Looking to invest in a long term disruptive businesses? Then think Vela Technologies
“…Vela has curated an interesting portfolio accessing some significant investment trends, including fintech, biotech, cannabis and hydrogen fuel…”
Vela Technologies (AIM:VELA) is an investment fund focused on quoted or unquoted UK-based small to medium sized companies ‘that have identified areas of business or sectors which could be disrupted by either the development of new or use of existing technologies’.
The fund looks for undervalued technologies that have not yet been widely commercialised but which are sufficiently mature to have reached ‘post viability testing phase, to mitigate risk associated with early stage investment’. Risk is further minimised through a preference for minority stakes, but outright acquisitions will be considered if the prospect is right.
Vela is led by Non-executive Chairman Nigel Brent Fitzpatrick, also Chairman of the RiskAlliance Group, Halcyon Oil & Gas Limited, and Aboyne-Clyde Rubber Estates of Ceylon, and Executive Director, James Normand a former finance director at Pathfinder Minerals, and a serving non-executive chairman at All Active Asset Capital Limited and Global Resources Investment Trust.
The company has extensively recalibrated its portfolio over the past 12 months, offloading several holdings and invested some £3.75m in seven new investee companies. The makeover was facilitated by a £1.5m placing this February and a recapitalisation last August encompassing another £1m placing, the conversion of £550,000 of bonds into equity, and the release of £417,000 profits from the sale of past investments. In April Vela reported cash resources of around £2.1m and a portfolio of ten investments, five quoted and five unquoted.
Biotech, fintech, crypto, hydrogen and more
The company’s principal holding is a 9.37pc interest, worth £2.35m, in St George Street Capital (SGS), a UK-based medical-charity. SGS takes clinical-ready assets from pharmaceutical companies and seeks to progress them through Phase II medical trials, before licensing them for Phase III trials and commercialisation.
The charity has made significant progress towards commercialising a treatment for diabetic patients suffering with Covid, who the virus hits particularly hard. Encouraging results from Phase II clinical trials published earlier this month indicate that the treatment, which can be administered through tablets, is safe, and effective at controlling the high blood glucose levels that affect diabetics Covid patients. The trial gives SGS the green light to enter discussions with potential licensees, and data to support funding for further trials. SGS is also developing an innovative cure for idiopathic (unexplained) male infertility, which currently can only be treated through invasive IVF treatment undergone by women. The new treatment would be administered directly to the male patient.
Vela acquired another significant interest earlier this summer, spending £750,000 to take a 6pc holding in Northcoders (AIM:CODE), a Manchester-based company providing training programmes for software coding. Northcoders, which went public in July, has been embraced by the government’s ‘levelling-up’ agenda, offering state-sponsored apprenticeships as well as ‘bootcamp’ training courses. The company operates a hybrid delivery model, providing in-person training at one of several regional offices, and online courses through a digital platform, which allowed it to continue to grow during the pandemic.
Vela invested another £350,000 earlier this year to take a 0.92pc (pre-IPO) stake in Aeristech, a producer and supplier of power-dense compressors used to maximise the output and efficiency of vehicles powered by hydrogen fuel cells. Aeristech focuses on designing compressors that generate less heat, allowing for smaller motors that deliver greater power density. The funds the company expects to raise through its IPO will allow it to draw down on UK Government grant funding worth nearly £10m.
Another recent Vela investment is a £250,000 holding – equivalent to a 0.68pc stake – in Mode Global Holdings (AIM:MODE), a UK-based fintech group familiar to TMS readers. Mode is developing a suite of products to cater for all aspects of digital banking, payments and investment. Its flagship products, the Mode app and Bitcoin Jar, allow users to manage their traditional and digital assets, including Bitcoin and other cryptocurrencies, in a single online location. Mode also offers a payments processing service allowing businesses to access the payment portals provided by Chinese giants Tencent (WeChat) and Alipay.
Vela has a 0.36pc holding worth £150,000 in another company familiar to TMS readers, the Kanabo Group (AIM:KNB), an Israeli research and development company selling a range of retail cannabinoid(CBD) products in the UK and Germany. Kanabo is stepping up the marketing and distribution of a range of retail CBD products, and has developed an innovative vaporisation device, the VapePod Medical, which makes it easier for CBD users to calibrate their intake.
Vela has an interest in another Israeli company, MTI Wireless (AIM:MWE), which offers a suite of communication and radio frequency solutions including antennas for wireless applications, remote control solutions for water and irrigation applications, and RF and microwave solutions for aerostat, SIGINT, RADAR, and Platform systems.
Vela has a 2.4pc holding worth £200,000 in Cornerstone FS (AIM:CSFS), which provides cross border payment services for SMEs. Cornerstone seeks to remove the complexity of international payments for customers, through currency risk management, payment and electronic account services, and has plans to grow through the acquisition of foreign exchange businesses and continued development of proprietary technology platforms.
Vela’s smaller interests include WeShop, a digital social network platform focused on enhancing the online shopping experience by combining social media’s assets of reviews, likes, and shares with an engaging retail e-commerce offering, specifically tailored to the individual user, and Revolve Technologies, which develops low carbon technologies for both passenger car and rail, and commercial vehicle applications. Revolve is closely identified with the mountune brand well known in the motorsports world, which produces high quality race engine and road car performance parts.
Beyond public equity
Vela Technologies offers an entry point within the small cap space to an investment trend that has become increasingly pronounced this year. As investors seek alternatives to highly-valued equities and low bond yields they are demanding is greater exposure to assets held by private capital. Although still overshadowed by the traditional asset management industry, which primarily invests in mainstream, public equity and bond markets, the private capital industry is now growing as quickly as cheap, index-tracking passive investing, and, according to Morgan Stanley, is expected to be worth $13tn by 2025. The bank estimates the private capital industry has accumulated almost $2.5tn of ‘dry powder’ – money committed to funds by investors but not yet deployed. Goldman Sachs, Schroders and JPMorgan have all launched new divisions to give investors greater opportunities to invest in companies that have not yet come to market, or have no plans to do so.
Investors interested in accessing innovative private companies have plenty of options through big name investment trusts, and an increasing selection of funds focused purely on private equity. Vela might be interpreted as a complementary investment, offering access to fledging companies that may have been passed under the radar of the larger investment houses.
But prospective investors should tread with care. Vela is a tiny microcap worth £12.9m, with a share price that hasn’t moved beyond the 0.06p and 0.12p range for the past two years: it is just below 0.08p at the time of writing. The fund’s performance prior to undertaking its partial reinvention over the past year was unremarkable, its profits falling by some 45pc in the five years to July 2021.
Vela has curated an interesting portfolio accessing some significant investment trends, including fintech, biotech, cannabis and hydrogen fuel. Its significant stake in St George Street Capital offers perhaps its most compelling prospect. But these are all very early stage investments in fiercely competitive sectors. As we note, Vela might fit find a niche in a portfolio seeking pre-IPO exposure to innovative new industries. At around 0.07p the company look the right level, but be prepared to hold this one for the long term.
