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Savvy TMT Investments continuing to buy into success stories

Published: 13:52 07 Feb 2017 GMT

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TMT invests in early stage firms based in the US, Europe and Israel

It is almost three years since we first looked at venture capitalist TMT Investments (LON:TMT) and it is fair to say things are panning out almost exactly as outlined back in May 2014.

That’s quite an extraordinary achievement set against the success rates on AIM and the fact the venture capitalist invests in early-stage firms (based in the US, Israel and Europe).

Interesting for would-be investors is the fact that the shares now trade at a discount to net asset value (NAV), offering a potential entry point (this shouldn’t be construed as investment advice, it is merely an observation).

Founded by Alexander Morgulchik, German Kaplun and Artyom Inyutin, the trio behind the success of Russian media conglomerate RBC, it floated on AIM in 2010.

It has serial entrepreneur Igor Shoifot on board as a US-based investment partner who provides Silicon Valley introductions usually reserved for billion dollar funds.

To date, TMT has made 44 investments; there have been nine profitable full and partial exits and 22 other portfolio companies had financing rounds at higher valuations.

It invests in pre-series-A funding, meaning it tends to be one of the first into a company. Subsequent rounds tend to see a revaluation of the initial investment as well as bringing in the big guns of venture capital and private equity.

So, TMT has been a pathfinder for the likes of Bain Capital, Google Ventures and T-Venture (part of Deutsche Telekom).

Backing companies at the formative stage of commercial development isn’t always a one-way ticket to Successville.

There have been failures too - though not as many as one might first imagine.

Executive director Alexander Selegenev reckons there have been two occasions where the value of an investment has been written down to zero, as well as six partial write-downs/impairments.

“If something is successful we are absolutely happy for it to keep growing,” he says. 

“If it keeps growing why would you sell it? If something doesn’t work it normally happens quickly. In those cases we’ve invested maybe US$300-400,000.”

Subscription-based e-commerce, marketplaces, big data and software as a service are the four areas in which TMT invests.

The rise and sale of Dollar Shave Club reveals how scalable the subscription model can be (it was sold for $1bn to consumer products giant Unilever).

It also explains why TMT invested in ScentBird (a perfume subscription business) and Le Tote, which has been dubbed the Netflix of fashion.

“This alternative distribution model appeals to the millennials. They hate owning stuff. They like the rental sharing economy and want to try everything,” says Selegenev.

“Companies like Unilever aren’t spending huge amounts on developing these new channels. But they are buying up the success stories. This is just the start of the M&A activity in this space.”

TMT puts its success down to careful screening and the fact it never invests in pre-revenue businesses. It only looks at companies generating at least US$50,000 a month.

That shows the initial idea is commercial - whether it is scalable is an entirely different question.

“We have six companies with annualised revenues of over US$15mln already. Once they have US$50,000 [of sales] a month that is a real business and the risk level falls,” says Selegenev.

“The biggest challenge then becomes scaling that business - that is a huge challenge.”

The other big challenge is valuing TMT.

At the end of June its net asset value (NAV) was 191 cents a share.

Since then it has seen a revaluation of Pipedrive, the sales pipeline management tool, which is worth an additional 14.7 cents on the NAV.

There could be some downward adjustments too, factoring in write-downs and operating costs.

The company’s broker Hybridan estimates TMT’s NAV to be 196 cents, “which given the number and scalability of the investments in the portfolio, and the likelihood of other up-rounds, seems very good value”.

Those revaluations tend to happen in two to three year cycles, according to Selegenev, and 2015 was a big year for the venture capitalist.

“Hopefully there should be some developments this year,” he says. “But we are exactly where we planned to be. What’s happening now is what we planned.”

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