Bloc Ventures — Two tech exits and new funds being raised

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.