In my previous article I looked at how prominent AI and SaaS are to the advanced of our productivity as a society, as well as the uncertainty of the stock market. If investors would like to participate in this cycle of technology advancement, and support younger, potential important players in these sectors, a venture capital fund (a fund that invests into young companies with a bright outlook and provides guidance and talent into the company) could be a good alternative.
In the case of a venture capital fund, the fund manager will hand pick the companies and perform extensive due diligence to ensure a high return on capital.
Based on detailed research from Cambridge Associates, the top quartile of VC funds had an average annual return ranging from 15% to 27% over the past 10 years, compared to an average of 9.9% for the S&P 500 return per year for each of those ten years.
The only problem is, VC funds are only open to accredited investors, meaning for individuals who have (i) a [joint] net worth of at least $1 million (excluding primary residence); or (ii) annual income of $200,000+.
But to access more funding, these funds of funds have had to look beyond the traditional closed-ended VC fund route. One possibility is the creation of a fund that pools investments, so that the fund itself can be an accredited investor, enabling it to invest into VC funds on behalf of non-accredited investors.
SuperSeed Capital [AQSE:WWW], is one of these fund of funds, and has been giving its investors access to some of the advanced technology trends discussed in my previous article.
SuperSeed Capital is an investment fund listed on the Aquis Exchange in London, and it is managed by SuperSeed Ventures LLP, which is authorised and regulated by the FCA. The fund is focused on backing ambitious B2B software founders and has a strong portfolio of investments in various tech companies.
An experienced board is critical
A successful VC can not be looked at in isolation without recourse to the experience on its board. For SuperSeed, the board consists of Joe Truelove Sr. (Chairman), Andy Hatton (Non-Executive Director), and Mads Jensen (Non-Executive Director).
Joe Truelove Sr. is a Chartered Accountant and Trust Estate Practitioner with over 25 years of experience in corporate governance and strategy. Andy Hatton has over 20 years of financial services experience. Mads Jensen is a successful entrepreneur and technologist who has worked for two decades building and growing tech businesses.
SuperSeed’s portfolio includes a diverse range of tech companies, such as Octaipipe, an Edge AI platform for autonomous systems; Garvis, an AI-driven demand forecasting solution for manufacturers and distributors; and Finteum, a blockchain-based liquidity management solution for banks, among others.
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With a team full of experienced investors and entrepreneurs, how has the fund been performing? Below are the key highlights from SuperSeed Capital’s financial report for the first quarter of 2023:
The period witnessed an 8% growth in the Net Asset Value (NAV) per share, reaching £1.05. Currently, it’s trading at 90.00 GBX, which is a 27% discount. The portfolio investments have yielded an Internal Rate of Return (IRR) exceeding 25% since the Initial Public Offering (IPO).
As of the period’s end, SuperSeed had a healthy cash balance and prepaid investment commitments amounting to £314,006. The Q1 2023 Operating Profit, inclusive of unrealised gains on investments held at fair value, saw a remarkable surge of 298% compared to Q1 2022.
The first quarter of 2023 saw a positive trend in sales growth, with a commendable 11% quarter-on-quarter increase in contracted SaaS revenue across the fund’s portfolio. It’s also noteworthy that three portfolio companies received offers for follow-on financing during this period, all at valuations that marked an uptick from the fund’s investment cost in 2022. This indicates a robust growth trajectory for the portfolio companies’ valuations.
SuperSeed is optimistic about the second quarter of 2023. They anticipate a quarter-on-quarter sales growth in the range of 15-25%. Profits for the second quarter are projected to fall between £200,000 and £300,000, translating to 8-13p per share. The fund also plans to expand its portfolio with two additional investments in the AI/SaaS space.
One of the new investments is in Kluster, a company that has developed a revenue intelligence platform. This platform leverages machine learning to accurately predict revenue forecasts and manage pipelines. It does this by reverse engineering targets through a deep analysis of management data, sales rep data, and market data.
Robust financial position
As of 31st March 2023, SuperSeed’s financial position is robust. The total assets stand at £2,508,189, with total liabilities at £16,678. This leaves the net assets at £2,491,511. The net asset value per ordinary share is £1.051384.
In terms of investment analysis for the period from 1st January 2023 to 31st March 2023, the total cost of investment was £1,748,152. After a fair value adjustment of £441,136, SuperSeed Capital’s fair value of investments stands at £2,189,288.
The financial performance of the fund has been impressive, but what’s equally noteworthy is the confidence demonstrated by the insiders. Since the 5th of June, the partners in the company have collectively invested £65,000 into the fund. This significant inflow from the company’s own partners is a strong testament to their belief in the fund’s potential for value appreciation.
The 52-week price range for SuperSeed has been between 52.5 and 110 GBX. Currently, it’s trading at 90.00 GBX, which is notably lower than the Net Asset Value (NAV) per share. This suggests that the shares are trading at a discount, potentially offering an attractive entry point for investors.
In my view SuperSeed Captial presents a compelling opportunity to participate in the tech rally and could be an interesting strategic addition to a diversified investment portfolio.