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58. Bull, Bear & Beyond – Molten Ventures executive interview
3 Plays10 months ago
In this interview, Ben Wilkinson, CEO of Molten Ventures, provides a comprehensive overview of Molten Ventures’ performance, strategic focus and the broader venture capital landscape in Europe.
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About ‘Bull, Bear & Beyond’
Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets and 60-second pieces are a compressed summary of content designed to convey our message in a single, easily shareable hit.
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Original interview published on 14/02/2025 and reposted as a podcast
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Transcript
Introduction to Moulton Ventures
00:00:07
Speaker
Hello and welcome to Edison TV. I'm Dan Ridsdale and today I'm joined by Ben Wilkinson, Chief Executive Officer of Moulton Ventures. Moulton Ventures are a London-based VC, one of Europe's largest VCs focused on the European technology sector.
00:00:24
Speaker
Ben, many thanks for joining me today. Thank you for having me on.
Successful Exits in 2024
00:00:29
Speaker
And to start with, you've you've had a successful 2024, a number of successful exits, um releasing about 124 million of capital. Can you just discuss those exits that you achieved over the course of the year?
00:00:43
Speaker
Yeah, as um I think everybody recognizes, um providing liquidity into our evergreen balance sheet is is an important feature and with these realizations, but also crucially um selling our assets above our holding value and proving the the fair value that we have them in the books.
00:01:02
Speaker
And so that cadence of of activity is as over the years that we've been listed been an important feature for us. And in aggregate, we've um delivered 600 million back to our balance sheet.
00:01:14
Speaker
And last year, we started the year giving some guidance to say we were targeting 100 million to come through. And then with four main transactions, as you say, we've delivered up to the interim period and just beyond, 124 million coming back. the First one was Perpbox, which has been in our portfolio since 2016, 2017. Then we continue to support the business as it's scaled.
00:01:39
Speaker
ah We sold that and announced it in the sort of early part of our financial year, so in the April, May period. of 24 and that delivered a multiple uninvested capital of of about 1.3x but crucially above again the holding value and um when we talk about these exits it's important to put them into context of of the range of of venture capital returns and so um um when we have Graphcore as an example which was an asset in in the portfolio for several years
00:02:12
Speaker
had had a good run up in terms of valuation and then ultimately didn't quite deliver on the the market potential that we were seeing for for a variety of reasons and that's the nature of technology investing. Ultimately you you you're placing investments for future opportunity and sometimes they come to fruition and and sometimes not. In the crazy case of Graphcore we got slightly less than our money back out but again at the holding value we had it in the books.
Profitable Exits and Strategies
00:02:37
Speaker
um And then with Endomag, there was ah a subsequent sale from a medical device company that had been in the portfolio for a similar amount of time since around 2017, and that delivered just under a 4X multiple for us in the period.
00:02:54
Speaker
and also crucially returned to capital not just to our public balance sheet but to our EIS and VCT shareholders which proved the the value of those co-investment pools of capital. So we had about 36 million coming back from that transaction.
00:03:09
Speaker
And then the larger one was M-Files, That had been in the portfolio for a longer period of time. This was an intelligent document management um company and that had been in since 2013. We continue to to back and invest in the company and and and support them on that journey.
00:03:29
Speaker
And um the exit there was a private equity recap as they go to that next stage of there of their their growth and and um that delivered back to us a 7x multiple and almost 50 million of capital. So that was a nice spread within those four and I think actually the the cadence of them and the kind of regular news flow that that's generated has been imported in the year as well.
00:03:53
Speaker
as being able to recycle that that that capital into our capital allocation policy.
Focus on Secondary Investments
00:04:00
Speaker
Yeah, and um just just looking at that capital recycling, um I understand that part of your proceeds will be reinvested into new opportunities with secondaries being you know a particular focus. Really, to i guess, position yourself for the next VC cycle. Can you um tell us more about that?
00:04:21
Speaker
Yeah, I see the the market really has sort of a tension that exists at the moment as we see the public markets have been struggling for liquidity and and share prices have therefore been trading below asset values.
00:04:35
Speaker
There's a tension naturally therefore to support the share price, that's what we're here for, to provide returns to our shareholders. um but also to build fundamental value into into into the business. And we're in the unique position where we're supporting innovation and productivity that public market shareholders can't really get access to unless they they own shares through Molten Ventures. And our ability, therefore, to drive future vintages and Venture capital is a long-term asset class and so investing into new technologies and being consistent about that creation of of of new investments and and supporting those those technology shifts as they come, that creates the value that we'll be accruing in you know three, four plus years time.
00:05:22
Speaker
And so we're very keen on making sure that we we stay in the market, we stay active, particularly now where I think we're in the midst of a generational technology shift. It's a very unique opportunity, even if you look over a 50 to 100-year timescale.
Investment Strategy and Share Prices
00:05:35
Speaker
I think we're in the midst of ah a value creation shift that I don't want our shareholders to miss out on. And so to make sure we we continue to invest is important.
00:05:45
Speaker
But as you described there, secondaries in a market where there's a pricing arbitrage, is a great way to to create value and we have a strong track record of investing in in assets um and also funds where there are clear ah leading companies in those portfolios. I'm thinking around the transactions we've done with CCAMP and with Early Bird and then in the last year with Connect Ventures as well and that's given as an exposure to TransferWise, to UiPath, to most recently Typeform and Soldo and also to Revolut and that just adds additional value to to our shareholders.
00:06:26
Speaker
And the beauty of secondaries is that you can price known assets and known winners. And because of the liquidity arbitrage, you could often price them at a discount to their to their true value.
00:06:38
Speaker
um And then you get the benefit of, because they're more mature, being able to recycle those those companies into into cash in a shorter time frame than you would do with just pure primary investing.
00:06:50
Speaker
and So, I think with Molten you have that unique capability of having that blend of primary and secondary investing opportunity to create value and that is distinct. and If you look at our capital allocation policy, we point to those those those opportunities but we also point to the need to support the share price. and So, we put we're saying 10% of our realizations will go into into buybacks and we put that program in place in the summer. And as we get more liquidity coming through from subsequent sales, we'll we' we'll continue to follow that policy.
00:07:23
Speaker
Right. and then And in terms of the current
Valuation Environment for VC-backed Companies
00:07:25
Speaker
valuation environment for VC-backed companies, you know you've seen stable portfolio valuations, um relatively few fair value movements, and and exits have been done at um somewhat above your the carrying value. yeah Can you discuss the valuation environment that you're seeing at the moment?
00:07:43
Speaker
Yeah, I think there's always two parts. One is valuation for new deals. And I think the venture ecosystem in in in Europe, which is where we we look to invest in new companies, is is being a little bifurcated between kind of AI-driven or perceived winners taking quite significant multiples on valuations.
00:08:02
Speaker
And then perhaps some of the other companies struggling a little more to raise capital. Through 24, we probably saw that ah picture improving, we saw more VC funds raising new new capital sources and I think into 25 we'll see that unwinding somewhat. VC is because of its long term nature is very much correlated to interest rates as well so we see kind of macro swings playing a a significant factor in in in the perception of interest rates but then that then feeds through to the perception of of valuation multiples. So that I think that will continue although we're probably ah fair to say that the last couple of years we've been through the worst of that.
00:08:44
Speaker
From our own portfolio perspective we follow the IPAV guidelines and we're very sensible about how we mark our assets. We're slow to move them up in in terms of increasing value and we're ensuring that we move them down in advance when we're starting to see that the companies may not be hitting some of their proof points that we'd want to see.
00:09:04
Speaker
And over the eight years that we've been listed, that's proven to be the right way to approach our valuations and we've had then the the cadence of realizations that that really give the yeah the litmus test to investors to show that we've been holding them at the right levels. And so I'm happy with the way that we've moved the assets up and I'm happy with the way that we've we've subsequently moved them down if they haven't hit their targets. And I think we've been able to demonstrate to investors that we've been very sensible about those marks.
00:09:32
Speaker
Yeah.
Core Holdings and Growth Insights
00:09:33
Speaker
And then looking at your core um your core holdings, can you give us a bit of detail in terms of um the expected revenue revenue momentum of those holdings and also the cash runway for them?
00:09:45
Speaker
Yeah, we we we aggregate what we call our core, which is between 50 and 20 assets in any period, and it represents more than 60% of the portfolio value. So these are the companies that we, if you like, put in the shop window to our shareholders to see what drives those expected NAV returns and shows they're kind of more mature businesses in the in the portfolio.
00:10:07
Speaker
They're growing at the moment of of an average of 50% into the coming year and that's showing therefore strong growth which is clearly important and for the stage in the market that we invest in you've got a blend of mature businesses which will have lower levels of growth and some which will be growing above that but the average being 50%.
00:10:28
Speaker
Their cash runway is is is is um and positive in the sense that we've got more than 75% with more than 12 months of cash runway. It's very normal in venture capital that the companies would raise for a 12 to 18 month window. And so we'll always have some companies in the market. And we've been able to prove over the years and and including in the last year that our companies are able to raise additional capital, not just from us, but from a syndicate of investors.
00:10:56
Speaker
And as they mature and grow, it tends to be that we will stay with those companies, but we won't be there the majority source of capital. And those proof points are equally as important as when we look to realise. And so, again, the news flow we've had within the portfolio been very positive on that.
European VC Market Outlook
00:11:11
Speaker
Just giving your thoughts on the overall European VC market, you know, we're we're seeing... you know, I guess continued de-equitization of of the listed tech sector. um Yeah, can you talk about the European VC market as a means to get exposure to innovative technology businesses?
00:11:31
Speaker
I'm super positive about the future for Europe and venture capital and and I think there's a few factors that play into that. One is that we've seen Europe as an ecosystem for venture maturing. When we listed in 2016 we're about 20 billion of scale in terms of the the market in Europe. That's probably around 80 billion now so it's shown ah a natural progression. We had a peak period a few years ago where it went over 100 billion.
00:11:58
Speaker
um And the reason that capital is available in Europe and coming into that ecosystem is because we have really strong underlying IP coming out of universities, but also entrepreneurs creating companies. And so there are certain sectors where Europe has been particularly strong globally, and but it's always had um over the past 20, 30 years, strong IP coming through.
00:12:21
Speaker
What's perhaps been lacking is that scale of capital all the stages of a company's life cycle, so from early stage through to to growth where we play, and then to later stage growth and IPO.
00:12:34
Speaker
What's important is to have that consistency, and at the moment there is a gap to capital that persists at the stage where we are in that series B early growth stage, and I think therefore it's important that we see more capital being unlocked.
00:12:48
Speaker
And I'm positive to see that the discussions around pension reforms and such like are having an impact in terms of at least momentum and perception, but but gives us a sense that the capital will start to come.
00:13:00
Speaker
What is true though is that we're still a third the size of the US and so we're we're we're under scale. I'm talking about a story where we've matured and improved. And I see Europe institutionalizing in terms of its venture capital as an asset class, but there's a long way to go. And I do think it's important that um governments continue to recognize the need to support that ecosystem and unlocking pension capital is an important part of that.
00:13:26
Speaker
But it isn't just an altruistic unlocking pension capital for the sake of supporting our ecosystem. This is about returns. And venture has proven that it can generate strong returns, higher than public markets, even after costs.
00:13:39
Speaker
And it's diversified in terms of the um the asset class relative to other asset classes and how it performs. And therefore, it should be part of a diversified portfolio. And I think ultimately, Malton can be seen as a a portfolio approach where you buy shares in Molten because you're you're thinking about it in the in the round of an entire portfolio and we're giving access to the an asset class with daily liquidity. So for me, we'll have done our job well when we'll have generalist fund managers not necessarily needing to understand every underlying company but just um understanding that this is institutional and that they can buy a share in Molten to get access to the VC space.
00:14:21
Speaker
Yeah, interesting.
The Role of Government Support in Tech
00:14:22
Speaker
And you mentioned the pension reforms, the mansion house reforms, um and we've recently seen the new government announce um its AI initiatives and and embracing AI, I guess, more ah overtly. um Can you just give your views in terms of um the role government has to play in supporting the the tech sector and and how that relates to to to your business?
00:14:50
Speaker
Yeah, I'm actually um of the view that we've probably not been active enough in supporting technology sector, even capital markets. I think we've been slow from a government perspective to respond to that. so I really welcome that active response.
00:15:06
Speaker
I think we all will probably agree that it's not always perfect when governments become involved but there's always a requirement. We like to believe in perfect markets and you know even if you have a capitalist bent we always understand that there's pricing anomalies and disconnects that occur in markets and some of that's from timing but direction of government I believe is important. making sure we can capitalize on what we generate here um from the perspective of the IP, like the AI technologies that we have, like the energy space technologies that we have, the life science technologies. you know We do have a lot to celebrate and I think if governments can help business and investors to support those ecosystems better, That's that's what we should be doing and I think we sometimes fall into a ah trap of assuming that everybody else in the in the world is not doing this, which um isn't the case. You can see in the US that there's there's a lot of active intervention to support their ecosystem and their businesses and and that's that's generating a lot of growth.
00:16:07
Speaker
And that's also allowing allowing US players to acquire IP from Europe. And I think if we can support our IP better with some state intervention at the right levels in the right places, then clearly that's, to my mind, well done.
00:16:21
Speaker
Yeah, and very interesting. And then, i mean, we talked on this a little bit before, but, yeah you know, given the de-equitization of the UK, of the European technology sector, really, what are the implications
Challenges and Opportunities in De-equitization
00:16:33
Speaker
of that on your business? I mean are you having to carry more weight in terms of scale up and scaling your businesses for longer? And also, in terms of your entry points, are you looking at later stage businesses because of that? Can you can you can you discuss um that dynamic?
00:16:49
Speaker
I think our unique skill set has um played out in the series A and series B investing part of the market and I don't see that changing. what What has changed in terms of de-equitisation is that the public markets have had substantially less liquidity to support um the ecosystem and and that's obviously affecting share prices versus asset values.
00:17:13
Speaker
And in response to that, we therefore have to be very obviously clear on our messages, we have to be very clear on our ability to generate returns and value. But it also means that we look to drive liquidity and and additional buyers coming into the into the shares with trying to and you know generate interest out of broader Europe and and broader US.
00:17:34
Speaker
I think the reality is is that the the role of what we do has become probably more important to support an ecosystem where great Previously you would have had the AIM market playing a role for companies and as part of their growth journey that doesn't really exist today in the same way and therefore companies staying private for longer is a continued feature and and and as such but the role of Maltent Ventures to ensure that we can be consistent in delivering capital and ensuring that we can stay with our best companies through that journey and is crucial.
00:18:07
Speaker
And so the way I look at that is that we need to have increased scale over time. You know, we could comfortably be two, to three times our size. Some of that will maybe be through realizations and and and driving returns from the existing balance sheet, but some of that will be from raising third party capital, be that possibly from pension funds or other institutional players that recognize the value of this this ecosystem.
00:18:31
Speaker
um And so I think the scale point has become more relevant over the last even two, to three years, probably. Yeah, interesting. It increased scale, but it also increased importance given the need to scale up all of our our technology businesses. um Ben, many thanks for joining me today. a Fantastic conversation and we'll see you again soon.
00:18:53
Speaker
I appreciate the time as always. Thank you, Dan.