Molten Ventures (LSE:GROW) — FY23 Interim Results presentation

0:01 Good morning, and welcome to the MOLTEN VENTURES PLC full year twenty three interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just click q and a, scroll to the bottom, type your question, and press send. Company may not be in a position to answer every question received during the meeting itself. Have the company review all questions submitted today. Publish responses where appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Martin Davis, CEO and Ben Wilkinson, CFO. Good morning.

0:31 Good morning, Paul, and good morning, everybody. We really appreciate your time. I think this is a really important, opportunity for us to engage with our retail shareholders. We think it's very important to be able to communicate with all of our shareholders what's on in the business, and we see this vehicle as an opportunity for us to get the message out to rewarded groups. So we really do welcome it, and and we very much appreciate your feedback as to as to what you find valuable and whether you'd like us to communicate in this form more frequently. We are just on voice today, but for those of you who want to know what we look like, it's myself and Ben Wilkinson, myself, CEO, and Ben, the CFO. And we will be giving about a thirty minute presentation, give or take, and then we will open up to questions. We're very happy to take whatever questions you may have.

1:24 So these are the, obviously, the interim results halfway through our financial year. And I think the the key message here is that the numbers that we've announced that we announced yesterday very much follow the trading statement issued six weeks ago as far as the performance. Ever so slightly better as far as the numbers go, but we do try to get out the trading numbers as quickly as possible at the end of the period to give investors and shareholders an indication where we are. And then we follow it up with more detailed numbers, the final numbers once they've been audited, and an opportunity for us to go into a little bit more detail about what we saw in the first half. And so as far as the numbers go, Ben will talk in in more detail about that in a few minutes. But as far as number numbers go, the the gross fair value reduction of 17% remains, as we said before.

2:14 It's a net down a downward movement of 12%, taking into consideration currency headwinds that we explained in our trading statements. Valuations really have come down very much as a result of us calibrating to public market peers. Public markets have been down over the last period, and we have particularly with our later stage companies, companies, we felt that it's appropriate for us to mark ours down not quite in line with with public market peers, but to reflect the downward movement of public markets. Despite removing 35 from the EV of the core, the the fair value reductions for us are obviously much smaller than that, and that is really because of the downside protection that we have in our preference share structure. And Ben will talk a little bit about that in a few minutes, but I think it is an important part of our model, and and it's important to understand that despite the risk inherent in these early stage companies that we invest in, the reality is we do have the opportunity to go in at a preference high up on the preference stack, which does give us down downside protection.

3:23 The portfolio remains well funded, 75% of the call with eighteen months plus of cash runway. We're working very closely with the portfolio, with portfolio companies to extend that as as far as possible because we do understand the importance of preserving cash in this current environment. Revenues in the core, though, and this is, I think, one of the things that we we do get a great deal of comfort from, continue to grow at an impressive rate. And across the core average average for '22, we're nearly at the end of that year, they are growing in excess of 60%, and they are forecasting to grow at in excess of 70% next year.

4:01 We're also continuing to build third party assets under management, which is important an part of our strategy, particularly with EIS and VCT strategies, which continue to grow very well. As far as our liquidity and available cash goes, we have a reasonably strong cash position of 28,000,000. We have as you know, we completed the debt facility earlier on in the in the first half, and we have 60,000,000 of that undrawn. But we also have over 20,000,000 of lifted stock listed stock, and that's on the September 30. Market Market prices have been a small improvement on those across the board. As far as deployment goes, we have deployed a 112,000,000 in the first half, which is all of our investments, and and and we're still very much targeting for the 150,000,000 at the end of the year. So we do expect a slowdown, and we've seen a slowdown in the second half already, and we do expect that to continue.

4:58 But the resilience of our numbers today that are smaller than their public market comparators is really because of the resilience that we have in our in our model. We have a very consistent way of valuing. We haven't changed that. We take a conservative approach to valuations. We have a very broad set of companies, over 70 companies across a number of sectors and at different stages of development. And it's that portfolio approach enables us to manage the the downside, but also the the risk profile. Finally, and very importantly, and we'll talk about this later, I suspect, is we continue to build our ESG on we continue on our ESG journey, and that is both about us as a business, but also about us helping our portfolio companies to run-in more sustainable and high levels of governance model than than than possibly you would expect from a start up.

5:57 I'm I'm not gonna spend much time on this but I'm conscious that not everybody will be as familiar as as others with our model. I think, really, I'd probably just say a couple of things. The first thing on the top right hand side is that we do have the ability to invest across different stages. Stages. We don't do seed. We do that through our fund of funds program, and we don't do pre IPO. That's really where we can add value by helping our shareholders to get access to pre IPO markets. But But where where we we really operate is in the series a, b, and c. And as you can see in the bottom right hand chart, you know, this is where there is substantial growth over a relatively short period of time. Where, originally, GROWPRES PRISE, now MOLTEN VENTURES, has been investing for over twenty years. And we understand this space very well. It has very specific characteristics.

6:50 There are very specific criteria that you need to see in order to win, and that's where we've operated. And I think the last point I'd say on this is that within that growth stage, when companies are growing that rapidly, when they have the gross margins that that they expect that that we expect to see, our average is over 65% gross margin, the companies very very rarely go to zero. They do because that's life, but they but the hit rate and the success rate at that stage is much, much better, particularly considering the growth potential within within that within that that sector. I think now I will hand over to Ben to talk through the results and maybe talk a little bit about the attribution about about where we got where we've got our results and where the numbers are.

7:39 Thank you, Martin. Hello, everybody. I'll talk us through the the headlines of the results first, and then we'll go through some slides which give a little bit more detail on the breakdown of of how those numbers came together. So just starting with the with the highlights of the period to the end of thirtieth

7:57 of September, We we have a gross portfolio value. The gross portfolio is is the main measure that we use, and it demonstrates the value of all of the the assets we have in the portfolio. We we take off from that number carry value and deferred taxes that might get paid, and then it's a net number that goes on to the balance sheet. So you see a difference there in terms of the gross portfolio number and then what what is reflected on the balance sheet as the net investments. And it's the net investments that make up the majority of our net assets. And and and to get from those net investment number to the net asset number, you add on principally the cash and and and the debt. Those are the main items on on on the on the balance sheet. So for this period, we've had a movement down, which we've talked about in the gross portfolio.

8:46 We have reduced down the values of the companies, principally reflecting those movements that Martin highlighted in the in the public markets. The assets have moved down fair value of 17%. The opening gross portfolio was 1,500,000,000, and the 17% was offset with currency benefits. A lot of our companies are denominated in dollars or euros, and therefore, the weakness of sterling in this period has has been a benefit to our portfolio value, and that's offset by approximately 5%. And that leads us to this 12% gross portfolio value decrease that you see on the on the highlights here. As well as the movements in the value of the portfolio, we have the additions of cash being invested. We have a 112,000,000 added to the portfolio value in the period from investments that we've made. And then in a similar way where we've realized investments, we have 13,000,000 of cash returning back to the balance sheet, which comes out of the investments and then sits into the into the cash line.

9:46 So those are the key movements that we've had from the portfolio perspective that nets down to a 1,280,000,000 of net assets. And it's that number that's divided by our number of issued shares, which is just under a 153,000,000 that gives us then our NAV per share of eight times 37. And it's that NAV per share, of course, that ref is is therefore reflected in the market and and what we reflect our current share price against, which is currently trading at a discount. But that that's the headline number that what people will use, and that will be the the the reference point for for roughly the next six months until we put out the next iteration of our valuations for the end of March, which captures our our full year position.

10:32 Other The highlights that we've mentioned here are in relation to our cost base. We we always target to have less than 1% of operating costs on a net basis. This is income less expenses. And for this period, we'll show some charts showing the trends, but we're we're about 0.1%, so well below that target. And then finally, we've talked about the expanded debt facility. This was something we put in place in the in the six month period, a new facility of a 150,000,000. This is broken down between 90,000,000 of term debt, which we've now drawn, and 60,000,000 of our revolving credit facility. And that means that we can repay that debt back and then redraw the debt again. So that stays available to us. And as it stands at this this point in time, we haven't drawn that revolving credit facility. So that 60,000,000 is available to us as as additional liquidity on top of the 28,000,000 of cash that we have.

11:27 So just moving along to give you a little bit more detail. It's quite often easier to look at this graphically. The $1,500,000,000 on the left hand side is the opening portfolio as I highlighted. You can then see the addition of cash and the reduction of realized cash and then the net of those fair value movements that I talked about, the the up sorry, the down rate the the downward movement of 262,000,000 on the fair value being offset by the currency gain of 82,000,000, which gives us a net of $1.80. And that leaves us with our gross portfolio value of 1.45. And then just showing on the right hand side that progression over time, this really demonstrates how we've grown the asset base. Obviously, that's reduced in this period where we've had reductions in the value of the portfolio, but you can see the trend over time and how that's been reflected in the in the NAV per share.

12:21 The next slide is giving a little bit more additional color and detail. The valuations is a key part of what we do, and we're trying to ensure that you as investors and potential investors can see how how these valuations are pulled together. Again, starting on the on the left hand side of the chart, you have the March position, the addition of the invested cash, and the reduction of the realized cash coming out. And then the next part really break down that a 180,000,000 of net fair value movements between the component parts of of how we value those those businesses. The first is the foreign exchange, which I've already highlighted. That's movements in currency in the period, principally dollars and euros against sterling, which we sterling is obviously the currency that we're reporting.

13:09 And then you move into the different components of valuation. From the technique of valuing these companies, we follow the IPEV guidelines. These are the international private equity venture capital guidelines. The the best source of evidence for valuing a private company is where they've raised capital with third party investment coming into that business. That will then form the strongest point of evidence for the value of that company. But, crucially, what you also have to do is take that last round value and then calibrate the movements in the company from their own performance, but also the movements that have been reflected in the market since the round. And and you can see here a 101,000,000 of movements down is is principally where we've reflected last round values and then taken the market movements for each of those technology subsectors since.

14:00 There is a headline view that Nasdaq moved down roughly 25% in the period between March and the end of September, but we've had some technology subsectors which have moved greater than that. And and semiconductors is a good example of that, where that's moved in, in fact, in about 45% in that period. And then moving along for the different valuation techniques that we've we've applied, we've got loss on listed assets. That's the the stock that we have that's traded and has a daily traded price. We mark those assets like Trustpilot and UiPath and Kazoo to the the balance sheet dates that will be reflected with prices as at the September 30. And and then looking at the net loss fair value in assets valued at NAV, this is where we have LP positions. So we've invested in in a limited partnership, and that's essentially somebody else's fund, a third party manager, and that principally reflects the seed fund of funds where we don't invest directly in those companies. We go through managers that we know across Europe, and we've built up a program across Europe of 67 managers now with about 72,000,000 of drawn capital on a program of a 130,000,000 of committed capital.

15:16 And what we're reflecting here is the movements in value in the period. And this also will capture the early bird assets where an LP in in German partnership with early bird across several of their funds, and that gives us access to the German speaking parts of the market in the Series A slightly earlier stage late season Series A opportunities. And then just finally to finish on this slide, the last the last valuation technique that we have is looking at comparable peers. And comparable peers is purely taking the the revenue of the underlying portfolio companies and reflecting them against a previously agreed basket of comparable companies in the public markets and therefore reflecting, again, a reduction in multiples that we've seen in this period.

16:03 And so that gives you the summary of the key movements that bring us back to that 1,450,000,000 on the gross portfolio value. Thanks, Ben. And just before I go to deployment, I could see the questions coming in. I might just deal with one or two of them as they're relevant. First one is this question on independent valuations. And our valuations are we we follow, as Ben said, he's explained how we do them. They are subject to audit. In fact, we have two independent checks on them, first by PLC, which is entirely independent, and then the second is our independent PLC board. So we do have two

16:37 independent reviews of our valuations ensuring that that we're not just marking our own homework and that we are doing exactly as Ben explained in the valuations process. We have considered whether or not we should look for third party complete separate evaluations for for a small number of our companies if the market feels that that that would gain greater comfort. But the reality is we know these companies better than anybody, third party. And so, therefore, we're we're not a 100% sure we'll get anything a better result. Do understand that that there is a that there that some people think that's better. So it is something we're considering. It's not something we do at the moment. As far as deployment goes, our deployment has remained relatively consistent. And exactly as we said, I think at the as we went into this year, it has slowed significantly. We are expecting to deploy a 150,000,000 this year.

17:27 A lot of that so we're a 112 so far and a few more million between the thirty first of of September and now. But we we are are still targeting a 150. We think we're fairly confident to hit that number. The mix is not that different from historically. Certainly, as far as the percentage of primary versus follow on, it's it's it's relatively standard and and and consistent. We have probably been deploying, as you can see, bottom left, a little bit more into the slightly earlier stages as the markets got tougher and later stage assets have been probably hit harder by the market comps. And so we've we've seen better deals slightly earlier, and so I think, you know, we've seen a a a a we have seen an increase in that in the first half, and we'll see how that develops in the second half. But when you look at overall capital deployed, and this is the bottom right hand, and this splits by the the various, whether it's primary, follow on, or secondary with the other categories. If If if you were to take out last year, which I think we all accept was an exceptional year, then by the year end, we do think that we will be showing a relatively consistent trajectory upwards, consistent and relatively smooth upward movement as the business has scaled. And and as I say, I think if you if you take out last year, which was an exceptional year, then I think we will probably see that that that onward trajectory is is pretty much

18:58 consistent as you'd expect with the with the growing shape of the business. I think the only other point on deployment that's worth highlighting is that the percentage of fund of funds,

19:09 our seed fund of funds program is higher than it has in the past. That is because that program has continued to grow, whereas our overall deployment has slowed right down, and so therefore the percentage is larger. But you some of you may be may remember that we have decided that we would syndicate that program, we are very close to getting our first cornerstone investor into that program. And I think that will help us to to manage our flows, but also to be able to grow that program, which is something that's very important for us to be able to spot these early companies at at an early stage. As far as our investments go, the a glut in April and May, really, a bit of a hangover from a relatively busy end of last half of year. It can take anything from three to four months to close deals once we've signed term sheets.

20:01 And so that's that's what we might expect. We've obviously slowed right down through the year, and and that is reflected. There was was also a question about the various merits of investing in the PLC versus the VCT. And I'm not gonna give anyone financial advice, but, obviously, they're very different as far as tax treatment is first the first thing. Thing. But I think the other thing is that when you invest in the PLC, you get the whole access to all of our investments. Whereas when you invest in the VCT, there are only VCT qualifying deals, which, for a start, will always be UK. And And secondly, much earlier or generally earlier stages because of the rules. So I think in investing in

20:43 the PLC, you get the full access to all of our companies likely to exit earlier probably the EIS and VCTs just because they're they're probably slightly bigger when we invest in them. And so I think that's the the the one of the primary differences certainly as far as the proposition, the investing proposition. But we we do do continue to invest in EIS and VCT assets. And and as I said, we're expecting deployment to be still relatively flat over the remainder of this quarter. As far as income and cost progression go, those of you who've been on these calls before will be familiar that my view is that that we're very keen to build third party income and to constrain our own costs, our overheads,

21:36 so that we can get to a position where our income exceeds our overheads. And that's a position that we hope to get into. Ben has explained that the the the traditional measure of operating cost net of fees as a percentage of NAV, which is the gray line, is exceptionally low for this sector. And and and we we see that continuing to to get smaller. But certainly, by the year end, on the right hand column, I would hope that, though, that blue line and pink line much closer together as we continue to increase fees and

22:10 demonstrate cost restraint in our overheads, which I think is very important. Next, I think it's important to talk about returns, and and, also, I think, Ben, maybe we'll spend some time talking about the resilience and and what we mean by the resilience in portfolio through the preference structure. Thank you.

22:31 Next slide that we look to is is the track record since IPO. We've shown this in in different formats over some previous reporting periods. But here, we tried to consolidate it into a few key messages. I think what this demonstrates is a chart and in terms of the logos and and and the split of returns is very much a traditional venture capital portfolio returns where the returns are skewed to the winners. And you can see on the right hand side where you have three x plus multiples, that's where the majority of our returns proceeds will come from, and it's about 45% of our invested capital. So that demonstrates that those those will be the companies that where, as they scale and grow, we should be holding on to those businesses to the extent that we can and and and growing our estates as they scale so that we can maximize our returns.

23:26 If you look at the other end of the spectrum where we we have had some zeros in the portfolio, that's been about 8% of our invested capital. And also looking at the next bar less than one x, it's been about just under 20% of our invested capital with some returns proceeds, but obviously less than the originally invested amount. This is a risk business, and this is therefore important from a model perspective to reflect how those risks are are are demonstrated. But it's a it's a it's an asset class in its own right, and it it demonstrates returns above what have been returned in the public markets through a portfolio management approach. And therefore, because it's a risk business and you can lose money on certain assets, you need to have a a broad portfolio of investments.

24:14 And there's other aspects, I'll talk about preference shares in a moment, that is part of the model of how we demonstrate these these returns as well. And I just finally say that in that one to three x bar, that's where a lot of the management time is spent realizing companies which have an inherent value and have inherent underlying technology, but won't necessarily go on to be the big returners. And therefore, we will work with those companies to find solutions and exits and make sure that we're returning capital back to the to the balance sheet. So moving on to resilience. It's important, obviously, in in the downside, and so we're giving more focus on on this as the market has shifted. I've touched on on the top left hand side, the different methods of valuing the companies.

25:01 These these bars really show you the breakdown of the the gross portfolio value for each of the component parts from the valuation technique that's been adopted. Just looking at a few of these and and picking out some some underlying, numbers for the investments we've values using revenue market multiples, the those bars on the right and 282,000,000 for this period. We've used multiples in a range of just under one x up to an 11 x, and the weighted average of those multiples is important at at just under a seven x multiple. And that's a a broad range of of of businesses in different technology subsectors, and that's being reflected by the multiples that have been applied. Looking at the the next bar, which is the calibrated last round of investment, this this is the largest for the period in terms of value, and this is where we've taken the last round investments and applied the movements that we've seen in the market, and we've applied discounts ranging from 4% up to 82% with a weighted average discount of 27% being applied.

26:07 And crucially here, looking at the time horizons of the rounds, just under 80% of the rounds that were done were completed in the last twelve months. So, normally, those rounds would be relevant markers for valuations for a longer period of time, but given the volatility in the markets, we'd move them away from those round values very quickly. And just on the right hand side, we're we're demonstrating that if we had taken those last round values, there'd be about 270,000,000 of uplift in in in value just on that those 80% of of rounds that were completed in the last twelve months. And so we really wanted to demonstrate the the level of discount that's been applied into these companies already to reflect where the public markets are are trading. And then finally, on the quoted valuations, I've I've mentioned already that we have those as at the share prices. At September 30, there has been some small uplifts since that period ends, but the daily traded prices is, of course, the most relevant for those three companies.

27:06 So just moving to the next slide, which is a continuation of this resilience point. One of the key features I mentioned about triaging and managing risk in venture capital is is the portfolio management approach. Another in our model is the stage of investment. We will invest small amounts of money at the early stage, and then as we see companies develop and progress and and derisk their model, we'll have more capital to grow our equity stake to reach those proof points. Thinking back to that track record side, we're obviously trying to skew our capital towards the winners in the portfolio. But another key feature of the model is is how we invest. And by buying a share in a company, we will often go into preference shares. In fact, majority of our businesses, 90% plus, are benefiting from a preference share.

27:54 And preference shares are legal rights within the shareholder agreements, and what that essentially provides us with is downside protection. It doesn't limit any upside for us because we can choose to be in the ordinary shares in in the event of scaling and growth. But in the downside, we

28:10 will retain our preference share rights. And what that means in practice is, just to use a a worked example, is if we invest, let's say, £50,000,000 into a business that's valued at a £200,000,000 pre money valuation, the value of that business could fall all the way down to 50,000,000 before we start to lose value on our original investment. And that's because the preference share behaves very much like a debt instrument where we will be the first money out of that business in the event of a realization. And it's therefore because of this, as we flex the enterprise values of those businesses in the valuation process, we have downside protection such that the enterprise values we've moved on average 35% in the core in this period. But the movements we've had in the in the fair value down downward trajectory is only 17%, and that's really reflecting where those preference stacks come into come into value and come into use.

29:08 The other aspects of resilience that we'll just highlight is liquidity in the portfolio itself. The companies have raised sufficient capital over the last twelve to eighteen months, and and that's given them enough runway such that over 75% of the core portfolio have twelve months plus of of of cash runway, and that's reflecting their current models and current expansion plans. And a key part of valuation is is reflecting reflecting the the commercial traction in those businesses, and that's being reflected here as a summary by their revenue growth. And you can see, Martin highlighted already, greater than 60% growth in in calendar year '22 and expected or projected growth of greater than 70% for the following year. And just on that top right chart, you can see how that breaks down in terms of revenue growth by cohort across the core portfolio.

30:01 This final slide on the portfolio is demonstrating where the valuation movements have fallen by individual company. I won't go through all of them, but we've obviously gone through how it how it comes together as a summary. The the the key ones probably to to pull out will be things like Graphcore where they the peer group for semiconductors moved substantially in the period over 40%, and we therefore reflected that in our downward valuation of of GROWTHCO in our portfolio. And in a similar way, we've seen movements with some of the neo banks, and we've reflected that into into Revolut's valuation in the period. Those would have been the the largest movements by value that we've seen, but we've also seen downward movements in in in companies like Ledger again on comps and companies like List, which is is a fashion marketplace direct to consumer, which is has also suffered from a a comparable peer perspective.

30:58 And the one notable uplift, probably to mention the period is Ivan, which had raised capital in in the April, May period by that valuation uplift, significant uplift. We've taken some of that uplift but still retain some some some reduction relative to that round, reflecting movements in the market since the round occurred. Thanks, Ben. So I'll I'll talk a little bit about about the market. I'm not gonna spend much time on this because in many respects, other than the the the tightness of public markets and therefore the restriction of capital in certain areas, the actual VC market and the tech market itself continues to grow at an impressive pace. The compound annual growth rates are still very impressive.

31:43 We think those will continue. When you look at the number of deals and the size of deals, it's it's still a significant increase year on year. And as I said, I come back to what I said earlier on with our deployment. If you take out a a slightly exceptional year last year, then I think what it shows is the trajectory for European VC is still consistently upwards and an interesting place to invest. It is still only 40% less than 40% size of The US market. It's growing faster. The returns are better. And so therefore, European VC is still a very, very interesting space. And we're still seeing a lot of activity. And we are still very confident that despite the some of the macroeconomic and some of the geopolitical issues that have affected the economies, the opportunity within European VC, we still think is both considerable and exciting.

32:40 As far as the the tech businesses, and I know that, you know, there are different a number of different ways you can view tech. People look at at at the the big tech things, and they obviously are in a in a different space. And then they take a look at innovation generally, and and certainly at the early stages, there is a lot more pressure. But where we're operating, it we the the companies that we're investing in continue to make the changes that people need and to apply technology, but principally to enterprises, but also to how we live and how we work and and how we build products and services, and we don't see that changing. But the interesting thing is if you look at the the last two downturns, whether that's .com boom and bust or the global financial crisis, tech and innovation has created large substantial long term winners. And we see no reason to believe that this won't be the case this time around. We do think there'll be some fragmentation from some of the larger players that will throw out a lot of youngsters and a lot of people who potentially are very entrepreneurial, who will then get funded for the best businesses, and then we'll grow those businesses.

33:51 Quite often, it takes a very sharp shock and a very tough environment for the best businesses to really flourish. And we believe that there's every likelihood that when we come out of this covert COVID directed downturn that that that winners will be identified and winners will be created. And clearly, our model is to make sure that we continue to stay in the market and that we continue to be able to identify those potential winners. So as far as outlook goes, for the second half of the year, we don't see any dramatic change to the level of uncertainty, macroeconomic factors, the geopolitical tensions that we're seeing across Europe. We don't think those are gonna change significantly before our year end, so March 31.

34:39 However, we would hope by the back of end of next calendar year that we do start to see some improvement in the certainly, the stability of the environment. We do believe that we'll we will remain on track for a 150,000,000 of deployment, and and and that really reflects where we are in a and and we are preserving capital both in our own overheads, but also in how we deploy capital. And we do think that they we we're continuing to look for realizations, and do we think that there will be an uplift in realizations in the second half than the first half. We don't see potentially that there'll be many IPOs. It certainly won't be before the March 31, but we are hoping the IPO market will come back next year, calendar year, at some stage. But certainly, the m and a market should come back next year.

35:27 And 70% of our exits historically have been through trade sales, so we do think there will be opportunities for us to look for realizations. We're gonna be continuing to focus very closely with the portfolio, help them to extend their cash runway, but also make sure they don't inhibit their ability to grow because keeping those growth rates up is absolutely critical to our model. We'll continue to build third party assets and and income. And and I think most importantly, you know, we're still in the market. We're still out there looking for the best companies to invest. We are being slightly more cautious. Being slightly more judicious about about targets. We are looking at the routes to profitability for these companies, but they are early stage companies. And I think we have to accept that that, as Ben said earlier on, you know, there are there there is risk in this business, but but but our our job is to make sure that we use our capital in in the most risk adjusted approach that we can.

36:24 It is a portfolio play. It is across the whole portfolio that we think we can add value and deliver returns. And so I think it is important for for all of our investors to understand that that we may have one or two companies that don't do well, but as long as the majority of our companies are well run, they have good cash, they're showing traction in the critical proof points for the the growth growth of of the the business, then they will turn out to be good companies, and we will be able to deliver good returns. So we're very confident that high growth tech companies will continue to flourish in the current environment. What What these tech companies are doing, the solutions they're providing predominantly to enterprises around reducing costs, reducing risk, improving ability to to deliver and develop products, all of those solutions are as relevant now as they've ever been. And the technological advances we've seen over the last five years continue to to move very rapidly.

37:24 And so therefore, we're we're very excited about the prospect of tech and about European tech, and we're also very excited about the prospect of the portfolio despite operating in a very difficult environment. So those were the that was the presentation. I know we've got some questions. Probably, should I hand back to you, Paul, or should I go straight into That's the That's fantastic. Look, thank you very much indeed to you both for the presentation. As Martin said, we've had a number of questions through, and do please continue to submit those questions via the Q and A tab on the right hand corner of the screen. But just for the team to take a few moments to review those today, I'd like to remind you the recording of the presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard on the investment company platform. Martin, as you say, we have received a number of questions throughout today's presentation. If I could just ask you just to click on that q and a tab. And where appropriate to do so, if you could read out the question and give your response, and I'll pick up from you at the end. Thank you.

38:18 Okay. So the first question is what exactly is the structure of companies in LP in the various funds? How is it structured to participate returns from the fund? So very simply, we're we're a PLC. We're a balance sheet. We invest our own money. We only third party money we invest at the moment in any scale are the EIS and VCT, but we are looking to build new funds where we there will be a traditional GPLP relationship. And that is, for example, the fund of funds that we're syndicating. That will be that GPLP type relationship. So predominantly, it's the PLC. It's the balance sheet money that that we we are investing in, and the only third party money that we're investing in any scale at the moment is the EIS VCT. I do think that will change as we start to launch new funds and build in terms of sources of income.

39:09 I think the next question is quite an interesting one. How how do valuations for new deals that you're working on compared with those twelve to eighteen months ago? And, well, I think there are three a number of questions. I think the first one is how do valuations? Well, the valuations are smaller, certainly than twelve months ago. I think some of the some of the founders have got the memo about the world has changed. Some of them haven't. So we are still seeing some very hot companies with very high valuations. And and and and, obviously, we're we're we're avoiding those. But but the reality is that that the valuations are much more realistic now than they were twelve to eighteen months ago. We've talked about the the the cadence.

40:00 Funny enough, it's partly because of lower inflows from exits, but also partly because we're just being more cautious in this environment. In an environment where it's hard to know what the cost of capital is gonna be two to three years down the line, it's it's you've got to be very careful of your valuations. Your in price is very important. So so so part of it is about not about exits dropping, but I I would say it's more about us just being much more cautious about where we invest in. And and I don't think we're feeling frustrated about missing good deals for the lack of funds. We every week, we go through with our whole investment team all of the European deals every week that have been done. We we identify whether we'd we'd seen them and whether we'd and or whether we'd missed them. And and there are very few that we look at and say, really wish we'd got into that, and it isn't because of lack of funds.

40:53 I think it's worth adding, isn't it, that the current market that we see, there there is a cautiousness that's supplied across the whole of the the PC market at the moment. And so you'll see tier one companies getting funded and a lot of capital going to those, but a lot more cautious approach to new deals across the sector. But also from a valuation perspective that you will find new deals will be a function of how much capital is raised, and therefore, part of that caution is is reflecting the cost of capital. And people are investing less and companies are raising less because they're they're they're being a lot more capital efficient. Edison report. Do you want the next Edison report then? I believe the next Edison report should be out in the coming weeks. They're just doing a refresh on the back of the interim results.

41:40 I think we dealt with the difference between investing in the shares between the PLC and the VCT. Loan facility. Yeah. So I'll touch on the loan facility. Sorry. Should read the question here. Loan facility seems to contain a covenant regarding gross portfolio value and reference is creditors' ability to do quarterly independent portfolio valuations. If there is still a degree of overconfidence in the valuations, e. G, Fortune's 100 times revenue, does this not create a vulnerability? Is the covenant based on the creditor's valuation, or is it dependent on the results delivered by the company? Okay. So a few few things within that. As an overall point on the loan, we had a loan facility in place that was 65,000,000 revolving credit facility. We we brought that in in initially when the balance sheet was around 500,000,000.

42:26 So we've always tried to keep the loan facility actually around 10% loan to value. The new 150,000,000 facility is just extending the existing arrangements from from a size perspective. We've bought JPMorgan in as the as the lead lender in in this facility. And but that's still very much keeping it at 10% of of loan to value. And, therefore, the value of the portfolio is indicative of where they where the loan is is has been set and where we can raise. In terms of independent valuations, the the lenders do have a right to get an independent valuation every quarter. We had one at the outset of the loan facility. That was a feature of the previous facility as well, and that's something we've worked with for the last few years. And and we haven't found any major discrepancies between the independent valuations and our own, But that's a process that once we've submitted our our evaluations as we have them now, then the the the lenders take our evaluations at the next the next mark on the portfolio.

43:28 It's only really where there's significant potential discrepancy that they will ask for that independent valuation. But as I say, it's something we've been through many times before, and it's seen as an important test for us in terms of another reference point to to where we value the companies. And quite frankly quite frankly, we we welcome that because it's it's a broad market, and it's helpful to see different points of input. Yeah. Thanks. So, again again, the point that really you know, the the point to take away from that for those that are the the previous question as well about independent valuations, we went through a full independent entirely independent valuation in March and then another one at the end of the the loan facility process. So we have had two this year fully independent valuations relation in relating to getting the the debt the debt facility set up.

44:22 The next question is then what percentage of your portfolio is valued using the last funding round? I think we've covered that. I think we've covered that. There's a sort of 904,000,000, I think it was last round, but that's last round calibrated to the market. So it's not taking the last round of price. It's actually moving that and taking those discounts that we've applied with an average of 27%. So what next question is, what is the main differences between the business model of MOLTEN VENTURES and IP Group? Do you call IP Group as a competitor? I don't really think we see them as a direct competitor. They invest in a in a slightly different way, obviously, from the outputs predominantly from universities. And, obviously, they have significant third party assets, but we don't really see them in our deals. No. It tends to be that they're university spin out, so they go much earlier than we will. So we'll we'll come into to deals later. We've had very few cross investments. We've had some, and they will often go for sort of more hardware focused or or or health care focused than we will. So ours will be our portfolio is very much focused on technology, later stage technology than they will go. So we don't tend to see them in deals as a competitor.

45:32 So the next question is around headcount reductions. Can you please comment on the extent of cost optimization measures, AI headcount reduction, across your core portfolio? I think I think the thing to bear in mind is the core portfolio tends to be later stage companies. It tends to be larger companies, and therefore, they've gone through a number of years of growth. And there's always fat in companies that grow very rapidly over a period of time. And so I think pretty much all of our core companies have taken some headcount measures. They've all taken cost measures. I can't don't think we can say consistently. There consistency because there's such a variety. But but, generally, with the larger companies where they've got large cost bases, they have been taking out costs as you would expect because if they're not making profit, then if they don't take out cost, then they're just gonna have to come back to market quicker to raise. So but it has been significant, and we've been working very closely.

46:29 With most of the core companies, we don't have a great deal of influence. They tend to be a bit away from us. When Ben Ben showed the talked about the returns, the mid range companies, they're the ones we're talking to most, and that's where we've had the most direct impact, and we're we're helping them to drive cost optimization where they need to. Proportion of the next question is proportion of gross portfolio value is made up of the par value of your preference shareholdings. I think Ben mentioned I think we have a bullet on one of the slides which points to to about 90% of our companies having the preference share stacks in the structure, and about 45% of of those have been utilized in this valuation period. Next question. If you feel so comfortable about the underlying value of the portfolio, what would make you consider kind of buyback? I think a realization of a £150,000,000 would probably most certainly lead us to to do a buyback. Look, we are very we're very confident in the value of the portfolio.

47:27 We believe there is a value gap. We would definitely buy back excess cash. We are we you don't raise debt to buy your own stock, clearly. And so right now, it's not appropriate for us, but we would definitely do a buyback at this at this price. Indeed, we would have loved to two two or three weeks ago, and we still would at this price. But but it is about capital and liquidity. We need to keep enough liquidity to make sure that we can support the portfolio and preserve the value in the portfolio. And so at this stage, where we are right now, sadly, it is not an option. But the next question, can you buy your own shares? Absolutely, we can. And we would, and indeed, Ben and myself certainly personally have been. And I think we as I said, that that's a matter of capital for the for the business.

48:16 How do you get access to the fund of funds offering? I'm not I think this might be how does an individual get access to fund of fund offering. And And I I think think I think it may know who asked that question, and they can they can contact us directly if it's if it's something there. But it's it's an institutional product. We're looking to syndicate that out to institutions for large checks, and so there'll be sort of a minimum check size in in this sort 3 to 5,000,000 range. But, yeah, it's it's something that is available, but it's probably not appropriate for for for for most of the retail investors on this call, I imagine. But if people feel that's different, then please contact us. The next question. When you talk about portfolio companies like GROWTH called Riverlane whose output is extremely specialized and complex, how do you evaluate their approaches and chances of success as non experts?

49:03 Really good question. We've got a mix of skills and expertise in our portfolio group. Do have some tech technology experts, certainly in health care. Inger Deacon, who runs our our she's our health care lead. She's a doctor. So we do have some specialisms. But but but the reality is that we're investing in people and models and momentum in most cases. And if we need to do some form of technical due diligence, then we will do that. Our view generally is the best possible form of due diligence, Certainly, in a in an enterprise software market is is large sophisticated customers buying in scale. And so, for example, with Thought Machine, when we invested in that company, they're just about to sign Lloyd's banking group, Standard Chartered, and SEB.

49:54 It's a cloud sourced retail core banking system. You know, we understand how it works, but for us, the greatest due diligence was that Lloyd's banking group were gonna sign a multiyear contract as they did. And so for us, really, by the stage we come in, most of our the technology the technology risk is probably relatively small because they've already hit certain proof points and already starting to accelerate. So that tends to be the case. But, certainly, in in Graphcore and Chips and Riverlane when it comes to quantum, you know, our view in in with Riverlane and quantum is that we have an expert who has a thesis around how the quantum market will develop around applications, around operating systems, around hardware.

50:41 And then we look for the businesses that are gonna operate in those particular areas. The app whether it works or not, then we'll either outsource that or use customer due diligence to to to prove the technology. The next question is, are there any subsectors you are particularly keen on at the moment? I I think for us, when we look at our portfolio, you know, we have a group of companies that that have certain things in common. It isn't a particular sector or subsector. It's because they are they they've got good entrepreneurs. They're in very large addressable markets, European European based. It's because they are doing something that no one else is doing. It's because they have very high gross margins.

51:27 They've hit certain proof points. It's those sorts of things rather than a particular sector that we we are particularly keen on. So I wouldn't say there's any one subsector. We are quite heavy in fintech right now. I think that's just the nature of the way things have been. We've done a lot of deals on the continent last year. I think that's just the nature of the opportunities we saw. So I don't think there is any particular subsector. Look. There are some that we stay clear of. You know, we're not into medical devices. We are wary of marketplace opportunities now, heavily consumer driven, as you might expect. We stay away from anything related to weaponry or anything like that from ESG perspective. So I think there are more subsectors that we stay clear of rather than ones that we are particularly keen on.

52:21 And I think that's the best way to answer it. I could spend an hour talking about the particular things we're excited about at the moment, but I but I'm not sure that was the question and all we can do here at the time. The next question, which I think is the last one, would MOLTEN look to an investment in a disruptive tech app platform at seed phase for less than 250 k investment? No. We would not be looking at that necessarily, but we would definitely we get a lot of those through through seed late seed, and we would direct them towards one of our seed fund of funds. So So I I think think those are all the questions. I think that's it. Martin, Ben, thank you. You've addressed every single question we've had through. So thank you for that, and thank you to all the investors for submitting those. And, course, any further questions that do come through, the team will have the opportunity to review those and we'll publish responses where appropriate to do so.

53:15 Martin, just before redirecting investors to provide you their feedback, which I know is particularly important to you and the team, can I ask you just for a few closing comments, please? Yeah. Thank you very much. And, look, thank you for those who have who have dialed in. We do think it's very important for us to be able to reach out to all of our investors, and we and we see this platform as an opportunity to do that. So thank you for coming and dialing in, and also thank you very much for the platform for providing us with this opportunity. As far as the key messages that I I think it's that I hope you will take away from this call, the first one is that we have seen NAV reduction, but it but but that does more reflect market peers peers and market confidence than our own direct portfolio. The portfolio is stable. It's well funded and continues to grow very nicely. And we have sufficient funds in the PLC to take us through the end of this financial year and to be able to support those those portfolio companies.

54:15 As far as looking forward, we will continue to preserve capital, our own cash, and and also that those are helping our portfolios to extend their runways. We will will continue to build AUM and third and third part build third party assets and to build income, which we think is important for us to be able to do as a more to become a more stable and an income generating business. But but I think most critically is that the opportunity to invest in tech across Europe is as important now as it has ever been. And the technological advances continue, and the benefits that our portfolio companies and other start ups and other early stage growth companies are bringing to enterprises to help them to deal with the new economic reality is absolutely there. So we're very excited about the proposition and the pro and the prospect and our markets, but we are also putting a cautious tone because we are in very uncertain times. So thank you all very much for your time. And, again, thank you very much for Investor Meet for for providing the the platform for our session today.

55:20 Fantastic. Martin, Ben, thank you indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order the management team to better understand your views and expectations. This will only take a few moments to complete, and I'm sure it's greatly valued by the company. On behalf of the management team of MOLTEN VENTURES PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good morning to you all.