Molten Ventures — Key takeaways from the 2023 capital markets day

Molten Ventures (LSE: GROW)

Last close As at 22/06/2024

GBP4.25

23.00 (5.73%)

Market capitalisation

GBP803m

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Research: Financials

Molten Ventures — Key takeaways from the 2023 capital markets day

At its capital markets day (CMD) Molten Ventures highlighted its successful growth since it listed in 2016, having grown its gross portfolio value by a CAGR of 59% (supported by several capital raises). We note that Molten posted a six-year NAV total return (TR) to end-September 2022 of c 15% pa. Since IPO, Molten has deployed an average £133m in capital per year (excluding secondary investments) and received £452m in total realisation proceeds. Portfolio growth has been underpinned by the 24% pa growth in European venture capital (VC) series A, B and C deal volumes (Molten’s ‘sweet spot’) between 2015 and 2022 (based on PitchBook data).

Milosz Papst

Written by

Milosz Papst

Director, Financials

molten03

Financials

Molten Ventures

Key takeaways from the 2023 capital markets day

Capital markets day

Listed venture capital

21 February 2023

Price

402p

Market cap

£615m

Net debt (£m) at 30 September 2022

61.5

Shares in issue

153m

Free float

100%

Code

GROW

Primary exchange

LSE

Secondary exchange

Euronext Dublin

Share price performance

Business description

Molten Ventures is a London-based venture capital (VC) firm that invests in the European technology sector. It 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.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Molten Ventures is a research client of Edison Investment Research Limited

At its capital markets day (CMD) Molten Ventures highlighted its successful growth since it listed in 2016, having grown its gross portfolio value by a CAGR of 59% (supported by several capital raises). We note that Molten posted a six-year NAV total return (TR) to end-September 2022 of c 15% pa. Since IPO, Molten has deployed an average £133m in capital per year (excluding secondary investments) and received £452m in total realisation proceeds. Portfolio growth has been underpinned by the 24% pa growth in European venture capital (VC) series A, B and C deal volumes (Molten’s ‘sweet spot’) between 2015 and 2022 (based on PitchBook data).

Period
end

Plc cash*
(£m)

Gross portfolio
value (£m)

NAV
(£m)

NAV/share
(p)

Discount/premium
to NAV (%)**

03/21

160.7

983.8

1,033.1

743

9

09/21

156.2

1,350.2

1,357.4

887

12

03/22

78.1

1,531.5

1,433.8

937

(17)

09/22

28.5

1,448.9

1,279.9

837

(64)

Note: *Includes restricted cash but not funds held on behalf of EIS/VCT investors. **Calculated based on share price at respective period-end.

Strategic priorities tailored to the softer market

At the 2023 CMD on 9 February, Molten’s CEO outlined the company’s key priorities (see video recording here). At the holding level, management continues to focus on capital preservation, which we believe is prudent given the visible decline in European VC activity, with Q422 exit volumes down c 80% y-o-y to just €5.1bn, according to PitchBook (see our last update note for a discussion of Molten’s balance sheet). Molten still wants to leverage third-party capital to participate in larger deals and to generate recurring fee income to cover most or all of its ongoing expenses. It aims to launch new structures for third-party capital, such as the growth (ie Series B+) co-investment fund it flagged recently. ESG remains part of Molten’s core DNA, rooted deeply in its investment philosophy and process.

Given the change in market dynamics since late 2021/early 2022, Molten declares it has a ‘laser-like’ focus on securing the capital needs – and extending the cash runway – of its portfolio companies through prudent cost management and driving profitability by maintaining close and active engagement with founders. It also seeks continued targeted growth of its portfolio holdings (at the H123 results release, Molten expected its core portfolio to grow revenues by 62% and 78% in 2022 and 2023 respectively) and allow them to innovate regardless of the economic cycle. Molten will seek to properly manage its portfolio concentration/diversification and look for new investments (though it expects deal volumes to be lower than in 2022 and H123 given the emphasis on capital preservation). It will focus on exits (making sure founders are well prepared when they choose to exit) despite the more challenging exit environment, which PitchBook expects to continue deep into 2023. This should be assisted somewhat by the fact that historically 70% of Molten’s exits have been trade sales rather than public listings (with a pick-up in the latter less likely in the near term).

Valuation

Molten’s shares are trading at a c 52% discount to end-H123 NAV, which compares to a 17% discount at end-FY22 and a 9% premium at end-FY21.

‘Back to the basics’ in the VC market

The tighter market environment requires founders of VC-backed companies to change their mindset from ‘growth at all cost’ to capital efficiency (‘doing more with less’) and profitability to build a sustainable business over a 10- to 20-year period. VC-backed businesses seek to extend their cash runway (through prudent cost management and in some cases, convertible debt issue or bridge funding from existing shareholders) to avoid new funding rounds in a softer pricing environment. Nevertheless, speakers at Molten’s CMD expressed cautious optimism towards the sector’s prospects, given its continued potential to disrupt and solve major real world problems in the long term. A number of high-profile successful businesses (‘sustainable winners’) emerged from previous economic downturns, with examples from the 2008/09 global financial crisis including Trustpilot, Zoopla, Airbnb, Slack, WhatsApp, Uber and Instagram, among others (all founded between 2007 and 2010). The disruption potential within Molten’s portfolio was illustrated by the sectors represented at the CMD, with companies focused on driving innovation in financial institutions (Thought Machine, FintechOS), talent development (CoachHub), cancer diagnosis and treatment (Endomag), internet of things (HiveMQ), construction supplies logistics (Schüttflix), artificial intelligence (MostlyAi), engineering simulation (Simscale), global positioning systems (FocalPoint), satellite technology (SatelliteVu), carbon markets (BeZero) and delivery by air (Manna). Finally, lay-offs at larger, late-stage VC-backed companies have historically been a source of a valuable pool of new founders or employees of early stage businesses (‘recycling of talent’) and in turn, opportunities for early stage VC investors.

The cautious optimism evident at Molten’s CMD seems to be confirmed by the findings of PitchBook’s recent Annual European Venture Report 2022, which suggests that (despite the general shift in risk appetite) investors have remained predominantly bullish on the VC sector, citing lower valuations and more limited competition as the dynamics that will improve opportunities, deal terms and potential returns. However, non-traditional VC investors (corporates, financial institutions including investment banks, private equity (PE) firms, sovereign wealth and pension funds, hedge funds etc) may turn to earlier stage VC companies (several years from an exit) to shield themselves from near-term volatility. Deal value across the European VC market remained relatively resilient in 2022 at €91.6bn (down c 16% y-o-y but up 85% versus 2020). While Q422 deal volumes of €12.8bn were 54% below Q421, they represented only an 8% decline from Q420 and Molten’s CEO highlighted that ‘landmark’ deals are still being completed. In this context, we note that the European VC market has been gradually closing the gap with the US VC market, with the 2022 European deal value representing c 41% of the US deal value versus 34% in 2017 and 24% in 2012 (according to our calculations based on PitchBook data). Interestingly, European VC general partners were still able to raise €25.4bn in 2022, almost the same amount as in 2021 (€25.3bn), even if for a lower number of funds (212 vs 305), according to PitchBook. Having said that, PitchBook expects capital allocations to VC to moderate in 2023, partly due to the denominator effect stemming from a more significant decline in public equities valuations compared to PE/VC assets.


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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

General disclaimer and copyright

This report has been commissioned by Molten Ventures and prepared and issued by Edison, in consideration of a fee payable by Molten 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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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.

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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