Tern PLC (AIM:TERN) shares fell sharply on Friday after the AIM-quoted investment company admitted it no longer has enough cash to meet its obligations to a venture fund it backed three years ago.
The stock was down 19% at 0.36 pence in afternoon trading and has now dropped 72% since the start of the year.
Tern said it had asked for relief from further capital commitments to Sure Valley Ventures Enterprise Capital Fund, known as SVV2.
The company originally pledged to invest up to £5 million over the fund’s 10-year life and has so far invested about £1.3 million. As at 30 June, its holding in the fund had an unaudited fair value of about £0.8 million.
The decision to halt further payments followed a difficult year for the company’s finances.
At its annual meeting in June, shareholders voted against giving the board the authority to issue new shares for cash without offering them first to existing investors.
That left Tern with limited fundraising options. An open offer in October aimed at raising up to £642,486 brought in only £151,136.
With little fresh capital coming in and short-notice capital calls from SVV2 continuing, the board said it had “insufficient funds, or potential access to future funding in the short to medium-term” to meet further obligations.
The directors said they had tried several measures to avoid this outcome, including salary cuts, investor engagement, and working with SVV2 to find a replacement investor.
The general partner of SVV2 has confirmed that Tern will now be treated as a “defaulting investor” under the fund’s partnership agreement.
The remedies available include forfeiting previously invested capital or a compulsory transfer of Tern’s interest.
If neither applies and no other limited partner takes on its remaining commitment, Tern’s existing paid-in capital will stay in the fund until it winds down. Any residual value would then be returned, although defaulting status may reduce Tern’s rights to distributions and could limit how much it ultimately recovers.
Tern said it would update shareholders as the situation develops. The company noted that, after the proceeds of its October open offer, and assuming it makes no further investments or disposals, it expects its cash to last into the first half of the first quarter of 2026.
The board said it intended to remain “a constructive partner” in relation to SVV2 investments already funded and would continue to focus on long-term value creation from its key portfolio companies, which include Device Authority, FundamentalVR and Talking Medicines.