Published: Apr 14, 2021
Whilst the principal activity of the Maven VCTs is focused on constructing a diversified portfolio of fast growing and emerging private companies, selective exposure to the Alternative Investment Market (AIM) also offers our VCT investors access to a range of interesting, high growth companies seeking to raise capital in a quoted environment. Stella Panu, Partner at Maven, provides an insight into Maven’s approach when investing in AIM quoted companies.Although AIM used to be seen as a ‘stepping stone’ where successful companies would eventually migrate to the main market, today many household public company names such as Fever-Tree, ASOS and Boohoo have elected to remain listed on AIM due, in part, to the increasing maturity and credibility offered by AIM, which continues to attract a healthy number of new listings from companies based in both the UK and internationally.
AIM celebrated its 25th anniversary in 2020 and ended the year with 819 companies, having its highest ever total market capitalisation of over £131 billion. Whilst this was less than half the number of companies listed in 2007, notably the average market capitalisation was materially higher in 2020, including 24 companies valued at over £1 billion each, and 246 companies valued at over £100 million. Despite the impact of the pandemic, 32 new companies were admitted to AIM during 2020 raising £486 million, and a further £5.27 billion was raised for placings for existing companies¹ . To illustrate how AIM has come of age, the AIM All-Share Index achieved a total return of 21.7% in 2020, outperforming the FTSE All-Share which produced a negative total return of 9.8% over the same period² .
As well as attracting a higher quality of new entrant in recent years, technical factors have also supported the expansion of AIM, including demand from VCTs and private investors as part of their IHT planning and ISA allowances.
Why do we invest in both private and AIM listed companies?
In summary, to allow VCT investors to gain access to a more broadly based portfolio of companies with complementary growth and liquidity characteristics. A private company is likely to take several years to grow its operations and revenues before a sale or exit can be achieved. These companies may require several rounds of equity finance before reaching a point where management and investors wish to sell the business to optimise value. As a consequence, private company holdings are inherently illiquid until that single exit event occurs. Conversely, a listed market such as AIM may offer the opportunity to realise value much quicker, locking in progressive, partial gains on a regular basis when there are positive movements in the share price.
This is a key attraction of a dual private equity and AIM VCT approach which may often be overlooked. A VCT portfolio which is underpinned by a long term private company asset base means that a supplementary AIM investment strategy can be much more dynamic in terms of trading out gains, whilst at the same time maintaining compliance with the minimum qualifying levels required by a VCT.
The importance of newsflow
Share price movements for AIM quoted companies can reflect positive or negative newsflow, so it is important to understand the likely demand drivers for a specific stock prior to making an investment. If an AIM company has historically shown strong product innovation, regular client wins, and an ability to grow consistently, it is likely to be able to generate strong newsflow, which may drive interest in the company and its shares across a wider buyer audience, leading to pricing uplifts or an improved rating. Companies where commercial progress is less certain, or perhaps even binary dependent on very ambitious targets or the achievement of key commercial outcomes, are likely to experience greater share price volatility.
Our approach to asset selection
Our dedicated team of three AIM-focused executives have fostered strong advisory relationships to help source a broad range of introductions from key brokers, who work with us to develop a varied pipeline of VCT qualifying AIM investments. Maintaining and building upon this network of advisers with access to the best companies coming to AIM, and the associated research, helps ensure that our VCT investors gain exposure to a carefully selected portfolio of AIM quoted holdings, operating across a wide range of growth industries and sectors.
AIM increasingly attracts companies with an emerging or disruptive product or technology, or which operate in new or nascent markets, although there are many established companies which have successfully used AIM as a platform to grow their business. Since the beginning of 2020 Maven has supported 16 companies across the Life Science, Biotechnology, Clean Energy, Artificial Intelligence (AI), Data Analytics and the Media Intellectual Property space. These AIM investments have included DeepMatter (big data and chemistry analysis), Intelligent Ultrasound (transforming ultrasound scanning via AI), Feedback (medical imaging technology), SkinBioTherapeutics (life science focused on skin health) and One Media iP (digital music rights acquirer, publisher and distributor). Other Maven VCT backed AIM listed companies have been engaged in the fight against COVID-19 in the last year, which has also led to retail buyer demand for these stocks and share price appreciation.
Although not every investment in AIM produces stellar returns, some of our recent VCT investments have made impressive progress since the date of first investment. AFC Energy was a new Maven investment in 2020, with an experienced senior management team, strong opportunity pipeline and solid market drivers in a sector which looks poised for continuing growth. AFC develops hydrogen fuel cells for electric vehicle charging with no CO2 emissions, and a series of strategic partnerships and collaborations has seen the share price increase from 16p in June 2020 to 69p in February this year.
The Panoply is a technology-enabled services group focused on digital transformation in public services, and has been a Maven VCT portfolio company since 2018. It has a ‘buy and build’ strategy and a clear vision led by a CEO who is a serial technology entrepreneur. The company has upgraded market expectations for the year to March 2021, the share price has responded well, and at the time of writing was trading at 175p, more than 2x its 74p issue price in December 2018.
Biotechnology company, MaxCyte joined the Maven VCT portfolio in 2019. The business has developed a flow electroporation technology platform that enables next-generation cell and gene cell therapies and gene editing. The Maven team saw the value in MaxCyte’s proprietary technology – its CARMA (‘Chimeric Antigen Receptor’/‘mRNA’) platform, supported by the strong market drivers behind cell therapies. This year the company raised a further £40 million from investors at a price of 700p per share, with the share price reaching a new high of £10.40 in February 2021. This equates to a return of more than 6x cost on Maven’s 170p entry price in February 2019.
All AIM shares have the potential to be more volatile than traditional investments, and the value of the companies in the AIM portfolio may fall as well as rise over time. However, the Maven team manages this risk with their careful selection of companies as well as close and ongoing monitoring of the VCT AIM holdings.
*This article first appeared in Issue 22 of Maven's VCT investor magazine, Creating Issue.
1. London Stock Exchange Primary Markets AIM Reports Factsheet - December 2020.
2. FTSE Russell Factsheet as of 29 January 2021 – AIM Index Series and FTSE 100 Index.