Seneca Growth Capital VCT

Launched in 2018, Seneca Growth Capital VCT (B Share class) looks to invest in a mixture of AIM-quoted and unquoted companies with a preference for later-stage opportunities. 

The share class has net assets of £13.4 million, of which £8.6 million is invested in a portfolio of 27 companies, including 18 AIM-quoted investments (June 2024). While the trust is sector agnostic, it currently has a large weighting towards life sciences.

Since launch, the VCT has achieved two full exits from its unquoted portfolio, with its most successful investment, ADC Biotechnology (detailed below) achieving a 3.6x return. There have been several realisations from the AIM quoted portfolio. 

These returns, along with existing distributable reserves, have helped the B Share class pay cumulative dividends of 16.5p since launch (June 2024). Over the five years to 30 June 2024, the VCT delivered a total return (including dividends) of -31.6%. Past performance is not a guide to the future; dividends are variable and not guaranteed.

• Seeking to raise up to £5 million with a £5 million overallotment facility
  
• Targets a dividend of at least 3p per share – not guaranteed 
• Available for the 2024/25 and 2025/26 tax years
• Minimum investment: £3,000 – you can apply online
• Deadline: 29 Nov 2024 for 1% early bird saving

The manager

The VCT is managed by Seneca Partners Limited. 

Seneca Partners was founded in 2010 by SME investment specialists, Ian Currie, Tim Murphy and Richard Manley. They aimed to fill a funding gap for smaller companies in the North of England.

Today, Seneca Partners manages over £100 million in tax-efficient investments, with separate debt finance and property investment divisions. In 2018 it took over the management of Hygea VCT plc, renamed it, and launched a new and separate B Share class. 

The VCT is managed by Matt Currie, a Chartered Accountant with experience at Deloitte and RBS, and overseen by an investment committee consisting of Seneca’s three founding partners. Matt is supported by an investment manager and an investment executive.

Investment strategy

The Seneca Growth Capital VCT is sector agnostic, although the VCT currently has a large weighting towards the life sciences sector. It will consider both unquoted and quoted companies and does not target a particular split between the two. 

When investing in quoted businesses, the team relies on strong relationships with national brokerage firms to access fundraising rounds. In particular, it benefits from co-founder Ian Currie’s previous experience of raising capital for many AIM-quoted businesses. Depending on price targets and market outlook, Seneca is willing to realise its quoted positions after a short holding period to reduce downside risk and manage liquidity. 

Seneca will use its network of non-execs and industry partners to conduct technical due diligence where necessary, while the investment team focuses on valuation and the management’s ability to deliver a company’s planned growth.

The VCT follows the same generalist investment strategy as Seneca’s two EIS funds, often sharing the same deal flow and co-investment opportunities. 

Current portfolio overview

The Seneca Growth Capital VCT (B Shares) has net assets of £13.4 million, of which £8.6 million is invested in 27 companies, including 18 AIM-quoted. The remaining c.£5 million is split between cash and money market funds (June 2024).

In the six months to June 2024, the VCT invested £854,000 in two new investments and one follow-on investment. All three companies are quoted.

Examples of portfolio companies

Solascure (unquoted) – largest investment 

SolasCure was spun out of German biotech group BRAIN Biotech in 2017, and is led by Dr Sam Bakri who previously co-founded nicotine inhaler business Kind Consumer.

SolasCure is developing a new treatment to accelerate chronic wound healing and make treatment easier. The treatment draws inspiration from the maggots that have been used to clean infections for centuries, building on BRAIN Biotech’s experience in applying enzymes found in nature for industrial purposes. 

The company’s first treatment is now in Phase IIa clinical trials, with initial findings showing positive results. 

Seneca first invested in January 2021 as part of a £15 million fundraising round valuing the business at £37.4 million. Other investors include Abcam founder Jonathan Milner, Bionova Capital, the Development Bank of Wales, Wealth Club private investors as well as BRAIN Biotech, which remains SolaCure’s largest shareholder.

The stake is currently held at £1.1 million, 1.4x investment cost. Past performance is not a guide to the future.

Directa Plus Plc (quoted) – recent investment

Graphene’s properties as an incredibly light and strong conductor of both electricity and heat make it valuable in applications from environmental waste management to textiles and composites.

Directa Plus has developed a process to manufacture different grades of graphene which uses less water and energy than traditional methods and doesn’t rely on chemicals and solvents. 

In 2023 the company reported €10.5 million of sales, driven by the textile (€3.2 million) and environmental (€7.2 million) sectors. Environmental sales are driven by the company’s Grafysorber product, used to absorb oil spills, which management estimates is at least five times more effective than current technologies. In 2023 Directa signed its largest contract to date (€5.5 million) with steel producer LIBERTY Galati in Romania. 

The Seneca Growth Capital VCT first invested £312,000 in June 2024 as part of a £6.8 million round. The funding is expected to help strengthen the company’s commercial and operational capabilities, support capital expenditure and fund working capital needs through to profitability. Directa Plus had previously been backed by the Seneca EIS fund.

Exit track record

Since launch, the VCT has achieved two full exits from its unquoted portfolio, and several realisations from the AIM quoted portfolio, which are more easily bought and sold than private (unquoted) companies. Collectively these have generated proceeds of £5.3 million on an investment cost of £2.4 million. 

ADC Biotechnology – example of an unquoted exit

ADC Biotechnology is a commercial developer of antibody-drug conjugates (ADCs). ADCs are a class of drugs designed to deliver potent chemotherapy agents to cancer cells. Using its patented ‘Lock-Release” technology, the company aims to speed up and simplify the ADC production process while significantly lowering costs.

The company has two distinct revenue streams: proprietary drug development and external support services. Currently, ADC Biotechnology has one product commercially available along with a pipeline of four other treatments, at various stages of clinical trials. 

In 2021, the company was acquired by Sterling Pharma Solutions, a UK-based pharmaceutical company. This generated c.£550,000 in proceeds for the VCT, equivalent to a 3.6x return on investment cost. Past performance is not a guide to the future.

Ten80 – example of a failure

As can be expected, not all investments work out. Ten80 is one example.

Ten80 was set up to reduce the cost of SAP (which stands for systems, applications, and products) and technology projects by offering clients an on-demand, remote workforce while improving the quality of programme delivery. 

SAP is one of the best-known developers of business management software and solutions in the world. Using Ten80’s platform, companies could outsource SAP projects to its bank of over 120,000 consultants, with payment and monitoring tools all centralised in one place.

The VCT invested £400,000 in March 2020. However, the holding was provisionally revalued to zero in 2021 following poor commercial traction and uncertainty over the outcome of future fundraising efforts. The company entered liquidation in February 2023, resulting in a full loss for the VCT.

Performance and dividends

The VCT’s AIM-quoted exposure has hindered performance following significant market volatility over the previous two years. The unquoted portfolio has fallen by a lesser extent.

Over the five years to 30 June 2024, the VCT delivered a total return (including dividends) of -31.6%. Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years.

The VCT targets dividends of at least 3p per annum in relation to the B Shares. Over the last five years, the VCT has paid out 15p in dividends per B share, equivalent to 15.1% of the starting net asset value. Please note, past performance is not a guide to the future and dividends are variable and not guaranteed. 

NAV and cumulative dividends per share over five years (p)

Dividends paid per calendar year

Dividend Reinvestment Scheme (DRIS)

There is currently no Dividend Reinvestment Scheme. The company is considering launching a dividend reinvestment scheme in due course.

Share buybacks

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is not guaranteed – please see the offer documents for details.

Discount history

VCT shares are traded on the London Stock Exchange. Similar to investment trusts, the share price can fluctuate and can be different from the VCT’s net asset value (NAV), i.e. the value of the VCT’s underlying investments. The difference between the share price of a VCT, and its net asset value per share, is called a discount.

Based on data from Morningstar, the discount to NAV as at 30 June 2024 was -1.6%. Over the previous five years the average discount to NAV was -4.3%.

The discount history is based on the closing share price of the VCT at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCTs’ share buyback facilities, although this is not guaranteed.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

To retain the tax benefits, VCTs should be held for at least five years. If you sell VCT shares and reinvest in new shares of the same VCT (including any mergers) within six months, tax relief can be restricted. Tax rules can change and benefits depend on circumstances.

The VCT has significant exposure to AIM. AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply. The difference between the buying and selling price of AIM-quoted companies is often wider than those listed on the main market.

Charges and savings

A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details, offer price and share allotment calculation methodology.

Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.

Annual rebate when you invest through Wealth Club

The Seneca Growth Capital VCT offer includes an annual rebate for Wealth Club investors, payable for the first three years. This is a rebate of our renewal commission and should be equivalent to a percentage (shown in the table above) of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Deadlines

• Deadline for 1% early bird saving: 29 November 2024 (5pm)
• Deadline for 2024/25 tax year: 3 April 2025 (noon)
  
• Deadline for 2025/26 tax year: 7 August 2025 (noon)

Our view

The VCT is managed by Seneca, an established regional asset manager. The VCT’s strategy is a combination of Seneca’s two existing EIS funds, allowing all three to share deal flow and resources. Seneca believes this collaboration helps the trust participate in larger deals and invest in more established businesses than might otherwise be possible for a VCT of its size.

Similar to the EIS funds, the VCT follows a generalist strategy. However, at present there is a significant weighting, particularly within the quoted portfolio, towards life science businesses. Although Seneca does not promote itself as a sector specialist, it has developed a network of technical partners in this field. 

The VCT’s negative performance has been driven by the quoted portfolio, where the average holding has fallen by around 58%. This compares with a fall of 13.6% for the unquoted portfolio. 

The VCT has used exit proceeds, along with existing distributable reserves, to pay an annual dividend of 3p per share since 2018. Please note, past performance is not a guide to the future and dividends are variable and not guaranteed.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.