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Two tech exits and new funds being raised

Bloc Ventures 15 December 2021 Update
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Bloc Ventures

Two tech exits and new funds being raised

15 December 2021

Portfolio companies

AccelerComm – wireless channel coding

Crypta Labs – quantum encryption

Mindtrace – artificial intelligence

Paytia – cloud-based payment compliance

Pharrowtech – fixed wireless access

Shield-IoT – internet of things

Tether Technology – cloud video security

YellowDog – multi-cloud computing

Yordex – enterprise spend management

Zeetta Networks – software defined networks

Business description

Bloc Ventures is a London-based venture capital company active in the deep tech segments of the UK and European market, focused primarily on cloud, data science, connectivity and security for telecoms and computing applications. Bloc has built a portfolio of 10 investee companies.

Next events

FY21 shareholder update

Q121

Analysts

Richard Williamson

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

Bloc Ventures is a research client of Edison Investment Research Limited

Since we initiated in September, Bloc has exited two portfolio companies at a premium to holding value, Marmalade (a games developer, sold to LDC for a 4.8x cash return) and EVRYTHNG (an internet of things, IoT, data and real-time insights platform), acquired for an undisclosed price. Bloc has also made a new investment, Shield-IoT (large-scale IoT network security), taking its portfolio to 10 companies. Bloc has strengthened its team and governance with new hires and is actively raising a Series C funding round, as well as an early-stage investment fund (deeptech_one), for which discussions are ongoing with a potential cornerstone investor. Bloc’s later-stage funding options may include an IPO in 2023.

H121 results: Leading to H221 exits

Bloc reported H121 net asset value (NAV) per share of £23.65, up 39% year-on-year but largely unchanged from H220. This included an up-round for Yordex and further investments in Zeetta and Tether Technology, as well as an initial investment in Mindtrace. Bloc held cash of £1.9m at 30 June 2021. However, this amount has been supplemented by the £9.3m initial cash consideration from the sale of Marmalade announced in September 2021. Since our initiation, Bloc has exited its first two portfolio companies, Marmalade and EVRYTHNG, at a premium to holding value and completed a new investment in Shield-IoT (see pages 3–4 for details).

Raising a Series C round and an early-stage fund

Bloc has commenced a Series C funding round to allow the company to continue to make two to four investments per year over 2022–23. Bloc is also looking to raise an investment fund (deeptech_one), targeting attractive early-stage UK deep tech companies at seed and seed+ stages, as part of a multi-stage investment strategy. Bloc’s balance sheet will then provide the growth capital at Series A and beyond, with the Series C funding to ensure that Bloc can continue to invest in promising UK and European companies for longer, retaining meaningful equity stakes.

Increased investment capacity

The realisations of investments in Marmalade and EVRYTHNG has delivered new capital for Bloc to invest in its portfolio. A number of Bloc’s portfolio companies are expected to raise Series A/B funding rounds in the first half of 2022. Together with the anticipated Series C funding round and the early-stage fund (deeptech_one), this will significantly increase Bloc's investment capacity next year, moving the company a step closer to a potential IPO or Series D funding round in 2023.

Valuation: High-growth and maturing portfolio

Bloc can already point to a strong track record, with 39% growth y-o-y in NAV per share in H121, offering attractive potential returns as Bloc targets an annual return of 20%+, underpinned by strong secular and technology sector trends. Bloc offers a clear sector focus, a structured investment process and an early-stage portfolio with high growth potential, with the strong performance of UK and European private technology companies and the growing maturity of the sector, increasingly drawing in overseas capital and heightening competition for quality companies.

Bloc Ventures: Visual snapshot

Exhibit 1: Bloc’s current portfolio

Source: Bloc Ventures

Exhibit 2: H121 portfolio by value invested

Exhibit 3: H121 portfolio book value

Source: Bloc Ventures

Source: Bloc Ventures

Exhibit 4: Year-on-year growth in NAV per share

Source: Bloc Ventures


Strengthened management team and governance

As at publication, Bloc’s team has grown to 10 full-time employees, with the appointments of David Pollington as head of research, Richard Yates as finance manager replacing the outgoing CFO, Andrew Griffin, and Max Neuberger joining as general counsel.

David Pollington, head of research: David leads research as part of the deal flow activities to identify new technology areas of interest and support decision making on investment opportunities in the pipeline. Previously, he was senior technical director at the GSM Association, an industry organisation that represents the interests of mobile network operators worldwide. He holds a Master’s in electronic and electrical engineering from Imperial College. The research function is overseen by CTO and co-founder David Leftley, who worked with David Pollington at Vodafone. 

Richard Yates, finance manager: as an ex-colleague at the VC-funded SaaS business Condeco Group, Andrew Griffin introduced Richard Yates to take over the finance role at Bloc before Andrew’s departure. Richard previously worked as financial controller at MBU Capital, a private equity firm, meaning he has experience of both growth and regulated investment companies. He is a graduate of the University of South Africa in Pretoria and the University of Cape Town, and is a chartered accountant.

Max Neuberger, general counsel: Max joins Bloc from the Virgin Group, where he worked across the group's portfolio of assets, from large corporate transactions to participating in venture and growth capital investments. Max qualified as a solicitor in the corporate division of Herbert Smith Freehills, where he worked for five years, providing advice on public and private M&A and company law matters. Max has an economics and management degree from Oxford University.

In addition to the management team changes, Andy Green and Sue Prevezer have been appointed to the board as Bloc’s first independent non-executive directors, strengthening Bloc’s governance and adding further public market director experience. Andy Green CBE (senior independent director) spent 22 years in leadership roles at BT, including as a board member, as well as four years as CEO of Logica and five years as a non-executive director (NED) at ARM. Sue Prevezer QC (independent NED) has over 25 years’ commercial and arbitration legal experience, sitting as a deputy high court judge in the Chancery division of the High Court. She is also a NED at S4 Capital.

Portfolio update

After its first significant investment in 2015, when it opportunistically bought a stake in Marmalade, Bloc has since taken stakes in a further 11 companies, largely in the B2B deep tech sector, with four in 2017, two in 2018, two in 2019, one in 2020 and two (to date) in 2021.

Since we initiated in September 2021, Bloc exited two portfolio companies in Q421 at a premium to holding value: Marmalade (a games developer, sold to LDC for a 4.8x cash return, with Bloc retaining a residual 5% non-dilutive equity stake); and EVRYTHNG (an IoT data and real-time insights platform. We do not yet have full details on the transaction, however, as stated in Digimarc’s Q321 financial results call, EVRYTHNG’s purchase price is set at US$50m upfront in Digimarc equity, with an additional second tranche of up to US$50m in equity payable in September 2022, based on EVRYTHNG delivering annual recurring revenue of US$10m+ by February 2022, together with other conditions.

Exhibit 5: Marmalade: Bloc’s first realisation

£m

Segment

Stage

Initial investment

Cost

Book value Dec-20

FX

Book value Jun-21

Total return*

ROI

Marmalade

Mobile games

Series-B

Jun-15

3.3

13.8

-

13.8

15.7

4.8x

Source: Bloc Ventures. Note: *Includes cash returns and interest.

Bloc has also made a new investment in Shield-IoT. Israel-based Shield-IoT, a leader in large-scale IoT and industrial IoT (IIoT) network cyber security and operational monitoring, has raised US$7.4m in Series A funding. Bloc and NextLeap Ventures co-led the round, with the participation of Atlas Ventures, Akamai Technologies, Springtide Ventures, DIVEdigital and Janvest Capital Partners.

Founded in 2017, Shield-IoT addresses the proliferation of IoT cyber threats to devices, data, critical services and infrastructure, allowing brands to monitor and secure mass-scale B2B IoT and IIoT networks, reduce operational costs and offer value-added services.

In addition to Bloc’s investments and realisations, we would highlight one further operational development of particular note. YellowDog has been working with Amazon Web Services, using its platform to provision millions of cores, to build one of the world’s largest virtual supercomputers.

On behalf of biotech firm OMass Therapeutics, YellowDog spun up 3.2m virtual CPUs (vCPUs) to analyse and screen 337m compounds across data centres in North America and Europe. The run had 1m vCPUs working within seven minutes, 2m within 11 minutes and 3.2m within 33 minutes. The result allowed OMass Therapeutics to analyse compounds in seven hours that would have taken two months on the company's on-premise supercomputer.

This is a landmark capability statement for Yellowdog, which was recently recognised as ‘Multi Cloud Solution of the Year’ at the Computing.co.uk Cloud Excellence Awards 2021.

Launching its multi-stage investment strategy

Bloc is looking to raise an investment fund (deeptech_one) to back early-stage UK deep tech companies, investing at seed and seed+ stages, as part of a multi-stage investment strategy. Bloc’s balance sheet will then provide the growth capital at Series A and beyond to ensure the group can continue to invest in promising companies for longer, while retaining a meaningful equity stake in the companies it has backed.

Exhibit 6: Rationale behind Bloc’s multi-stage investment strategy

Source: Bloc Ventures

Exhibit 7: Differentiated but complementary funds

 

deeptech_one investment fund

Bloc B/S, supported by the Series C funding round

Entry point

Seed or Seed +

Series A

Deal volume

10 per year

2–4 investments per year

Initial investment

£0.35–3.0m

£1.0–5.0m

Target equity ownership

20%

20%+

Expected average life-time investment

£3.25m

£10m

Source: Bloc Ventures

This strategy offers different propositions to potential investors across the early-stage deep tech spectrum, allowing investors to choose their preferred investment profile and structure. It is also worth noting that deep tech is increasingly seen as a strategic resource that the UK government wants to support, attracting non-dilutive government funding from, for example, Innovate UK, Future Fund and the British Business Bank.

Alongside ongoing portfolio investment, Bloc has begun its Series C funding round to enable it to continue to invest in existing portfolio companies and allow for new UK and European deep tech investments over 2022–23. Together with deeptech_one, the Series C fund raise is a key step on Bloc’s journey to achieving a £1bn valuation, as part of a multi-stage investment strategy (Exhibit 8).

Exhibit 8: Journey for the £1bn Bloc

Source: Bloc Ventures

Bloc is a specialist in UK and European deep tech, focused primarily on cloud, connectivity, data science and security for telecoms and computing applications. As an early-stage investment company, the key metrics to consider when assessing Bloc are NAV per share, cash available for investment and portfolio progress against milestones (including funding rounds and realisations) as an indicator of future appreciation in NAV per share.

Exhibit 9: One of the few pure deep tech venture investors in Europe

Source: Bloc Ventures

H121 results

Bloc reported a NAV per share of £23.65 in H121, up 39% year-on-year but largely unchanged from H220, with an up-round for Yordex and further investments in Zeetta and Tether Technology and the initial investment in Mindtrace.

Exhibit 10: H121 NAV

Exhibit 11: H121 P&L and cash flow

£m unless specified

H120

FY20

H121

NAV per ordinary share (£)

17.02

23.56

23.65

change y-o-y

8%

39%

39%

 

Portfolio book value (start of period)

17.4

17.4

32.5

Book value increase

-

8.9

0.5

FX revaluation

0.2

-

(0.1)

Gross investments

4.5

7.7

2.8

Cash realisations

-

(1.5)

-

Portfolio book value (end of period)

22.1

32.5

35.7

change y-o-y

36%

87%

62%

NAV

22.8

37.4

38.0

of which cash

0.5

4.5

1.9

Equity raised in period

0.8

7.1

0.5

Op costs net of fee income

(0.4)

(1.1)

(0.6)

annualised as % of NAV

3.5%

2.9%

3.2%

Income statement (£m)

Jun-20

FY20

Jun-21

Board fees and other revenue

0.1

0.2

0.1

Operating costs

(0.5)

(1.4)

(0.7)

Operating loss

(0.4)

(1.1)

(0.6)

Investment income

0.3

9.3

0.7

Other financial income/expense

-

-

-

Net profit

(0.1)

8.2

0.1

Cash flow and use of funds (£m)

Jun-20

FY20

Jun-21

Outgoings:

Investments

(4.5)

(7.7)

(2.3)

Op and funding costs

(0.8)

(1.7)

(0.9)

Funded by:

Funding

0.9

7.4

0.5

Exits and interest

0.2

1.8

0.1

Net cash flow

(4.2)

(0.2)

(2.7)

Cash at end of period

0.5

4.5

1.9

Source: Bloc Ventures.

Source: Bloc Ventures

£m unless specified

H120

FY20

H121

NAV per ordinary share (£)

17.02

23.56

23.65

change y-o-y

8%

39%

39%

 

Portfolio book value (start of period)

17.4

17.4

32.5

Book value increase

-

8.9

0.5

FX revaluation

0.2

-

(0.1)

Gross investments

4.5

7.7

2.8

Cash realisations

-

(1.5)

-

Portfolio book value (end of period)

22.1

32.5

35.7

change y-o-y

36%

87%

62%

NAV

22.8

37.4

38.0

of which cash

0.5

4.5

1.9

Equity raised in period

0.8

7.1

0.5

Op costs net of fee income

(0.4)

(1.1)

(0.6)

annualised as % of NAV

3.5%

2.9%

3.2%

Source: Bloc Ventures.

Income statement (£m)

Jun-20

FY20

Jun-21

Board fees and other revenue

0.1

0.2

0.1

Operating costs

(0.5)

(1.4)

(0.7)

Operating loss

(0.4)

(1.1)

(0.6)

Investment income

0.3

9.3

0.7

Other financial income/expense

-

-

-

Net profit

(0.1)

8.2

0.1

Cash flow and use of funds (£m)

Jun-20

FY20

Jun-21

Outgoings:

Investments

(4.5)

(7.7)

(2.3)

Op and funding costs

(0.8)

(1.7)

(0.9)

Funded by:

Funding

0.9

7.4

0.5

Exits and interest

0.2

1.8

0.1

Net cash flow

(4.2)

(0.2)

(2.7)

Cash at end of period

0.5

4.5

1.9

Source: Bloc Ventures

Exhibit 10: H121 NAV

£m unless specified

H120

FY20

H121

NAV per ordinary share (£)

17.02

23.56

23.65

change y-o-y

8%

39%

39%

 

Portfolio book value (start of period)

17.4

17.4

32.5

Book value increase

-

8.9

0.5

FX revaluation

0.2

-

(0.1)

Gross investments

4.5

7.7

2.8

Cash realisations

-

(1.5)

-

Portfolio book value (end of period)

22.1

32.5

35.7

change y-o-y

36%

87%

62%

NAV

22.8

37.4

38.0

of which cash

0.5

4.5

1.9

Equity raised in period

0.8

7.1

0.5

Op costs net of fee income

(0.4)

(1.1)

(0.6)

annualised as % of NAV

3.5%

2.9%

3.2%

Source: Bloc Ventures.

Exhibit 11: H121 P&L and cash flow

Income statement (£m)

Jun-20

FY20

Jun-21

Board fees and other revenue

0.1

0.2

0.1

Operating costs

(0.5)

(1.4)

(0.7)

Operating loss

(0.4)

(1.1)

(0.6)

Investment income

0.3

9.3

0.7

Other financial income/expense

-

-

-

Net profit

(0.1)

8.2

0.1

Cash flow and use of funds (£m)

Jun-20

FY20

Jun-21

Outgoings:

Investments

(4.5)

(7.7)

(2.3)

Op and funding costs

(0.8)

(1.7)

(0.9)

Funded by:

Funding

0.9

7.4

0.5

Exits and interest

0.2

1.8

0.1

Net cash flow

(4.2)

(0.2)

(2.7)

Cash at end of period

0.5

4.5

1.9

Source: Bloc Ventures

Operating costs (net of fee income) decreased year-on-year to 3.2% of NAV in H121 (H120: 3.5%), although costs as a proportion of NAV increased on FY20 (2.9%) as the company invested in its team. Team size increased from eight members at the end of FY20 to 10 as at 30 November 2021 (post period end). Operating costs as a percentage of NAV is expected to fall in future periods as Bloc closes its Series C funding round and the NAV increases.

Bloc’s income statement (Exhibit 11) shows that the principal source of revenue comes from board fees chargeable to portfolio companies.

In terms of cash, Bloc committed £2.3m to investments in H121 (FY20: £7.7m) (Exhibit 11), a slowdown ahead of the expected exit from Marmalade. Net cash at the end of H121 amounted to £1.9m (FY20: £4.5m), although post the period end, this has been supplemented by an initial cash consideration of £9.3m from the sale of Marmalade. As an all-share transaction, Bloc received shares in Digimarc for the sale of EVRYTHNG and the transaction did not add to Bloc’s cash resources. In addition, Bloc has launched its Series C funding round to ensure that it can continue to invest in two to four companies per year off the balance sheet. There were no exits or realisations in the period.

Exhibit 12: Balance sheet

£m

H120

FY20

H121

Portfolio

22.1

32.5

35.7

Cash

0.5

4.5

1.9

Other net assets/liabilities

0.3

0.4

0.4

Net asset value

22.8

37.4

38.0

Source: Bloc Ventures.

NAV comprises the book value of the portfolio (driven by latest funding rounds), together with cash at the period end. A 10% increase in the value of the portfolio in H121 to £35.7m (FY20: £32.5m) as a result of investments in Zeetta, Yordex, Tether Technology and Mindtrace was largely offset by the corresponding fall in cash to £1.9m (FY20: £4.5m), as Yordex was the only up-round in the period.

Revised NAV per share methodology

Bloc has revised its core NAV per share methodology so that, in future, the NAV per share premium is what an IPO investor would calculate, based on Bloc’s latest share price.

As detailed in our initiation, Bloc’s capital structure includes £8.4m of debt-like A-ordinary preference share capital, with a value of £25 per A-ordinary share. The revised methodology assumes these A-ordinary preference shares are converted to ordinary shares. Previously Bloc also included employee growth shares in the calculation for NAV per share, even though the growth share profit hurdle had not been achieved. Bloc will now only include ‘in the money’ growth shares (ie it will exclude ‘out-of-the-money’ growth shares from its calculation).

Together, the impact of these changes is set out in Exhibit 13 below.

Exhibit 13: NAV per share calculations – revised versus previous calculations

Source: Bloc Ventures


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This report has been commissioned by Bloc Ventures and prepared and issued by Edison, in consideration of a fee payable by Bloc Ventures. Edison Investment Research standard fees are £60,000 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. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Bloc Ventures and prepared and issued by Edison, in consideration of a fee payable by Bloc Ventures. Edison Investment Research standard fees are £60,000 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. We never take payment in stock, options or warrants for any of our services.

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 we 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we 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.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific 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

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