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Molten Ventures
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== Investment summary == '''A leading European VC firm with a proven track record''' Molten Ventures invests in high-growth companies across the UK and Europe and has built a direct investment portfolio of c 72 companies, across four technology sectors: consumer, enterprise, hardware and deeptech, and digital health and wellness. Its core portfolio comprises its 17 largest holdings, representing 68% of portfolio value at 30 September 2021. The company has a proven track record of delivering successful investments, having deployed over £810m of capital since its IPO in 2016 and realised almost £420m of investments. Its portfolio was valued at £1.35bn (GPV) at the end of H122, with a NAV of £1.36bn, equating to a NAV per share of 887p. The group has delivered a 20.3% NAV/share CAGR from H117–H122, recording 19% growth in H122. '''What makes Molten unique?''' The factors that help differentiate Molten Ventures from competing investment propositions are: * Rare pure tech exposure: the UK and European public markets offer only limited exposure to the technology sector. However, latest data (State of European Tech 2021) show the European private technology company ecosystem is accelerating and starting to catch up with the United States and China. Molten Ventures provides liquid exposure to this alternative asset class, through a diversified portfolio of high-growth, private technology businesses. * Established reputation as a ‘go-to’ VC investor: as an early mover and market leader in the European VC sector, Molten Ventures has cemented its reputation as an investor of choice. This creates a virtuous circle where, through its partnerships, relationships and track record, Molten can attract top-tier entrepreneurs and businesses, improving its chances of offering superior returns to investors. * Market-leading track record: management is targeting 20% annual fair value growth through the economic cycle (H122: 27%). It has delivered a five-year NAV/share CAGR H117–H122 in excess of 20%, having invested over £810m since IPO, with over £420m of realisations. * Exposure diversified by segment, investment stage and vintage: although it is focused exclusively on technology, Molten offers a portfolio diversified across both vintage and stage of investment, investing in four technology segments (consumer, enterprise, deeptech and digital health). This approach means Molten can diversify its portfolio and ensure it has investee companies ready for realisation and investment through the economic cycle. * Fund-of-funds strategy: Molten is also significantly differentiated through its fund-of-funds strategy, whereby it has invested in 47 specialist seed funds across the UK and Europe (at 30 September 2021). Through this strategy, Molten has leveraged its reach and secured small investments in almost 900 companies, generating an option to make follow-on investments in successful companies from this indirect early-stage portfolio. Molten has already committed £90m to this strategy, of which £39m had been drawn as at 30 September 2021. In its H122 results, Molten pledged a further £75m to be deployed over the next five years. '''Priorities, targets and KPIs''' Management has largely delivered on its FY22 priorities for the business, including participation in (and increasingly leading) larger funding rounds, as well as further investment in follow-on opportunities, the next Earlybird fund and the fund-of-funds programme. The launch of the co-investment fund for growth stage (Series B+) dealflow remains outstanding business for CY22, although we understand the preparatory work has been completed. In FY22, management expects to meet its core targets for the business: 20% annual growth in GPV through the economic cycle (FY21 40%, management guidance of 35% for FY22); 10–15% realisations as a percentage of GPV through the economic cycle (FY21 29%, first 10 months of FY22 11%); £150m+ of annual investment from FY22 (first 10 months of FY22 £259m); and operating costs (net of fee income) below 1% of NAV (FY21 0.4%, H122 0.8%). In addition, management expects to maintain 12–18 months of cash resources, sustain quality dealflow and achieve the company’s four key environmental, social and governance (ESG) targets set out in its FY21 report and accounts (see ESG section). '''Post period end: February trading update''' As at end of January 2022 (first 10 months of FY22), Molten Ventures had invested £259m, of which c £106m had been committed to 12 new investments and £153m to follow-ons. Net investment YTD rose to £149m, with cash proceeds from realisations reaching £110m (11% of GPV). Molten’s portfolio companies saw strong revenue growth in CY21, which management forecasts to continue for CY22, with a healthy pipeline of investment opportunities ahead. '''Sensitivities: Technology valuations and exits''' As a people-based business, Molten draws on its 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, Molten relies on efficient recycling of capital, with realisations supporting reinvestment. Realisations are dependent on the state of the technology market, the valuations of quoted peers and continuing investor appetite for technology companies at IPO or by way of a trade sale. '''Valuation: Attractive VC returns provide portfolio diversification''' Noting that valuations of private technology companies have a relatively low correlation to listed equity markets, even if the vehicle is publicly traded, Molten Ventures offers what we believe to be market-leading access to private European technology start-ups, a high-growth asset class that is otherwise largely inaccessible to the public market investor. Molten has built a portfolio of investments at different stages of maturity and a track record of exits that has delivered 20.3% H117–H122 NAV/share growth. Management also has a roadmap to a self-financing business model through scaling its fund management business. With the company trading at 0.82x H122 NAV. Catalysts for a re-rating include growth in third-party fee income with the launch of the growth fund, further scaling of the business and the potential for material upside from Molten’s portfolio through funding rounds, successful exits or IPOs.
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