiples

2

Graphcore

86.8

-

-

(6.3)

80.5

11.5%

23%

0–5%

Last round

3

UiPath

28.0

-

(2.5)

11.2

36.7

5.2%

28%

0–5%

Last round

4

RavenPack

30.9

-

-

1.0

31.9

4.5%

33%

16–25%

Last round

5

M-Files

20.0

-

-

7.0

27.0

3.8%

37%

6–10%

Peer multiples

6

Aircall

24.3

1.0

-

(2.0)

23.3

3.3%

40%

6–10%

Last round

7

Revolut

21.9

-

-

-

21.9

3.1%

43%

0–5%

Last round

8

Smava

16.7

-

-

2.0

18.7

2.7%

46%

6–10%

Peer multiples

9

Perkbox

19.9

-

-

(1.3)

18.6

2.6%

48%

11–15%

Peer multiples

10

Ledger

17.7

-

-

-

17.7

2.5%

51%

6–10%

Peer multiples

11

Cazoo

-

10.0

-

7.5

17.5

2.5%

53%

0–5%

Last round

12

Thought Machine

17.4

-

-

-

17.4

2.5%

56%

6–10%

Last round

13

SportPursuit

11.1

-

-

3.2

14.3

2.0%

58%

25%+

Peer multiples

14

ICEYE

14.0

-

-

-

14.0

2.0%

60%

0–5%

Last round

15

Aiven

12.8

-

-

-

12.8

1.8%

62%

6–10%

Last round

Core portfolio

386.8

11.0

(2.5)

37.9

433.2

61.7%

62%

-

-

Remaining portfolio

314.4

21.3

(103.1)

34.4

267.0

38.0%

100%

-

-

Total

701.1

32.3

(105.6)

72.3

700.2

100%

-

-

-

Co-Invest

1.8

-

-

0.4

2.2

0.3%

-

-

-

Gross Portfolio Value

702.9

32.3

(105.6)

72.7

702.4

100%

-

-

-

Source: Draper Esprit, Edison Investment Research Note: Graphcore and UiPath have both completed funding rounds in H221.

Late-stage investments with 2021 IPO potential

Draper Esprit’s three largest investments, Trustpilot, Graphcore and UiPath, together represented 46% of the core portfolio fair value as at 30 September 2020. Coverage in the financial press suggests that these three late-stage businesses, in particular, are actively considering their exit options, including by way of IPO. However, we would note that an IPO is always subject to prevailing market conditions and typically only a small minority of a VC’s portfolio will complete an IPO, with the vast majority (80%+ over the cycle) exiting by way of a trade sale. Both Graphcore (Series E round, December 2020, US$2.8bn valuation) and UiPath (Series F round, February 2021, US$35bn valuation, 3x uplift, £78m increase in fair value) have recently completed funding rounds, extending their cash runways and increasing their strategic flexibility as to when to exit.

Accelerated capital deployment post-placing

In October, the group raised £110m of additional capital (£106.6m net of costs) in an oversubscribed placing to new and existing investors at a price of 555p per share (equivalent to the FY20 NAV per share). In an investment update in January 2021, the group confirmed that it had made 11 investments in H221 to date, deploying a further £56m (H121: £32m) of the £106.6m raised in October. Investments have included a mix of new and existing companies, across investment stages and sectors.

Notable H221 investments have included:

PrimaryBid (consumer, new Series B investment): co-led the US$50m Series B fund-raising for a technology platform to allow retail investors access to public companies raising capital. OMERS and London Stock Exchange Group co-led the round, alongside Fidelity, and existing investors Pentech and Outward VC among others.

Graphcore (deeptech, Series E follow-on): US$14m commitment as part of a US$222m pre-IPO round in Graphcore, one of Draper Esprit’s largest core holdings and maker of the Intelligence Processing Unit. New investors included the Ontario Teachers' Pension Plan Board, Fidelity International and Schroders.

CoachHub (enterprise, new Series C investment): Draper Esprit invested US$14m as lead investor in a US$30m round, alongside HV Capital, Partech, Speedinvest, signals Venture Capital and RTP Global. CoachHub is a Germany-based digital coaching platform.

Endomag (biotech, Series D follow-on): Draper Esprit led with a £7m investment (with an additional £5m committed by its EIS/VCT funds) as part of a £15m Series D investment round into existing portfolio company Endomag, a breast cancer market leader. The round was supported by other existing investors including Sussex Place Ventures, among others.

AGORA (consumer, new Series A investment): Draper Esprit led a £5m round alongside other new investors, Lakestar and Angel Capital Management. AGORA is a London-based start-up disrupting the beauty industry through social commerce.

The group has also confirmed an investment in telemedicine company Push Doctor and, most recently, an investment in a quantum computing company, Riverlane.

Exits: Track record of harvesting and reinvestment

Whereas many of its competitors are still investing in their portfolio, Draper Esprit has managed to realise investments since 2017, as well as continuing to invest in its portfolio in every period since IPO. The steady cadence of exits provides investors with comfort that the value of late-stage businesses will be realised and reinvested in new opportunities to build future value. Although there is no specific target, over the cycle, the group expects to realise c 10% of portfolio value a year.

In H121, Draper Esprit realised investments of £105.6m with a final exit from Peak Games (acquired through Earlybird) and TransferWise, as well as partial disposals of UiPath (acquired through Earlybird). This figure includes the release of escrow proceeds from the disposals of Clavis and PodPoint from prior periods. In total, Draper Esprit has now realised c £212m of value from its portfolio with the vast majority of exits delivering attractive multiples of the amount invested (Exhibit 8), with an average money multiple of c 3.0x.

Exhibit 8 also underlines Draper Esprit’s approach to supporting all its portfolio companies to exit, even those that underperform. As a rule of thumb, the group expects 30% of its investments to deliver strong returns, 60% to deliver returns of 0.5–2.0x money invested and only 10% to be write-offs. This approach is more entrepreneur-friendly than the typical US VC model, which swiftly sifts potential winners from losers and aggressively cuts underperforming investments.

Exhibit 8: Extensive track record of attractive exits post-IPO

Year of realisation

Company

Exit value
(£m)

Money multiple
(x)

Total investment
(£m)

Full/partial exit

FY20

Peak Games*

88.0

3.5

25.1

Full

PodPoint

12.4

2.3

5.4

Full

TransferWise

32.6

3.1

10.5

Partial

UiPath

7.1

2.1

3.4

Partial

Stripe

1.7

4.5

0.4

Full

FY19

Codility

0.5

2.2

0.2

Partial

BitBar

0.5

2.0

0.3

Full

Graze

6.3

1.7

3.7

Full

FY18

Grapeshot

11.5

8.3

1.4

Full

Tails.com

2.9

7.3

0.4

Full

FY17

Horizon

2.9

2.6

1.1

Full

Clavis Insights

15.3

1.9

8.1

Full

Moviepilot

0.5

0.4

1.3

Full

Aveillent

0.2

0.1

2.0

Full

FY16

Movidius

27.5

7.6

3.6

Full

Qosmos

8.0

1.9

4.2

Full

Datahug

3.6

1.6

2.3

Full

Worldstores

0.0

0.0

0.0

Full

Total value/weighted average multiples

221.5

3.0

73.3

Source: Draper Esprit, Edison Investment Research. Note: *Includes escrow amounts due of c £9.5m.

Long-term growth: 15.1% NAV per share CAGR FY16–20

Looking at Draper Esprit’s track record in terms of gross portfolio return (the increase in gross portfolio value, together with net realisations) highlights a positive return in every period since IPO, with a return of 10.4% in H121. It is notable that, as the portfolio has grown and matured, returns and growth, although still strong, have slowed (FY17: 49.4% to FY20: 9.8%). The growth in portfolio value has also driven a rising NAV per share, again with a positive return in every 12-month period since IPO, leading to a 15.1% CAGR over the period FY16–20.

Exhibit 9: Key performance indicators

15/06/16

30/09/16

31/03/17

30/09/17

31/03/18

30/09/18

31/03/19

30/09/19

31/03/20

30/09/20

FY16

H117

FY17

H118

FY18

H119

FY19

H120

FY20

H121

Gross portfolio value

£m

78.7

106.8

112.7

162.8

243.5

354.0

594.0

683.0

702.9

702.4

12m trailing growth

43%

52%

116%

117%

144%

93%

18%

3%

Realisations

-

35.1

1.5

15.3

2.5

16.0

22.7

39.5

105.6

Investments

6.3

37.1

27.4

71.5

65.0

226.4

41.5

89.9

32.3

Gross portfolio return

27.7%

49.4%

21.4%

66.2%

19.7%

57.5%

11.8%

9.8%

10.4%

plc cash

£m

30.4

8.3

24.9

92.0

56.6

103.8

50.4

45.5

34.1

62.1

Net cash/(debt)

£m

30.4

8.3

24.9

92.0

56.6

103.8

50.4

(4.5)

(10.5)

62.1

NAV

£m

128.7

143.3

139.9

256.0

300.5

449.9

618.6

677.5

659.6

714.7

12m trailing growth

9%

79%

115%

76%

106%

51%

7%

5%

Y/E number of shares

m

40.7

40.7

40.7

71.6

71.6

99.1

117.9

117.9

118.9

119.2

NAV per share

p

316

352

343

357

416

454

524

574

555

600

12m trailing growth

9%

2%

21%

27%

26%

26%

6%

4%

Source: Draper Esprit accounts, Edison Investment Research

Environmental, social and corporate governance (ESG)

Draper Esprit is committed to building and developing its ESG approach over time and has already taken meaningful steps across multiple areas of its business. The group intends to use its platform to encourage and promote its values (through its responsible investment and sustainability policy) across its portfolio, as well as applying ESG considerations to develop best-in class technology companies and achieve strong investment returns.

In a recent ESG report, Berenberg concluded that of the group’s portfolio, 35 firms (57% of NAV) meet the criteria for Berenberg’s Sustainable Development Goals (SDG) framework. In this context, with 45%+ being considered high, the report included a recommendation to investors to consider Draper Esprit as a constituent for their ESG portfolios.

Draper Esprit’s dedicated ESG working group is set to establish board-approved ESG KPIs, with further details set to be announced along with Draper Esprit’s FY21 results in June 2021. Draper Esprit’s detailed ESG policy is available on its website.

Market background: European tech coming of age

The US technology sector leads Europe

Despite having built a small number of global tech companies such as SAP and Nokia, the European technology sector has lagged the US and Chinese technology sectors for the past decade. Relative to both markets, Europe has few tech champions and a paucity of technology exposure on the public markets. Exhibit 10 illustrates the dominance of the US public markets in all tech segments except games and digital marketing.

Exhibit 10: Share of tech segment public market cap by global region

The US-Europe divide is highlighted by the fact that the US tech sector is now worth more than the sum of the entire European stock markets in aggregate. While the European VC market is expanding rapidly, since 1995, US$1.2tn of VC funding has been raised in the US vs US$200bn in Europe, a difference of a factor of six. In 2019, Europe accounted for 16% of US$237bn of global VC funding, with the US and Asia together representing almost five times this amount (source: Can Europe be the most entrepreneurial continent? Index Ventures, October 2020).

European technology companies are remaining private for longer, with investment round sizes steadily increasing, limiting the public investment opportunity. Meanwhile, COVID-19 has accelerated the transition to digital and a significant shift to online activity is evident in everything from video games to online medical consultations, to a global surge in online shopping. As well as a direct impact on the way people lead their lives, this transition has significant secondary impacts, with large increases in supporting services such as online payments, fraud detection and security, cloud banking and more general cloud infrastructure to support home working.

There are three key factors behind this issue:

1.

A lack of capital: historically, there have been fewer private investors in Europe than the US and China, with smaller funds and therefore less capital to deploy.

2.

Lower risk appetite: capital has been restricted, but Europe has also lacked investors who truly understand tech, with a supportive mindset and the risk appetite to accept higher levels of risk and longer payback periods in exchange for higher returns.

3.

Less supportive ecosystem: Europe has suffered from a lack of serial entrepreneurs to act as role models, reinvest in start-ups and be able to build a supportive, broad-based technology ecosystem.

Foundations have been laid for Europe to catch up

Having identified this policy and capital failure, governments across Europe have been looking to put the building blocks in place to close this funding gap with the US.

Exhibit 11: European governments offering wide support to the start-up ecosystem

Source: Europeanstartups.co

Exhibit 12 highlights that, despite progress made to date and increasing European round sizes, US round sizes remain significantly larger than European rounds. This may be partly explained by a more competitive ecosystem in the US, offering more companies and better investment opportunities, but it also highlights the value divide between the US and Europe that has been steadily drawing more money into the European market. Exhibit 13 tracks the increase in committed capital on a quarterly basis, also highlighting the pause in investment in Q220 due to COVID-19, and subsequent rebound in Q320.

Exhibit 12: US/Europe value gap persists for both early- and late-stage rounds

Exhibit 13: Steadily rising European tech investment

Exhibit 12: US/Europe value gap persists for both early- and late-stage rounds

Exhibit 13: Steadily rising European tech investment

Over the last five to 10 years, the foundations have been laid for European tech to flourish. UK and EU governments have launched industrial strategies, providing targeted government support to SMEs, to foster innovation and create employment (Exhibit 11). Alongside this, the amount of capital targeting private investment opportunities has grown exponentially, leading to ever greater numbers of technology unicorns (private businesses valued at more than US$1bn) across the UK and Europe, as well as ‘soonicorns’ (start-ups with the potential to become unicorns).

Exhibit 14: Growing European unicorn herd

Exhibit 15: Unicorns founded across Europe

Exhibit 14: Growing European unicorn herd

Exhibit 15: Unicorns founded across Europe

European tech, a sector whose time has come

Supported by governments, private capital is now available in Europe in large quantities, increasingly sourced from patient, supportive investors who understand the challenges of building world-leading technology companies. This has fostered a wave of European entrepreneurs able to grow their businesses and retain ownership, without needing to sell them to overseas companies to secure the capital they need to grow. With the maturing of the European market and with valuations remaining lower than in the US, the European investment opportunity is compelling, drawing in increasing amounts of US and international investment, alongside European capital.

However, this progress still remains difficult to see in the public markets. SaaS-based business models and digitalisation mean that start-ups are far more capital efficient than they have been in the past. When coupled with better access to private capital in Europe, companies have not needed to list in order to access the capital required to drive growth. This means that companies are able to stay private for longer, avoiding the cost, governance issues and short-termism that can be found on the public markets, allowing private company investors (and entrepreneurs) to retain far more of the value created by Europe’s successful start-ups.

Draper Esprit, together with its listed venture capital and private equity peers, provides an attractive way to access leading European technology companies and participate in the value they create through a diversified holding company, offering attractive liquidity to investors.

Tech valuations soared in 2020: Bessemer SaaS index

Over the course of 2020, technology valuations have followed a markedly different trajectory to many other traditional sectors. The COVID-19 pandemic has driven an acceleration of the digital economy as consumers and companies have all been forced to embrace new, online ways of working. This trend is particularly well captured by the performance of the BVP Nasdaq Emerging Cloud Index, an index of pure US SaaS (Software-as-a-Service) businesses (Exhibit 16).

Given the wide range of quoted SaaS stocks in the US and the paucity in the UK and Europe, it is necessary to look to the US to get a sense of where global SaaS valuations are heading. In the simplest terms, the SaaS index doubled over the course of 2020, reaching 2.7x (almost tripling from) its low point on 16 March 2020.

Exhibit 16: The BVP Nasdaq Emerging Cloud Index in 2020

Source: Nasdaq OMX (as at 1 February 2021)

More tech IPOs expected in 2021 while markets remain high

At the start of 2021, SaaS and technology valuations more generally remain elevated, with no obvious trigger for a large-scale revaluation of the sector. With a flurry of IPOs in H220, first in the US and then the UK, more technology IPOs are likely to follow in 2021 so long as market conditions persist. Market commentary around US IPOs includes Affirm (consumer lending fintech) and Roblox (online games), which delayed their listings in 2020, as well as Coinbase, which would make it the first cryptocurrency exchange to list, together with a range of other tech companies.

Before its US$750m Series F funding round in February 2021, Draper Esprit’s investee company UiPath (robotic process automation) had also confirmed it was considering a US IPO in H121. However, following this latest funding round (at a valuation of US$35bn, a more than 3x uplift over six months on the US$10.2bn valuation for its July 2020 funding round), the company has extended its cash runway, offering management increased flexibility to choose the optimal time to exit.

Among others, Deliveroo (consumer food delivery platform), Darktrace (AI for cybersecurity) and Trustpilot (Draper Esprit investee company – consumer reviews) are each widely reported to be considering a London listing, buoyed by the successful listing of the UK’s largest tech IPO, THG, in Q420, now valued at close to £8bn. Following its latest US$222m fund-raise in December 2020, Graphcore (Draper Esprit investee company – chip-based accelerators for AI and machine learning) is valued at US$2.8bn. The company has confirmed that it is considering an IPO but, having closed its latest funding round, now sees an IPO in 2021 as unlikely.

Risk factors

A summary of the principal risk factors relating to Draper Esprit is set out below:

Early-stage business risk: the early-stage nature of Draper Esprit’s portfolio businesses carries a high degree of risk, with Draper Esprit also exposed to risks related to non-controlling investments. Not all of the fund investments will achieve their hoped-for potential.

Reputation and deal flow: Draper Esprit is reliant on the reputation of its senior investment team (with over 100 years of combined experience), its strategic contacts and ecosystem to source appropriate deal flow and deliver the quality of investment opportunity to drive attractive investment returns.

Portfolio concentration: Draper Esprit holds a relatively concentrated portfolio of investments. Realisations and investor returns may be dominated by a limited number of investee companies.

Technology sector: the company is subject to risks associated with developments in the technology sector, including the cyclicality of valuations in the sector and the escalating trade war between China and the US, as well as other unforeseen future developments.

Valuation risk: Draper Esprit’s investments are difficult to value accurately, with valuation methodologies subject to significant subjectivity. There can be no assurance that the reported values of the company’s investments will be realised.

Liquidity events: exits are uncertain and difficult to predict and proceeds from trade sales/IPOs are likely to vary substantially from year to year, with the potential for liquidity events to slow if technology valuations fall.

COVID-19: although Draper Esprit’s portfolio has weathered the initial impact of COVID-19, a prolonged pandemic may have a further negative impact, in particular on business development, recruitment and investee company cash flows.

Financials

Net assets rose by 8.4% in H121 despite COVID-19

Exhibit 17: Reconciliation of portfolio value to carrying value

Fair value of investments
31 Mar 2020

Investments in H121

Realisations in H121

Draper Esprit
(Ireland)

Fair value
movement in H121

Fair value of investments
30 Sep 2020

Proportion of GPV

£m

£m

£m

£m

£m

%

Investments

Core portfolio

386.8

11.0

(2.5)

37.9

433.2

61.7%

Remaining portfolio

314.4

21.3

(103.1)

34.4

267.0

38.0%

Total

701.1

32.3

(105.6)

72.3

700.2

99.7%

Co-Invest assigned to plc

1.8

-

-

0.4

2.2

0.3%

Gross portfolio value

702.9

32.3

(105.6)

72.7

702.4

100.0%

Carry external

(40.6)

-

-

(10.8)

(51.4)

Portfolio deferred tax

(5.3)

-

-

(1.3)

(6.6)

Trading carry & co-invest

0.3

-

-

0.1

0.4

Draper Esprit (Ireland)

-

-

-

4.3

(4.3)

-

 

Net portfolio value

657.3

32.3

(105.6)

4.3

56.4

644.8

Source: Company accounts

Gross portfolio value (GPV) as at 30 September 2020 was £702.4m (FY20: £702.9m), with realisations made of £105.6m and investments of £32.3m, together with a fair value movement of £72.7m (including foreign exchange movement). The fair value of carry liabilities (H121: £51.4m) as well as deferred tax (£6.6m) is then netted off to generate the net investment value of £644.8m (FY20: £657.3m), held as a financial asset on the balance sheet. The portfolio net fair value gain (H121: £56.4m, FY20: £40.8m) is then reflected as revenue in the P&L.

The deferred tax provision (H121: £6.6m) relates to capital gains for portfolio companies where less than 5% of the equity is owned. Carry balances (H121: £51.4m) are accrued to management teams (including Draper Esprit employees) based on the GPV at period end. Carry was accrued at 14.9% of fair value gains in H121 and represented 7.3% of GPV at end H121 (FY20: 5.8%).

Net assets increased by £55.1m (8.4%) in H121 to £714.7m (FY20: £659.6m), principally reflecting the portfolio net fair value gain (H121: £56.4m).

H121 plc cash of £62m (rising to c £109m in January 2021)

Draper Esprit remains in a strong position to invest in technology businesses with £62.1m of plc cash at H121 period end, including £2.3m of restricted cash. In H121, the cash balance increased by £28.0m (FY20: £34.1m), primarily as a result of net realisations of £73.3m, less repayment of the revolving credit facility (RCF) of £45.0m. In June 2020, the group extended its three-year RCF with Silicon Valley Bank (SVB) and Investec by 12 months to June 2023 and increased the amount from £50m to £60m (undrawn as at period end).

Post period end, the group raised proceeds of £106.6m (net of fees) in a placing in October 2020 and subsequently deployed a further £56m by 31 December 2020. On this basis, allowing for c £3.7m of additional operating costs (assuming three months of operating costs at the same rate as H121: £7.3m), we estimate that Draper Esprit has total available plc funds of c £109m in January 2021, or c £169m including the undrawn RCF.

As at H121, the group had additional cash resources available of £39.2m from EIS/VCT investors.

Profit and loss: Net operating costs 0.2% of NAV

H121 investment income reflects £56.4m of portfolio net fair value gain (H120: £57.6m) and fee income of £6.1m (H120: £5.5m) from management and director fees. Central costs were £6.6m (H120: £5.0m), the majority of which relate to employee costs (H121: 33 employees). Management is targeting fee income (H121: £6.1m) less total operating costs (H121: £7.3m) to be below 1% of NAV (H121: 0.2% of NAV), but we expect the gap to more than close with the successful launch of Draper Esprit’s co-investment fund. The income tax charge remains minimal (H121: £0.2m).

Valuation

As an investment company, Draper Esprit’s financial performance centres around its balance sheet, the growth in fair value of its investment portfolio, the resultant growth in net assets and net asset value per share, and the cash resources available to the business to allow the group to continue to fund its portfolio companies to maturity and exit. With an illiquid portfolio of high-growth, early-stage private businesses, this presents a valuation challenge.

Uplift based on realisations, funding rounds and peer multiples

Growth in portfolio fair value is irregular and the timing of realisations and exits can be hard to predict. Given this variability, there is no easily defined revenue and profitability trend and so the business is typically valued at a premium or discount to NAV rather than on a profit multiple.

Consequently, the principal value driver for Draper Esprit is the increase in value of its investment portfolio. This in turn is driven by a combination of realisations (H121: Peak Games, which Draper Esprit exited at a premium to its carrying value), funding rounds involving third-party investors at higher values (H121: UiPath, Trustpilot, M-Files and Cazoo), as well as revenue growth in the underlying portfolio businesses, driving increased peer multiples-based valuations.

NAV a trailing indicator

With the group providing formal NAV valuations twice a year, these represent a trailing indicator to the ‘true’ value of the portfolio. This gap is widened by a substantial proportion of assets being held at the value of the last funding round, which will be further out of date.

Typically, where a funding round has been completed in the last 12 months, management uses this as the carrying value, but where there has been third-party funding invested and a material change of circumstances, or the last funding round is more than 12 months old, following IPEV guidelines, management applies a multiples-based valuation.

Updating the valuation from the basis of historical funding rounds arguably offers a better view of fair value, but still leaves NAV as a significantly trailing indicator for a high-growth portfolio. Whether the company trades at a discount or premium to NAV depends on critical factors such as: 1) the group’s NAV track record; 2) management credibility; 3) the perceived conservatism of carrying values; and 4) the prospect of attractive exits driving future outperformance.

Potential for a hybrid valuation approach in the future

Looking ahead, as Draper Esprit builds its third-party fee-earning funds business, it should increase fee income and start to generate positive underlying profitability, allowing investors to value the business on a hybrid NAV/earnings basis. We would expect the value of the fund management business to be incremental to NAV, based on a percentage of funds under management (FUM) or on a multiple of underlying earnings net of recurring central costs. This valuation upside is unlikely to be material at the outset (assuming the co-investment fund is launched in FY22), but value will increase, becoming material as the third-party fund management business scales.

Market waking up to private technology investment

Draper Esprit’s most direct competitors are private European VCs such as Accel Partners, Balderton Capital, Index Ventures, Northzone and Partech Partners. However, with few direct peers on the public markets, we would identify the companies in Exhibit 18 as Draper Esprit’s closest quoted comparables.

Exhibit 18: Quoted peer group

Price

Currency

Market cap (£m)

Last NAV reported (£m)

Net cash/
(debt) (£m)

NAV per share (p)

NAV premium/
discount

Draper Esprit

766.0

GBp

1,065

715

62

600

1.28

 

3i

1,172.5

GBp

11,410

9,236

(559)

936.0

1.25

Augmentum FinTech

140.0

GBp

197

167

36

118.9

1.18

Eurazeo

59.9

EUR

4,730

4,924

165

6,257

0.96

HgCapital

323.5

GBp

1,346

1,220

220

299.5

1.10

IP Group

101.8

GBp

1,081

1,156

171

108.8

0.94

Mercia Asset Management

25.3

GBp

110

142

30

32.1

0.78

Oakley Capital

294.0

GBp

531

728

223

403.0

0.73

TMT Investments

7.18

USD

154

106

34

363.9

1.44

VNV Global

110.8

SEK

1,053

589

(6)

743.8

1.79

Peer group mean

1.13

Peer group median

1.10

Source: Company accounts, Refinitiv. Note: Priced at 3 February 2021.

The peers can be placed into three groups:

Venture capital (Augmentum FinTech, TMT Investments and VNV Global): like Draper Esprit, these companies focus on fast-growing, early-stage technology businesses. However, each has a different strategy: Augmentum FinTech is LSE-listed and focuses purely on the UK and European fintech sector, TMT is AIM-listed and focuses on East European tech businesses, while VNV is listed on Nasdaq First North and invests in technology business across MENA and Russia. With the returns achievable from an emerging unicorn, VC funds have the potential to trade at a material premium to NAV based on a single such investment in their portfolio.

Private equity (3i, HgCapital and Oakley Capital): hold later-stage, profitable portfolio companies, allowing them to mark to market regularly and recognise fair value gains without a transaction or funding round taking place.

IP commercialisation (IP Group, Mercia Asset Management): IP commercialisation companies invest at an earlier stage than VCs (seed or even pre-seed), supporting management teams to take an academic research concept and commercialise it over an often 10-year+ time horizon. IP Group invests exclusively in university spin-outs in the UK, US and Australia, while Mercia has broadened its investment footprint to focus on UK regional investment (outside London), including third-party managed debt and private equity funds with its balance sheet venture capital fund.

IP commercialisation companies and VCs invest in earlier-stage businesses, which cannot easily be marked to market, meaning that group NAVs are typically based on the latest funding round, often a significantly trailing indicator. In contrast, later-stage private equity businesses can be valued more easily and more regularly by reference to market multiples.

The market prefers companies with a well-diversified, high-growth portfolio, a history of value realisation and exits, a consistent long-term track record and strong corporate governance. A premium is often applied where the company owns an income-generating asset management arm (eg 3i), whereas for eg HgCapital and VNV, the management vehicle is held separately from the investment vehicle.

Draper Esprit’s peer group includes:

3i: a private equity and infrastructure investor listed on the main market. In PE, 3i invests in companies with an EV of €100–500m in northern Europe, the UK and North America, focused around four sectors: business and technology services, consumer, healthcare and industrial. It also invests in infrastructure to generate income and capital returns, where it manages four European and one Indian infrastructure fund. The shares trade at a consistent premium to NAV.

Augmentum FinTech: a specialist early-stage VC focused on the fintech sector that listed on the main market in June 2019. It is typically a small minority investor in UK and European fintech opportunities. Augmentum completed a placing representing 20% of its existing equity in October 2020, raising gross proceeds of £27.5m. Given the cash demands of its portfolio, Augmentum may face dilution given the likely size of future follow-on rounds. The shares trade at a premium to NAV.

Eurazeo: a French-based global investment group (AUM of €18.8bn), which has invested in more than 430 companies. The group invests in private equity, real estate and private debt, with private equity c 70% of assets. Idinvest, a leading European VC, PE and venture debt provider, sits within private equity, representing c 32% of the €8bn funds under management. With the broader group highly exposed to real estate, the shares trade at a discount to NAV largely due to the impact of COVID-19.

HgCapital: a leading European private equity software and SaaS investor. It listed as an investment company structure in 2003; the fund manager remains private. It has a strong track record over 20 years and invests predominantly in the financial software space, supporting investee companies to make the transformation from a licence fee model to a recurring revenue SaaS model. Hg provides quarterly NAV benchmarks, when it marks to market a relatively mature PE portfolio. Reflecting its sector-leading performance over the past 20 years, its shares trade at a premium to NAV.

IP Group: a leading seed and Series A investor in university IP and spin-outs. From a UK base, it now includes Australian and US universities. It listed the fund management company in 2003. The group focuses on clean tech, technology and life sciences investment, with a number of subsidiaries exited and listed. IP Group also acquired a competitor, Touchstone Innovations, in 2017 and includes an EIS fund, Parkwalk. After a period of reorganisation, the shares trade at a discount to NAV.

Mercia Asset Management: a leading investor in early-stage, UK regional investments that listed its fund management company in December 2014. The group focuses on engineering, technology and life sciences investment. It generates substantial fees from its third-party fund management business (debt and equity), as well as investing from its own balance sheet, and is now operationally profitable. The shares trade at a discount to NAV.

Oakley Capital: a European private equity group focused on owner-managed businesses. It listed on AIM in 2007 before moving to the main market in 2019; the fund manager remains private. The company invests in consumer, education and the TMT sectors and has made a number of attractive exits. Despite a strong performance, the shares trade at a discount to NAV, potentially reflecting concerns over portfolio performance under lockdown (its largest holding is Time Out) and investor perceptions of the size of Oakley’s future fund commitments.

TMT Investments: a niche AIM-listed investor in high-growth East European consumer and technology companies looking to internationalise its businesses. Founded in 2010 and listed shortly thereafter, in 2011, TMT has invested in over 60 companies to date. The shares trade at a premium to NAV, reflecting investor expectations for Backblaze (cloud storage) and Bolt (ride-hailing), the company’s two largest holdings, together with a strong NAV growth record and recent exits. The company is tightly held with a narrow free float.

VNV Global: VNV is listed on Nasdaq Stockholm and is focused on high-growth, tech-enabled businesses that benefit from network effects, including mobility, marketplaces, online classifieds and digital health. VNV invests in both emerging and developed markets across MENA and Russia. Its portfolio includes Babylon Health, BlaBlaCar, Property Finder, SWVL and VOI Technology. The shares trade at a premium to NAV, largely due to investor enthusiasm for Babylon Health, an early-stage digital healthcare company, developing a smartphone app, GP at Hand, for the NHS. VNV invested US35m in a bridging round in December 2020.

Exhibit 19: Financial summary

£'000s

2017

2018

2019

2020

Year end 31 March

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Change in unrealised gains on investments

35,744

66,603

114,715

40,755

Fee income

1,673

7,163

6,101

11,255

Revenue

 

 

37,417

73,766

120,816

52,010

Cost of Sales

-

-

-

-

Gross Profit

37,417

73,766

120,816

52,010

Operating costs

(3,724)

(5,842)

(7,835)

(10,228)

Investment and acquisition costs

-

(424)

(207)

(239)

Normalised operating profit

 

 

33,585

67,397

112,672

41,441

Amortisation of acquired intangibles

-

-

-

-

Exceptionals

-

(229)

(34)

-

Share-based payments

(4,551)

(4,896)

(3,089)

(990)

Reported operating profit

29,034

62,272

109,549

40,451

Net Interest

-

112

120

(1,302)

One-off items (incl FX)

221

(1,530)

1,481

1,234

Profit Before Tax (norm)

 

 

33,806

65,979

114,273

41,373

Profit Before Tax (reported)

 

 

29,255

60,854

111,150

40,383

Reported tax

(438)

43

11

(17)

Profit After Tax (norm)

34,309

65,931

114,262

41,390

Profit After Tax (reported)

28,817

60,897

111,161

40,366

Minority interests

(330)

(3,131)

(582)

(659)

Discontinued operations

-

-

-

-

Net income (normalised)

33,979

62,800

113,680

40,731

Net income (reported)

28,487

57,766

110,579

39,707

Basic average number of shares outstanding (m)

32

65

96

118

EPS - basic normalised (p)

 

 

105.43

96.60

118.35

34.51

EPS - diluted normalised (p)

 

 

103.78

95.86

113.62

33.67

EPS - basic reported (p)

 

 

88.39

88.86

115.13

33.65

Dividend (p)

-

-

-

-

Revenue growth (%)

97.1

63.8

(57.0)

Gross Margin (%)

100.0

100.0

100.0

100.0

Normalised Operating Margin

89.8

91.4

93.3

79.7

BALANCE SHEET

Fixed Assets

 

 

116,716

242,629

572,658

669,379

Intangible Assets

10,335

10,232

10,130

10,028

Tangible Assets

152

229

209

1,760

Investments

105,971

231,910

562,061

657,333

Investments in Associates

258

258

258

258

Current Assets

 

 

25,419

61,481

51,498

41,857

Stocks

-

-

-

-

Debtors

527

4,840

1,140

7,719

Cash & equivalents

24,892

56,641

50,358

32,255

Restricted cash

-

-

-

1,883

Current Liabilities

 

 

(1,548)

(2,948)

(4,959)

(5,396)

Creditors

(1,548)

(2,948)

(4,959)

(5,038)

Tax and social security

-

-

-

-

Lease liabilities

-

-

-

(358)

Short term borrowings

-

-

-

-

Other (including deferred consideration)

-

-

-

-

Long Term Liabilities

 

 

(716)

(651)

(631)

(46,222)

Long term borrowings

-

-

-

(44,636)

Lease liabilities

-

-

-

(975)

Other long-term liabilities

(716)

(651)

(631)

(611)

Net Assets

 

 

139,871

300,511

618,566

659,618

Minority interests

104

2,792

234

-

Shareholders' equity

 

 

139,767

297,719

618,332

659,618

CASH FLOW

Op Cash Flow before WC and tax

33,712

67,557

112,835

41,961

Revaluation of investments held at fair value through P&L

(35,744)

(66,603)

(114,715)

(40,755)

Working capital

(42,306)

(62,249)

(212,927)

(61,750)

Exceptional & other

(438)

(74)

97

(17)

Tax

28

(107)

(32)

(3)

Net operating cash flow

 

 

(44,748)

(61,476)

(214,742)

(60,564)

Capex

(166)

(155)

(58)

-

Acquisitions/disposals

-

-

-

-

Net interest

-

112

120

289

Equity financing

69,665

95,198

207,616

581

Dividends

-

-

-

-

Other

-

(49)

-

(368)

Net Cash Flow

24,751

33,630

(7,064)

(60,062)

Opening net debt/(cash)

 

 

0

(24,892)

(56,641)

(50,358)

FX

221

(1,530)

1,481

1,234

Other non-cash movements

(80)

(351)

(700)

(3,911)

Closing net debt/(cash)

 

 

(24,892)

(56,641)

(50,358)

12,381

Closing net debt/(cash) (inc restricted cash)

 

(24,892)

(56,641)

(50,358)

10,498

Source: Company accounts, Edison Investment Research

Contact details

Revenue by geography

20 Garrick Street,
London, WC2E 9BT
United Kingdom
+44 20 7931 8800
www.draperesprit.com

Contact details

20 Garrick Street,
London, WC2E 9BT
United Kingdom
+44 20 7931 8800
www.draperesprit.com

Revenue by geography

Management team

Chair: Karen Slatford

CEO: Martin Davis

Karen is a non-executive director of AIM-quoted Accesso Technology Group and Softcat, a FTSE 250 IT infrastructure provider, and senior independent non-executive director of LSE and NYSE listed Micro Focus. Karen began her career at ICL before spending 20 years at Hewlett-Packard Company, where in 2000 she became vice president and general manager worldwide sales & marketing for the business customer organisation, responsible for sales of all Hewlett-Packard products, services and software to business customers globally. Karen holds a BA Honours degree in European Studies from Bath University and a Diploma in Marketing.

Martin was appointed CEO of Draper Esprit in November 2019. Martin was appointed as CEO of Draper Esprit in November 2019. He has more than 20 years of experience in financial services and joined Draper from Aegon Asset Management where he was the Head of Europe, Aegon Asset Management & CEO Kames Capital. Before Aegon Asset Management, Martin served as CEO at Cofunds, spent eight years at Zurich Insurance Group, and was also CEO of Zurich’s joint venture, Openwork, the largest network of financial advice firms in the UK. Prior to this, Martin held senior management roles at Misys, Corillian, and Reuters. Martin also served for 11 years in the British Army. Martin has an MBA from London City Business School and Diplomas from the Institute of Marketing and the Market Research Society.

CFO: Ben Wilkinson

COO: Stuart Chapman

Ben was appointed to the board on 4 June 2019, having joined the group as CFO in 2016. In addition to his responsibilities for the group’s finance and investor relations functions, Ben serves as a member of the Investment Committee. Ben has led on recent equity and debt raises totalling over £350m. Ben is an experienced leader of public company finance teams having previously served for five years as CFO of AIM-listed President Energy, where he was responsible for all financial aspects of the group. During his time at President, Ben was a key part of the board that undertook investments into Argentina and Paraguay and raised US$175m across several equity issuances with shareholders such as IFC/World Bank and significant UK institutional investors. Ben is a Chartered Accountant, FCA, with a background in M&A investment banking from ABN Amro/RBS where he was involved with multiple cross border transactions and corporate financings, both debt and equity. Ben is a graduate of Royal Holloway, University of London with a BSc in Economics.

Prior to co-founding the group in 2006, Stuart was a director of 3i Ventures in London. Having joined 3i in 1992, he has over 25 years’ venture capital experience in Europe and the US. He was a founding partner of 3i US, based in Menlo Park, CA from 1999 until 2003. Stuart was responsible for Esprit’s investments in Lagan Technology (sold to Verint), Redkite (sold to Nice) and Kiadis (IPO). Stuart serves as a director with Netronome, DisplayData, Resolver, Realeyes, Crate and Conversocial; and as observer with Graphcore. Prior to 3i, Stuart was involved in software and systems implementations for Midland Bank. He is a graduate of Loughborough University and currently serves on the Strategic Advisory Board for the Loughborough School of Business and Economics.

Management team

Principal shareholders

(%)

National Treasury Management Agency

10.07

Baillie Gifford & Co

9.67

T Rowe Price International

8.01

Canaccord Genuity Wealth Management

6.02

Jupiter Asset Management

5.28

British Business Investments

5.14

Schroders

5.10

Armor Advisors, LLC

4.52

Swedbank Robur Fonder AB

4.15

BlackRock Advisors (UK)

3.73


Appendix

Exhibit 20: Value progression of Draper Esprit’s core portfolio in H121

Source: Draper Esprit (30 September 2020)

Summary of key portfolio companies

1. Trustpilot (Series E) – online global review site

H121: £29.7m invested, £80.9m peer-based valuation, 2.7x cash/NAV.

Market commentary suggests that Trustpilot is considering a London IPO in 2021, with a mooted target valuation of US$1bn. Trustpilot reported US$81.9m in 2019 revenues (up 27% on 2018) according to its latest annual report.

Trustpilot raised US$55m in a Series E round in March 2019, with the investment led by Sunley House, a subsidiary of Advent International. Existing shareholders Vitruvian Partners, Draper Esprit, Index Ventures and Northzone participated.

The online global review site has tracked over 100m reviews of over 400,000 companies since it launched in 2007. With offices in Copenhagen, London, New York, Denver, Berlin, Melbourne and Vilnius, Trustpilot's 750 employees represent more than 40 different nationalities.

2. Graphcore (Series E) – fabless semiconductor company

H121: £13.7m invested, £80.5m valuation based on last investment round, 5.9x cash/NAV.

Following Draper Esprit’s H121 results, Graphcore has raised an additional US$222m in a Series E funding round in December 2020 that valued the company at US$2.77bn post-money. The round was led by the Ontario Teachers’ Pension Plan Board, with Fidelity and Schroders as new investors, supported by existing investors including Baillie Gifford and Draper Esprit. The new investment will be used to support the company’s continued global expansion and to further accelerate future IPU silicon, systems and software development. The investment brings total funds raised to more than US$710m, with the company expecting to have cash of over US$440m post-closing to support future growth. Following its Series E raise, the company has stated that an IPO in 2021 is unlikely.

Graphcore, a machine intelligence semiconductor company, develops IPUs (intelligent processing units) that enable unprecedented levels of compute. In July 2020 it launched a new chip, the GC200, and a new IPU Machine that runs on it, the M2000, which Graphcore says is the first AI computer to achieve a petaflop (1,000 teraflops, or 1015 FLOPS – floating-point operations per second) of processing power ‘in the size of a pizza box’.

The company has offices in Bristol, London, Cambridge, Palo Alto, Oslo, Beijing, Hsinchu, Seoul, New York, Seattle and Austin, and continues to scale globally, increasing to over 450 employees from its previously reported 200+ employees.

3. UiPath (Series E) – robotic process automation

H121: £10.3m invested, £36.7m valuation based on last investment round, 3.5x cash/NAV.

Following Draper Esprit’s H121 results, UiPath announced an additional US$750m Series F funding round in February 2021 that valued the company at US$35bn post-money. The round was co-led by Alkeon Capital and Coatue Management, with other existing investors participating including Altimeter Capital, Dragoneer, IVP, Sequoia Capital, Tiger Global, as well as funds advised by T Rowe Price Associates. Draper Esprit did not participate.

Before its latest raise, UiPath had confirmed it was considering a US IPO in H121, announcing the submission of a draft registration statement for a proposed public offering to the SEC.

As one of the fastest-growing enterprise software companies worldwide, with US$500m of ARR, the company was valued at US$35bn in February 2021, a more than 3x increase on its valuation of US$10.2bn in a US$225m funding round in July 2020, up from US$7bn in its previous round in April 2019. Having been founded in 2005, the latest funding rounds means the company has raised nearly US$2bn since 2015.

UiPath raised US$225m in a Series E round in July 2020, led by hedge fund Alkeon Capital, with participation from venture capital firm Accel, Sequoia Capital, Coatue Management, Tiger Global Management, Tencent Holdings, Draper Esprit and others. It has now raised more than US$1.2bn to date.

4. RavenPack (Series B) – big data analytics

H121: £7.5m invested, £31.9m valuation based on last investment round, 4.3x cash/NAV.

RavenPack is a leading big data analytics provider for the financial services sector, with products that allow clients to enhance returns, reduce risk and increase efficiency by systematically incorporating the effects of public information in their models or workflows. Clients include some of the most successful global hedge funds, banks and asset managers.

In October 2019, the business raised a US$10m Series B round from GP Bullhound, a technology advisory and investment firm. The funds were to expand the company’s presence in Asia, establishing an office in Sydney and also to diversify its product offering to better serve corporate customers.

RavenPack has announced partnerships with both Wall Street Horizon, a leading provider of market-moving corporate event data, and Cosaic, a leader in the field of interactive visualisation tools.

5. M-Files (Series C) – intelligent information management

H121: £5.0m invested, £27.0m valuation based on peers, 5.3x cash/NAV.

Since its H121 results, M-Files has raised a further US$80m with a Series C funding round in January 2021, led by Bregal Milestone and including Partech, Tesi and Draper Esprit. This brings the total money raised by M-Files, launched in 2012, to US$127m. M-Files previously raised US$36.8m, in its latest Series B round in March 2016. The company had also secured a venture debt facility in December 2019 to accelerate its SaaS transition. In 2019 M-Files revenues exceeded €60m, with ARR growth at 40%.

M-Files, which has headquarters in Finland and Texas, provides an intelligent information management platform that organises customers’ content with the ability to connect to existing network folders and systems to enhance them with the help of AI to categorise and protect information.

The company has international strategic partnerships with Iron Mountain, Fulton Hogan, Devoteam Management Consulting Denmark, and Fuji Xerox Asia Pacific.

6. Aircall (Series C) – cloud-based call centre system

H121: £10.7m invested, £23.3m valuation based on last investment round, 2.2x cash/NAV.

Aircall raised US$65m in a Series C funding round in May 2020, led by DTCP with participation from new investors Swisscom and Adam Street. Existing investors including Draper Esprit, eFounders, Balderton Capital and NextWorld participated in the round.

The funding round brings the company’s total funding to date to US$106m, with funds raised to be used to expand development and sales teams, as well as opening a new office in Australia.

Aircall is a cloud-based call centre system, with offices in Paris and New York. It has more than 300 employees, is available in over 80 countries, with 60,000 users worldwide.

New customers include food delivery start-up Door Dash.

7. Revolut (Series D) – challenger bank

H121: £7.4m invested, £21.9m valuation based on last investment round, 2.9x cash/NAV.

Revolut raised US$580m in 2020 at a valuation of US$5.5bn, taking total funds raised to over US$900m, making it the UK’s most valuable tech start-up. The round was led by US fund Technology Crossover Venture (TCV).

In September 2020, Revolut reached its third anniversary with 500k business customers since its launch in 2017. It currently has over 12m personal customers, is supported in 35 countries and has over 30 in-app currencies.

In February 2020, Revolut raised a US$500m Series D round led by TCV, which was subsequently topped up in July by a further US$80m by TSG Consumer Partners. Funding enabled the company to build new products, grow into new markets, enhance its existing product suite for users, and further develop operational infrastructure.

It launched Revolut Jr. for under 17s to help teach financial literacy and money management to children and delivered several accounting software integrations on Revolut Business.

It introduced SEPA Instant Euro Transfer on Revolut Business, and launched in Australia and Japan.

8. Smava (Series E) – online consumer lending platform

H121: £14.5m invested, £18.7m valuation based on peers, 1.3x cash/NAV.

In May 2020, Smava secured €57m in financing with debt from Kreos Capital, along with equity from existing investors Earlybird, Verdane, Vitruvian Partners and Runa Capital.

In total, Smava has received over US$200m of funding since it was launched in 2007, from investors including Verdane Capital, Runa Capital and Earlybird.

Smava, an online lending platform, provides easy access to consumer loans from more than 25 banks. It is the largest specialised loan marketplace in Germany, providing access to over €3bn a year in loans.

The platform offers an overview of 70 loans between €1,000 and €120,000 from over 20 banks and lending partners, allowing consumers select the loan that suits them and take it out directly.

On average, Smava borrowers pay about 35% less interest than the German national average.

In H121, Smava announced a new partnership with Commerzbank.

9. Perkbox (Series C) – employee benefits platform

H121: £14.0m invested, £18.6m valuation based on peer multiples, 1.3x cash/NAV.

Perkbox raised a £13.5m Series C funding round in April 2019. The round was led by existing investor Draper Esprit, alongside VentureFounders and previous angels. Prior to this, the company, which launched in 2015, had raised £11m.

Perkbox is an employee wellbeing platform that provides a unique employee experience, enriching the personal and working life of employees. It offers a suite of products including a platform with access to best-in-class perks, recognition, insights and medical products.

In H121, Perkbox secured new partnerships with Action Aid, Dakota Hotel, Igloo Energy and Landmark, while existing partners Gymshark and Krispy Kreme have enhanced their benefits.

10. Ledger (Series B) – blockchain and crypto security

H121: £17.7m invested, £17.7m valuation based on peer multiples, 1.0x cash/NAV.

Ledger, a cryptocurrency and blockchain hardware security wallet, has raised a total of US$88m in funding over seven rounds. The latest funding was raised in April 2019. Ledger is funded by 26 investors, with Samsung Ventures and GDTRE among the most recent investors.

Ledger successfully launched the Nano X product and Ledger live companion software. The Nano X received CSPN (First Level Security Certificate) certification issued by the French National Agency for Information Systems Security (ANSSI).

Ledger is committed to further partnerships like its ones with Engie and Nomura.

Ledger has launched new capability allowing for crypto assets to be secured, bought, managed and exchanged directly through Ledger Live via its partner Changelly. It announced support for Algorand (ALGO) and Algorand Standard Assets (ASA) in its software application Ledger Live, bringing the total amount of supported coins to 27 and more than 1,500 tokens.

The company now has 200 employees working in its Paris, New York, Hong Kong and Vierzon bases.

11. Cazoo (Series D) – used car sales platform

H121: £10.0m invested, £17.5m valuation based on last investment round, 1.7x cash/NAV.

In June 2020, Draper Esprit invested in Cazoo, a British digital used car marketplace, participating in the company’s £25m Series C round. The group then invested in its £240m Series D round in October 2020, led by General Catalyst, D1 Capital and funds managed by Fidelity and Blackrock. Other investors included L Catterton, Durable Capital Partners, The Spruce House Partnership, Novator, Mubadala Capital and dmg ventures.

Draper Esprit initially invested in Cazoo as part of Draper Esprit’s fund of funds investment programme via Stride Capital, which backed Cazoo in November 2018.

The latest funding comes only six months after the company raised US$116m, valuing the company at over £2bn (or over US$2.5bn), double its previous valuation. The company has now raised total equity capital of £450m (US$582m).

Cazoo is one the UK's fastest-growing digital businesses and leading online car retailers, allowing customers to research and purchase cars online. It was launched in 2018 by founder Alex Chesterman (founder of LoveFilm and Zoopla) and operates from six locations across the UK with three more opening shortly.

It has a team of over 700 employees and growing, and appointed Fern Wake as COO and Stephen Morana as CFO in June 2020.

12. Thought Machine (Series B) – core banking infrastructure

H121: £16.5m invested, £17.4m valuation based on last investment round, 1.1x cash/NAV.

Thought Machine offers cloud native core banking infrastructure to both incumbent and challenger banks, with a team of more than 400 people across offices in London and Singapore.

Thought Machine completed a US$83m Series B funding round led by Draper Esprit and joined by Lloyds Banking Group, IQ Capital, Backed and Playfair Capital. In July 2020 it extended the Series B round to US$125m; the US$42m extension was led by Eurazeo. British Patient Capital and SEB joined the round as new investors.

Thought Machine has raised more than £110m in funding from Eurazeo Growth, Draper Esprit, SEB, British Patient Capital, IQ Capital, Playfair Capital, Lloyds Banking Group and Backed.

Former HSBC Group COO Andy Maguire joined as new chairman in September 2020.

Thought Machine’s platform, The Vault, now runs on every major cloud infrastructure provider including Google Cloud Platform, Amazon Web Services, Microsoft Azure and IBM Cloud and can be deployed on either the bank’s choice of cloud provider, on premise, in a hybrid cloud using Red Hat OpenShift, or as a SaaS product.

Monese and Curve announced they will be adopting Thought Machine's platform.

13. SportPursuit (Series C) – sport-specific flash sales

H121: £5.6m invested, £14.3m valuation based on peers, 2.5x cash/NAV.

SportPursuit raised £9.5m in Series C funding in November 2015. Investors included Scottish Equity Partners (SEP), Grafton Capital and existing backer Draper Esprit. The company has raised total funding of c £16m since launching in 2012.

SportPursuit is a membership-based e-commerce business that uses data to inspire consumers to purchase products from sports and outdoor brands at competitive prices in a premium, content-rich, personalised environment.

Sales are focused on outdoor, running, snow sports, triathlon, cycling, and health and wellbeing and it works with over 1,000 top sport and outdoor brands. The business has also built a portfolio of high-quality, owned brands.

Data is used to recruit new customers to deliver one to one personalised content to its audience.

The proprietary technology platform uses sophisticated algorithms and AI to target customers, delivering market leading retention rates and combined loan-to-value/customer acquisition cost.

SportPursuit continues its partnership with Size of Wales, which works with the Welsh government, partners in Uganda and experts in Wales to deliver tree planting programs in Uganda and Kenya. In the last year, SportPursuit has funded the planting of 100,000 trees.

14. ICEYE (Series C) – radar imaging satellites

H121: £7.5m invested, £14.0m valuation based on last investment round, 1.9x cash/NAV.

ICEYE raised a US$87m Series C in September 2020 with participation from return investors True Ventures, OTB Ventures, Finnish Industry Investment (Tesi), Draper Esprit, DNX Ventures, Draper Associates, Seraphim Capital, Promus Ventures and Space Angels, New Space Capital and Luxembourg Future Fund.

ICEYE is a commercial radar imaging satellite company that provides imaging services, designed to deliver frequent coverage around the clock, to help clients resolve challenges in sectors such as maritime, disaster management, insurance and finance.

It has successfully launched five satellite missions, starting with the first ever small SAR satellite launched in January 2018. ICEYE plans to launch four more SAR satellites in 2020 with at least an additional eight in 2021.

ICEYE provides radar imaging data from its commercial SAR satellite constellation to the International Charter on Space and Major Disasters for use in monitoring and response activities.

ICEYE intends to use its latest financing round to continue accelerating the growth of its SAR satellite constellation, increasing data availability for all continents through 24/7 customer operations, continuing the development of ground-breaking radar imaging capabilities and for establishing manufacturing capabilities in the US.

15. Aiven (Series B) – data infrastructure management

H121: £5.0m invested, £12.8m valuation based on last investment round, 2.6x cash/NAV.

Aiven raised US$40m in funding in a Series B round in February 2020, led by IVP, including Earlybird VC, Lifeline Ventures, as well as family offices of Risto Siilasmaa, chairman of Nokia, and Olivier Pomel, founder of Datadog. The company has now raised total funds of US$50m.

Aiven is a data infrastructure management platform that allows developers to focus on application building while the platform manages open-source databases and messaging systems for business clients on all major cloud platforms.

It operates with eight open-source products, six cloud platforms and covers 87 regions, with headquarters in Boston, Berlin, Sydney and Helsinki.

It released Kafka MirrorMaker2 as a standalone service, enabling enterprises to access the Apache Kafka ecosystem more easily.

In July it announced the launch of Karapace, an open-source tool that serves as a drop-in replacement for Confluent’s Kafka REST and Schema Registry.

In H121, Aiven hired a VP of marketing and a VP of sales EMEA to lead its global expansion.

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This report has been commissioned by Draper Esprit and prepared and issued by Edison, in consideration of a fee payable by Draper Esprit. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. Draper Esprit never take payment in stock, options or warrants for any of Draper Esprit’s services. The research analyst primarily responsible for the preparation of this report personally holds an equity position in the company of less than 1%.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however Draper Esprit do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that Draper Esprit provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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