Baronsmead Newsletter - H1 2024 issue

Baronsmead VCTs insights

Welcome to our H1 2024 issue

In this issue we provide a comprehensive update on the Baronsmead VCT portfolios, shining a light on the Healthcare sector which continues to be a key theme. We also share our latest factsheets and provide an update on fundraising.

Fund managers, Ken Wotton and Tom Makey also share their insights in this video (adjacent) and we also highlight some more portfolio companies in a video on page 2.

We hope you find this informative and insightful. If you have any questions or feedback in regards to the VCTs, please reach out to the team.

Latest news

In October 2023, the Baronsmead VCTs changed its Registrar to The City Partnership (UK) Limited. Shareholders are encouraged to register their email address with City via the Hub portal or by calling them to reduce the printing/posting costs of the Company. Advisers can also access their clients’ holdings provided that an existing letter of authority has been provided or your client has a linked association through a recent subscription. Shareholders can also invite their Adviser, via the Hub portal, to be able to access their holdings too.

Advisors and shareholders access to City portal >>

Performance and portfolio overview

The performance in Q4 was positive for the VCTs, with the net asset value of BVT increasing by 5% and BSVT by 5.2%.

The VCTs benefited from their hybrid mandate, with the quoted and listed part of the portfolios returning c9.0% for the quarter.

The unquoted portfolios experienced a decline of 2.7% during the same period. While just under a quarter of the portfolio experienced value increases, this was offset by declines in other parts of the unquoted portfolio.

Outlook

NAV at 29 February 2024

It’s important to note, however, that the macroeconomic environment presents challenges not seen by management teams in a generation. High levels of volatility in market multiples, along with pressure on demand and operating margins due to marked increases in inflation and interest rates, are noteworthy factors.

More positively, the environment presented opportunities in Q4, with over £10mn of capital deployed into new and follow-on investments, which contributed to a total deployment of £31mn in 2023.

One year portfolio returns to 29 February 2024

Capital at risk. Past performance is not a reliable indicator of future performance.

Capital at risk. Past performance is not a reliable indicator of future performance.

ƒ Inflation and the associated increases in interest rates continue to have significant knock-on effects for asset prices - particularly those with long duration cash flows such as early-stage growth companies

ƒ Strong management teams and business models are well set to take market share and protect margins

ƒ We believe it is a good time to be deploying capital - a strong flow of attractive new and follow-on investment opportunities

ƒ A well-positioned portfolio diversified across over 85 direct quoted and unquoted companies

ƒ An ongoing focus on driving liquidity through unquoted exits, where appropriate, and quoted top slicing - delivered c.£52mn 1 of capital proceeds over the last two years at an average of 1.3x investment cost

ƒ Despite the challenging environment, we remain confident that our portfolio of businesses have strong fundamental characteristics, with most companies exposed to resilient structural growth trends or self-help opportunities, and therefore able to perform well despite the wider macroeconomic uncertainty

1. As at 29 February 2024

Fundraising update

Demand for Baronsmead Venture Trust plc and Baronsmead Second Venture Trust plc’s latest Offers for Subscription continues to be encouraging, with over 90% of the initial offer plus overallotment now subscribed.

Funds raised as at 13 March 2024

Offers for subscription >>

Baronsmead Second Venture Trust plc - Over-allotment facility announcement.

Read the full RNS >>

The VCTs third allotment is expected to take place on Thursday 28 March 2024.

Capital at risk. Past performance is not a reliable indicator of future performance.

Why Baronsmead?

ƒ Gresham House Ventures is the second largest venture capital firm in the market by AUM with over 29 full time investment professionals employed by the manager

ƒ Only hybrid VCTs in the marke which gives us flexibility across unquoted and quoted markets depending on conditions and valuations

ƒ Portfolio contains over 85 direct quoted and unquoted companies and diversification across the portfolio helps to reduce risk

ƒ Long term consistent and attractive yield payment

ƒ Ability to top-slice to generate short-term liquidity in AIM portfolio and equity funds

If you’d like any further information, please contact Rees Whiteley, Sales Manager, r.whiteley@greshamhouse.com

Healthcare businesses continue to catch the eye of investors despite the challenging economic backdrop

Investors naturally become more risk-averse in challenging economic times, but we believe the healthcare sector offers both resilience and opportunity.

We believe innovative, well-managed healthcare businesses will continue to attract plenty of attention, even if macro headwinds drive an economic recession. Health, after all, is typically a price inelastic industry. Most healthcare spending is not discretionary, people need medical assistance when they need it, rather than when they choose to buy. In frontline care, chronic conditions do not disappear when the economic winds change direction. In the life sciences sector, the pressure to develop new drugs and treatments is a constant and the pharmaceutical industry’s well-known patent cliff means timescales are non-negotiable.

Equally, none of the socio-economic pressures driving increasing investment in healthcare are cyclical. The ageing populations of the West, and the corresponding prevalence of co-morbidities, demand ever more resources. Public sector healthcare systems are struggling to cope, particularly as tax revenues come under pressure. Indeed, the current economic difficulties and increased pressure on public healthcare spending demand innovation and invention.

Healthcare shines in all weathers

For these reasons, healthcare has proven to be a consistently bright spot when the macro backdrop turns gloomy. Analysis from the consultant Bain & Company shows that following the 2000-01 dotcom downturn, returns for healthcare deals that closed in the next two years averaged more than 30%. And after the global financial crisis of 2008-09, healthcare deals rebounded quickly.

Capital at risk. Past performance is not a reliable indicator of future performance.

Deals completed in 2009-10 delivered stronger median returns than those that closed in the year prior to the financial crisis. Amongst the healthcare transactions in the first two years following that, the top quartile earned internal rates of return of 40%1 or more.

Against that backdrop, the healthcare sector continues to see good levels of deal activity despite the wider economic travails. Gresham House’s healthcare holdings are no exception as demonstrated with recent investments such as Mable Therapy, as well as recent exits.

For example, Gresham House exited Ideagen via its sale to Hg Capital. Ideagen, a fast-paced technology company that helps healthcare organisations (and those in other sectors) to manage their compliance and regulatory responsibilities, sold for a unicorn valuation of £1.1 billion, generating a return of 13.5 times at the time of exit.

In July 2023, Gresham House portfolio company Medica, a specialist tele-radiologist service provider, was sold to IK Partners. The private equity group’s £269 million offer for the company valued it at a 32% premium to its closing price before the offer2

Speaking broadly, the healthcare and pharmaceuticals industry has seen a surge in M&A activity globally over the course of 2023. The life sciences sector alone saw transactions totalling more than $191 billion in 2023, up 34% from 2022. 3

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These elevated levels of investment suggest that the traditional defensive qualities of healthcare businesses are just as sought after in this period of economic turmoil as in previous downturns. But there is also something a little different about today’s market landscape that is underpinning demand: in the crisis of 2008-09, liquidity was in short supply whereas today the opposite is true.

Data from S&P Global underlines the point. Globally, private equity firm’s dry powder reached a record $2.59 trillion in 2023 4 . At a domestic level, the fundraising success of VCTs also provides liquidity – Gresham House’s Baronsmead and Mobeus VCTs have raised over £265 million since December 2021, for example.

Attention healthcare entrepreneurs

All of this is good news for growing healthcare companies and entrepreneurs in the sector – funding continues to be available, even as investors become more cautious.

However, this is not to suggest raising money in the sector is a sure thing. Investors have become more discerning. Fundraising processes are taking longer; due diligence is more exacting.

The best companies continue to attract generous valuations, but pricing is under scrutiny.

That requires business owners and management teams to be prepared. Investors are looking for evidence-based business cases that set out a clear path to return on investment. They expect businesses to be run efficiently, with a runway to revenue generation and profitability that balances the drive for growth with an emphasis on cost-effectiveness. They want to understand how businesses will achieve specific outcomes and impacts.

Discipline, in other words, is vital. Nevertheless, the best healthcare companies will secure the investment they need. That includes businesses that provide crucial support to the sector including services and technology tools creating staffing or cost efficiencies, as well as those that support the drug development cycle.

Moreover, the best investors offer more than just funding. They provide expertise, experience and contacts that can help healthcare businesses achieve their ambitions – both in the current volatility and over the longer term. The opportunity is to capitalise on today’s resilience to drive continued success.

We believe the healthcare sector offers both resilience and opportunity

Meet the Healthcare specialists

Maya Ward

Maya joined Gresham House in September 2019, and focuses on healthcare investments, including Orri (a provider of eating disorder services), Metrion Biosciences (a drug discovery services business) and Panthera Biopartners (a patient recruitment business for clinical trials).

Maya has been advising and investing in the healthcare sector for over ten years.

Prior to Gresham House, she spent 4 years at Octopus Investments, investing in real estatebacked healthcare companies and entrepreneurs across a range of subsectors including retirement villages, care homes, special education schools and private hospitals. Before this she worked at KPMG for 7 years in audit and latterly in the Healthcare Corporate Finance division where she enjoyed a broad exposure to companies across the pharma and health and social care sector.

“It’s a pleasure to be investing in the future of UK healthcare across a range of sub sectors and working with some of the country’s top scientists and clinicians to deliver world-class solutions. Healthcare remains an attractive sector given its counter-cyclical nature where underlying growth is underpinned by long–term, structural drivers and where delivery of care demands innovation given supply-demand imbalances.”

Brendan Gulston

Brendan joined Gresham House in November 2018 as part of the Livingbridge VC LLP acquisition. He is a director on the Public Equity team, and co-fund manager of the Gresham House UK Multi Cap Income Fund and UK Micro Cap Fund. Prior to that he spent five years in investment banking at Canaccord Genuity, focusing on advising UK companies, with a skew towards smaller public companies within the Technology, Media and Telecoms (TMT) and healthcare sectors.

Since joining, Brendan has been developing the thematic healthcare investment strategy, targeting long-term structural drivers that are transforming the life sciences value chain.

Brendan studied commerce with a focus on finance at Melbourne University, Australia.

“It is hugely exciting operating a thematic strategy, such as in healthcare and life sciences, where we can leverage our public-private crossover capability to pre-empt rapidly changing ecosystems. We expect to see a continuation of compelling investment opportunities across this strategy as long-term trends play out, largely to the advantage of UK SMEs capitalising on this transforming environment.”

Useful documents

Annual report

Baronsmead Venture Trust

Baronsmead Second Venture Trust

Baronsmead Venture Trust

Baronsmead Second Venture Trust

Company spotlights

SecureCloud+

SecureCloud+ is a provider of managed IT services to the UK Defence and other public sector customers with demanding security requirements, in particular those operating at the highest levels of secrecy. Due to the increasing cyber security demands, IT related spending within the defence sector has increased significantly over the previous and is continued to going forward driven by increased global uncertainty.

The Baronsmead funds invested £1.5mn into SecureCloud+ in September 2018 to enable the business the business to invest in the product and go to market teams. Since investment, the business has grown revenue c.5x from £4mn to £18mn, creating 58 new highly skilled jobs over the same period.

Portfolio investments in smaller companies typically involves a higher degree of risk. Investments investment recommendations.

Mable Therapy

Mable Therapy is the UK’s leading digital health platform for children’s speech and language therapy and counselling services. The business addresses a growing area of need – an estimated 1.4mn children in the UK have long-term speech, language, or communication needs.

Mable offers an affordable direct-toconsumer service, as well as solutions for the education and healthcare sectors. Technology adoption in these sectors is now seen as vital to address the growing unmet demand.

In July 2023, we invested £3.1mn to accelerate Mable’s growth across their three sales channels, which includes supplying schools with innovative screening tools to help educators access support quickly and effectively.

selected for illustrative purposes only to demonstrate investment strategy and are not

Source for all information is Gresham House unless otherwise stated.

Contact details

Chris Elliott

Managing Director, Wholesale

M: +44 (0) 78279 20066

E: c.elliott@greshamhouse.com

Andy Gibb

Sales Director

M: +44 (0) 78490 88033

E: a.gibb@greshamhouse.comw

Rees Whiteley

Sales Manager

M: +44 (0) 75975 79438

E: r.whiteley@greshamhouse.com

Risks to be aware of

ƒ The value of the Company and the income from it is not guaranteed and may fall as well as rise

ƒ As your capital is at risk you may get back less than you originally invested

ƒ Past performance is not a reliable indicator of future performance

ƒ Any tax reliefs are dependent on your individual circumstances and may be subject to change

ƒ Funds investing in smaller, younger companies may carry a higher degree of risk than funds investing in larger, more established companies. Investments in smaller companies may be less liquid than investments in larger companies

Important information

This document is a financial promotion issued by Gresham House Asset Management Limited (Gresham House) as Investment Manager for Gresham House plc under Section 21 of the Financial Services and Markets Act 2000. Gresham House is authorised and regulated by the Financial Conduct Authority with reference number 682776 and has its registered office at 5 New Street Square, London EC4A 3TW. The information in this document should not be construed as an invitation, offer, solicitation of any offer, or recommendation to buy or sell investments, shares or securities or an invitation to apply for securities in any jurisdiction where such an offer or invitation is unlawful, or in which the person making such an offer is not qualified to do so. Whilst the information in this document has been published in good faith, Gresham House provides no guarantees, representations, warranties or other assurances (express or implied) regarding the accuracy or completeness of this information. Gresham House and its affiliates assume no liability or responsibility and owe no duty of care for any consequences of any person acting in reliance on the information contained in this document or for any decision based on it. Past performance is not a reliable indicator of how the investment will perform in the future. Your capital is at risk. Prospective investors should seek their own independent financial, tax, legal and other advice before making a decision to invest. This document has not been submitted to or approved by the securities regulatory authority of any state or jurisdiction. This document is intended for distribution in the United Kingdom only. Any dissemination or unauthorised use of this document by any person or entity is strictly prohibited. Please contact a member of the Gresham House team if you wish to discuss your investment or provide feedback on this document. Gresham House is committed to meeting the needs and expectations of all stakeholders and welcomes any suggestions to improve its service delivery.