Venture capital firm Molten Ventures PLC (LSE:GROW) said it believes private sector valuations are likely to follow public stock markets in showing "signs of stabilisation" after the selloffs last year, which saw it report a 16.8% decline in net asset value (NAV) per share.
Private equity and VC's dream days of low interest rates are "unlikely to return soon", chief executive Martin Davis acknowledged, noting that investors today "typically show more caution" with an increased focus on how companies manage costs and their cash runways, or how they can reach profitability in a tough financing market.
Looking ahead, Molten Ventures, which was formerly known as Draper Esprit, said this caution has led to the deployment of capital slowing down, with larger financing events for the biggest European private VC businesses now rare, though data indicating smaller funding rounds "more insulated to the broader market adjustment when compared to larger rounds in excess of $250 million".
From Molten's focus on this smaller end of the market over the remainder of 2023 and into 2024 it "expects to continue deploying in a favourable valuation environment with high-quality management teams who will adopt the same approach to efficient revenue growth".
But in 2023 VC investment volumes are expected to further contract from 2022 levels, though the company said the "longer-term trajectory of the market continues to increase".
aving actively marked down the value of its portfolio, NAV per share fell to 780p in the year to 31 March, with a 6.8% decline in NAV return in the second half and the final NAV per share 5p above guidance in late April.
The overall decline in gross fair value was 16% to £1.17bn, or 19% if excluding currency swings.
This was despite the underlying performance of portfolio companies remaining strong, with average revenue growth of 40% among 'core' holdings.
Cash proceeds from realisations totalled £48mln compared to £126mln the year before.
Analysts at Liberum noted the average enterprise value of the portfolio declined 37%, with the overall 19% decline reflecting preference shares as around 90% of its investments have preference share structures.
"We believe the shares provide good value given that GROW has actively marked down the portfolio from peak levels, more than compensating for the downside baked-in to a 62% discount to NAV."
With underlying growth remaining good, the portfolio "provides good exposure to secular trends, as well as good diversification across the VC and growth capital life cycle", they added.