from Molten Ventures Plc (isin : GB00BY7QYJ50)
Final Results
Molten Ventures Plc (GROW; GRW)
Molten Ventures Plc ("Molten Ventures", “Molten”, “the Group” or the "Company")
FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2023 Molten Ventures (LSE: GROW, Euronext Dublin: GRW), a leading venture capital firm investing in and developing disruptive, high-growth technology companies, today announces its final results for the year ended 31 March 2023.
Financial highlights
The above figures contain alternative performance measures (“APMs”) - see Note 33 for reconciliation of APMs to IFRS measures.
Highlights
ESG highlights
Post period-end highlights
Martin Davis, Chief Executive Officer of Molten Ventures, commented:
“After a difficult twelve months for the technology industry, we are cautiously optimistic for the year ahead as markets stabilise and, in places, recover. In the year, we’ve continued to make strategic progress by increasing our funding flexibility and leveraging third party assets so we are well positioned to continue to invest in high-growth, disruptive technology companies. While market turbulence may persist, we believe that our seasoned team, active approach to portfolio management and long term, thesis-led approach to investing will be able to deliver for both shareholders and for the European entrepreneurs inventing our future”.
A live webcast presentation including Q&A will be held today at 9.00am for analysts and will be available on https://brrmedia.news/GROW_FY23. Conference call details for the Q&A are available upon request. A further presentation will be held at 10.30am tomorrow, 16 June 2023, via Investor Meet Company at https://www.investormeetcompany.com which is open to all existing and potential shareholders. Questions can be submitted on the platform.
Enquiries:
About Molten Ventures Molten Ventures is a leading venture capital firm in Europe, developing and investing in disruptive, high growth technology companies. We inject visionary companies with energy to help them to transform and grow. This energy comes in many forms - capital, of course, but also knowledge, experience, and relationships. We believe it is our role to support the entrepreneurs who will invent the future, and that future is being built, today, in Europe. As at 31 March 2023, Molten Ventures had a diverse portfolio with shareholdings in 70 companies, 17 of which represent our Core holdings and account for 62% of the Gross Portfolio Value. Our Core companies include Thought Machine, Coachhub, Graphcore, Aiven, Ledger and Aircall. We invest across four sectors: Enterprise Technology, Hardware and Deeptech, Consumer Technology, and Digital Health and Wellness, with highly experienced partners constantly looking for new opportunities in each. We look for high-growth companies operating in new markets, with high potential for global expansion, strong IP, powerful technology, and strong management teams to deliver success. We also look for businesses with the potential to generate strong margins to ensure rapid, sustainable growth in substantial addressable markets. Molten Ventures provides a unique opportunity for public market investors to access these fast-growing tech businesses, without having to commit to long term investments with limited liquidity. Since our IPO in June 2016, we have deployed over £1bn capital into fast growing tech companies and have realised over £480m to 31 March 2023. For more information, go to https://www.moltenventures.com/ Chair’s introduction The year under review has been the most volatile period for the technology industry since the Global Financial Crisis, if not the dot com crash more than two decades ago. While this environment will not be without precedent for the most experienced in our Investment Team, its impact has led to the first decline in Gross Portfolio Value since our IPO seven years ago. Nonetheless, it is a matter of consensus that technological innovation is continuing to transform our lives. The underlying performance of technology businesses continues to be very strong, and the response to the fall of Silicon Valley Bank (SVB) in the US and UK is an encouraging sign that tech is a genuine government policy priority globally. In the UK, the Chancellor’s announcement in the Spring Budget that the government will look to unlock defined contribution pension fund investment into the nation’s most innovative firms is further evidence of this. This ambition is not confined to the UK. The European Union’s recent Climate Bill emphasises the role of new technologies in achieving its net zero ambitions for the continent, while President Macron has set France the goal of a hundred unicorns by 2030 in recognition of the contribution of the technology sector to economic growth, and societal progress more widely. We are glad to see this increased belief in our industry, which reinforces Molten’s long-held view that the UK and Europe continues to be a phenomenal place to build and grow technology businesses. It is also in part recognition that technological innovation continues despite the macroeconomic environment, and that many of the most generation‑defining companies, from Ford to Google, were developed in a downturn. Listing what was then Draper Esprit was a radical and unconventional step for a venture capital business. Despite the challenging market conditions, we continue to believe that publicly listed venture capital is a powerful force for both supporting entrepreneurs in achieving their extraordinary potential, and in providing a wide range of individuals and institutions who seek to invest for the long term with access to high‑growth, privately owned technology companies. In January 2023, we announced that Karen Slatford had stepped down as Chair of the Board. Karen played a critical role in developing the business and since her appointment as Chair of the Board in June 2016 made an immeasurable contribution to the strategic direction of our business, including our move to the London Stock Exchange’s Main Market in 2021 and subsequent rebrand to Molten Ventures. Karen personified Molten’s purpose in bringing brainpower, passion, and energy to solving problems and transforming the way the world works. I’d like to thank Karen again for her years of service to our business and wish her the very best. Karen will be a hard act to follow, and the Board has commenced a rigorous process to identify the next Chair of Molten. Richard Pelly, another Board member who has served since before the IPO, intends to retire from the Board in accordance with our agreed succession plan, following the upcoming Annual General Meeting on 26 July 2023. We are grateful for Richard’s service as a Non-Executive Director, and more recently his work as the designated Director for engagement with the workforce. A summary of the process for succession and activities completed in our succession planning thus far is included in the Nomination Committee report and we anticipate announcing the appointment of new Directors and any changes to roles and responsibilities no later than the release of our interim results. As we have set out previously, Molten is proud to be playing a part in society’s increasingly important mission to achieve a sustainable future. This push from Molten is two-fold, both through our consideration of ESG in investment decision-making and our excitement about Climate Tech investment opportunities. We also continue to develop our reporting and remuneration structure in line with ESG initiatives. Since last year’s AGM, we have written to Shareholders to outline our proposed revised approach to Executive remuneration. In light of the feedback received and, to align with best practice guidance, we are proposing to make changes to how our Directors’ Remuneration Policy is implemented for FY24 as detailed in the Remuneration Report. The Board would like to thank Shareholders who took part in this process.
Grahame Cook Interim Chair
CEO’s statement Overview While economic uncertainties persist, we are beginning to see signs of stabilisation. Molten Ventures is well positioned to manage through the downturn and to respond to any recovery, while capitalising on opportunities in the market that enable us to deliver value for Shareholders. The past year has delivered a significant shift in the investment environment, particularly in the high-growth technology markets, as interest rates were increased to combat global inflationary pressures. This challenging market backdrop has led to a reduction in the value of our portfolio, and our focus for this year has been centred on the active management of our investments while adapting our business to respond positively in the face of market pressures. We reacted quickly to reflect the valuation movements in the first half of the year (as published in our interim results in November 2022) and were encouraged by these second half results which demonstrate greater stability. We are beginning to see initial signs that the turbulence is levelling out and are pleased with the resilience shown by Molten throughout the period, which can be attributed to our consistent approach to valuations and the diversity of our portfolio. It has been a productive year for Molten, and the underlying business performance and revenue growth of our portfolio companies has remained strong despite macroeconomic headwinds and volatility. We have continued to move the business forward with progress on third-party asset strategies and have worked with our portfolio companies to add value through the expertise and experience of our people. This approach is in line with our ambition of making Molten the investor of choice for UK and European founders who are looking for ways to invent the future. Our active management approach has seen us work closely with our portfolio companies during the period with a particular focus on maximising cash runways, controlling costs and retaining talent. We have maintained discipline around our own investment process, reducing the amount invested in the year and focusing on our own capital resources. We have continued to build third-party assets and grow fee income (£23 million during the year) which will further offset our cost base, benefiting our Shareholders by reducing the cost of the investment return we make. I expect this to become an increasing proportion of our overall deployment, enabling us to provide access to high growth private assets for a range of co-investors. We already manage c. £400 million of assets via our EIS and VCT strategies which we anticipate will continue to grow, while at the same time continuing to syndicate our Fund of Funds programme, which provides strong returns, deal flow and insights; delivering access to the next generation of disruptive technology companies from across the UK and Europe. The steps we have taken to grow and mature our platform and model in FY23 have left us in a strong position, as we move forward to identify and capture investment opportunities to transition into the next stage of the cycle. As ever, we expect the approach of Molten’s experienced Investment Team will continue to be an attractive proposition to founders. Disciplined capital deployment With equity markets depressed and rising debt costs, IPO and M&A volumes were significantly lower during FY23, delaying exits across the whole VC industry. We have reduced our highly liquid listed holdings which, alongside the emphasis on cash preservation in the second half, acted to strengthen our balance sheet position. I am pleased that we have been able to generate more capital from realisations than we have deployed in the second half of the year. Capital deployed during the year was £138 million (compared to £311 million in FY22). This was heavily weighted towards the first half of the year when £112 million was deployed, reflecting several commitments and follow-ons from deals from the prior year reaching completion as well as drawdowns from our Fund of Funds programme. The significant reduction in deployment (when compared to FY22) reflects a focus on cash preservation and balance sheet management. Quality of investment opportunities remained a consistent focal point and we continued to invest capital wisely while remaining disciplined around the quality and number of deals. Our portfolio remains focused across technology and within that, we are particularly excited by emerging subsectors such as Climate Tech and Artificial Intelligence (AI). In the year, we participated in new deals and follow-on rounds in sub sectors which we feel are poised for strong growth; including Vaultree and Worldr (cyber), Aktiia and Clue (digital health), and BeZero and Altruisitiq (climate). Realisations & exits Realisations for the period were £48 million (compared to £126 million in FY22), against a backdrop of continued weak trade sales, a slowdown in M&A, and the IPO market being effectively closed for business. Historically, most of our realisations have been through trade sales, with £487 million delivered back to the balance sheet since our 2016 IPO. The cash realisations in the year were driven by the partial sell-down of our holding in Trustpilot and a full sell-down of our holdings in UiPath and Minit (both via Earlybird), and the sale of portfolio company Roomex to Fleetcor Technologies. Realisations are an important part of our business, and the recycling of capital allows us to reinvest further in the portfolio as part of our evergreen strategy. We are proud of our record of exiting many assets at or above carrying value on our balance sheet and whilst we believe that there will be greater opportunities for realisations once market conditions recover, we continue to actively evaluate potential secondary opportunities. Broader market environment While macroeconomic headwinds continue to drive uncertainty in the European venture capital industry, we note that public markets are beginning to show initial signs of stabilisation (from the selloffs in 2022) and believe that private sector valuations are likely to follow. However, as I said at our Investor Day in February, the macroeconomic environment as characterised by a decade of low interest rates is unlikely to return soon. In today’s world, investors typically show more caution; focusing on how companies manage costs, lengthen cash runways, or offer routes to profitability in a tough financing market. Importantly, what remains is the underlying commercial traction of our portfolio companies and their ability to navigate a shifting market environment. Technological innovation underpins growth and efficiency in so many industries, and in some instances, innovation will completely transform them. In the face of this progress, we believe that Europe has an ever-increasing role to play in the responsible advancement of AI – a fact that is apparent when you look at the developments that are occurring within our own portfolio companies. And finally, we were pleased to see the continued support for growing technology companies in Europe, following the collapse of Silicon Valley Bank (SVB) at the end of the financial year, an event which caused us some disruption due to SVB’s prominence in the venture capital community and its sizeable presence in Europe. Its fall was primarily due to risk management issues within its banking operations, rather than bearing any reflection on the bank’s technology clients or credit. We were impressed to see such expedient action taken by the global banking community and governments as they addressed the fallout; with HSBC acquiring SVB’s UK operation and First Citizens’ acquisition of its US business. These quick and focused actions were a barometer of the importance now placed on high-growth technology in a drive for innovation and productivity across our respective economies. Purpose Our purpose, to advance society through technological innovation, was developed during the financial year in an exercise that involved all employees. We bring capital, brainpower, passion, and energy to solve problems, and we identify and equip the best innovators with the tools they need to transform the way the world works. We strongly believe that the best way to gain exposure to the significant returns available from venture capital as an asset class is by investing in a diversified portfolio that triages risk across the various stages and technology sub-sectors, supported by an astute Investment Team who possess experience across the whole cycle. Molten Ventures provides this access from a competitive cost base, combined with liquidity arising from its dual listing. Sustainability Our focus on ESG within the business through both our ESG-focused investment criteria and our push into Climate Tech remains as important as ever. Climate Tech continues to excite us, and we expect to be active investors in this fast-growing category. To date, we have invested in Altruistiq, BeZero and Satellite Vu, with more deals in the pipeline. We have further developed reporting in line with the Task Force on Climate-Related Financial Disclosures (“TCFD”) recommendations on a voluntary basis, which is designed to help companies provide better information to support informed capital allocation. We also made our first Climate Disclosure Project (“CDP”) submissions, and distributed tools and resources to assist portfolio companies in developing their own ESG strategies. People Our people remain the most important part of our business and we have continued to build our expertise in the areas where we see the greatest potential for the Group. For example, our offering in Central and Eastern Europe has been strengthened significantly this year by the recruitment of two new investors, one of which formerly headed up the EBRD Venture Capital Investment Programme. We continue to grow our Investment Team in the belief that experienced investors, with diverse perspectives and views, will bolster our ability to identify and support the businesses that will invent the future. Outlook We are cautiously optimistic for the year ahead as the technology markets continue to stabilise and recover in places. Even as economic headwinds persist, we will continue to deliver through our scalable and adaptable model, active approach to portfolio management and thesis-led investment approach. Further progress in building third-party assets and income is expected and this includes investments via our EIS and VCT, our Fund of Funds programme and other third‑party strategies. Further opportunities to leverage our model and grow third party assets are also anticipated given the increased political focus on attracting long-term capital into the venture ecosystem. In the medium term, we continue to see Climate Tech, AI and the emerging tech ecosystems in Central and Eastern Europe, as areas with great potential for the Group. The Board will continue to prioritise the preservation of plc capital and to work closely with our portfolio to understand their growth prospects and future liquidity requirements. We believe the cash requirement of the portfolio over the next reporting period will be in the region of £20 million and are continually monitoring how to best fund future investments, including by issuing further debt or similar securities. We are also still seeing interesting opportunities in the market and with continued effort in generating realisations we believe we will be able to generate sufficient proceeds for deployment which, with the support of third-party funds, will enable us to take advantage of these opportunities. Post period end, we agreed a secondary sale for 10% of our Earlybird Fund VI investment, realising €14 million (£13 million). The last word, as always, must go to the phenomenally gifted founders and entrepreneurs whose intelligence and foresight, aligned with cutting-edge technology, continue to disrupt markets, and create new ones. Our job in the next reporting period will be to continue to find and support these enterprises as they continue to re-invent the future.
Martin Davis Chief Executive Officer
Market overview Market environment 2022 presented new challenges to financial markets with shifting valuations, broader public market sell-offs and a global shift in monetary policy. The Venture Capital (VC) market, similar to other asset classes, has seen a significant impact as a result; however, VC has the proven outperformance over the long term and throughout the economic cycle. Over the past 12 months, central banks have focused on curbing inflation, with the Federal Open Markets Committee (FOMC) rate increasing tenfold to 5% in April 2023, and similar stances taken by the European Central Bank (ECB); and the Bank of England (BOE) with the base rate currently sitting at 4.5%. This increased cost of capital has led to a significant valuation impact on the technology sector, specifically in high-growth unprofitable businesses which have traditionally looked to the VC market for expansion capital. The rationalisation of valuations was most immediately evident in the public markets, with the NASDAQ down 33% over 2022, technology and IT-related indices such as the Thompson Reuters Venture Capital Index (TRVCI) is also down 55% in the same period. In this environment, VC managers have adopted a greater level of caution, which is more pronounced in larger financing rounds and the later stages of investment. Molten Venture’s response has been to focus on capital preservation, supporting the existing portfolio and continuing to deploy into top tier assets. Since 2022 however, tech markets have begun to recover – with the NASDAQ up 17% in the first quarter of 2023 and the TRVCI up 12%. This is largely due to the change in both inflation and interest-rate expectations, which are no longer anchored in the 2022 market. VC as an asset class is a long-term endeavour and Molten – similar to other VC managers – continues to support emerging innovation and the broader VC market. A significant moment over the past 12 months on a global scale has been the abrupt collapse of Silicon Valley Bank (SVB) and its subsequent acquisition by First Citizens in the US and HSBC in the UK. The collapse of SVB brings two interesting developments to light, which were not present at the time of the Global Financial Crisis – one negative and the other positive. Firstly, SVB experienced the fastest bank run in history, which was powered by the very technology they have been investing in and servicing for decades, leaving the financial community stunned. Secondly, on a more positive note, was the speed and efficiency with which governments, regulators and major financial institutions reacted to the situation – protecting depositors, clients and global businesses. It is important to highlight that the problems faced by SVB were not created by their products or their customer base. The acquisition of SVB by HSBC in the UK may be seen as a marker in the institutionalisation of VC as an asset class, most recently followed by Blackrock’s acquisition of Kreos Capital (Europe’s largest Venture Debt provider). In the VC market deals continue to be funded and Limited Partners continue to back VC fund managers. 2022 saw c.$110 billion invested in European VC and growth-stage companies, representing a 16% contraction from the peak market in 2021. Despite the market contraction, Europe remains the fastest growing VC region ahead of the US and Asia. Versus 2021, the 2022 VC and Growth market in the US declined by 29%, and in Asia by 41%. Similarly, the compounded annual growth rate in Europe since 2015 is 26% per year, more than 10% above its US counterpart and 16% above Asia. The first quarter in 2022 saw $38.2 billion invested, the most active quarter on record. At this point the market was fuelled by local innovation, increasing European success stories and international capital flows into Europe. Much of the activity which followed came from existing investors supporting their portfolio companies as the market began to turn and non-traditional investors, such as corporate VC and LP investors, who expanded their reach to invest in European VC deals directly, began to retract from the market. Non-traditional investors have historically favoured larger round sizes and growth-stage opportunities, meaning their impact on the VC market is becoming more profound. Participation in large funding rounds had become more common, and in the longer-term this phenomenon is likely to persist however in the shorter term– as valuations have come down – some participants have subsequently exited the market, and this departure of “tourist capital” presents opportunities for experienced and stable VC investors. When digging deeper into the deal volumes, the most affected investment stages over 2022 were the early seed rounds (less than $2 million) and later-stage expansion (>$50 million), which have both seen consistent quarterly declines in deal count across the year. The late seed, Series A and B rounds however showed similar levels of activity when compared to 2021 showing more resilience at the earlier-mid stages. At Molten, this has always been our target investment stage, as the risk profile of these companies has matured beyond the early stages, and our expertise as an active manager is well placed to support them as they transition to the growth and later stages. In addition to VC managers adjusting to the market, so too have portfolio companies. Leading from the front, some tech giants have announced large-scale employee reductions to match the current environment, and so too have VC stage companies. Across 2022 and into 2023, VC companies have adopted less aggressive growth plans and adjusted their hiring to reflect this; they have also pivoted towards pursuing more efficient revenue growth and paths to profitability. We believe this fundamental shift in approach – from both the VC manager and portfolio companies – will foster a stronger and more resilient VC market in the future. Looking ahead Looking to 2023, the deployment of capital has slowed down as investors have become more cautious. The larger financing events for the very large European private VC businesses have now become rare. The chart below shows capital deployment in European VC on a quarterly basis, which has been on a downward trajectory since early 2022 with Q1 2023 representing 33% of the peak deployment in Q1 2022. The analysis shows that smaller rounds, categorised largely by Series A and B, have been more insulated to the broader market adjustment when compared to larger rounds in excess of $250 million, which have been shrinking quarter-over-quarter. Molten invests in this stage of the market (predominantly Series A and B), and over the remainder of 2023 (and into 2024) it expects to continue deploying in a favourable valuation environment with high-quality management teams who will adopt the same approach to efficient revenue growth. 2023 VC investment volumes are expected to contract from 2022 levels however the longer-term trajectory of the market continues to increase, and the overall VC market globally has become more resilient and robust as it has matured and expanded. As some investors have retracted from a declining market across 2022, a greater opportunity has emerged for Molten as an experienced and long-term patient investor in today’s financing environment.
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