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Elderstreet VCT Plc (EDV)

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Friday 11 January, 2019

Elderstreet VCT Plc

Offer for Subscription

Offer for Subscription

Draper Esprit VCT plc 
Legal Entity Identifier: 2138003I9Q1QPDSQ9Z97
11 January 2019

Offer for Subscription

The board of Draper Esprit VCT plc (the "Company") is pleased to announce that the Company has today published an offer document (the "Offer Document") relating to an offer for the subscription in respect of up to £7 million worth of new ordinary shares (the "Offer").

The Offer will open on 11 January 2019.  In respect of the 2018/19 tax year, the Offer will close at 4.00 p.m. on 5 April 2019 and, in respect of the 2019/20 Tax Year, it will close at 4.00 p.m. on 31 May 2019 (unless extended or fully subscribed earlier).

The Chairman’s letter to Shareholders and potential Investors which is included in the Offer Document is reproduced below.

Dear Shareholders/Investors

New £7 million public offer for Ordinary Shares
As stated in our Report & Accounts to 31st March 2018, our managers, Elderstreet, formed a close association with Draper Esprit, the award winning and successful technology investment manager, starting from 16 November 2016 thus transforming the prospects of this VCT. Draper Esprit, across its various funds, has over £330 million invested, largely in knowledge intensive, early and growth stage technology companies and its EIS funds have received the highest rating for the last five years running from Martin Churchill of Tax Efficient Review, a well-respected VCT analyst. The Board is pleased to have accepted assurances from Draper Esprit of their continuing intention to provide a flow of investment opportunities to the VCT and their intention to exercise their option to become the VCT’s portfolio manager. The VCT has consequently been renamed Draper Esprit VCT plc.

I am therefore delighted to offer you the chance to invest in what is already an award winning VCT now increasingly associated with this leading, high-rated technology investor. Your Board believe that investing in knowledge intensive, high growth technology companies inside a VCT tax wrapper makes an attractive investment offering. These technology companies have the potential to grow into valuable companies as shown by the Draper Esprit track record on page 8. Draper Esprit target a portfolio return of 20% per annum, and the VCT targets a potential tax free yield of 6% to 7% per annum as shown on page 9.

A recent example of a Draper Esprit portfolio company is Graphcore, a Bristol based silicon chipmaker developing AI Processors. The Draper Esprit plc and EIS funds had invested into Graphcore earlier in 2016. In December 2018, Graphcore gained ‘unicorn’ status when it closed a $200 million funding round with a valuation above $1.5 billion. Investors into Graphcore alongside the Draper Esprit funds included well know names in the venture capital and corporate investment world such as Sequoia Capital, Atomico, Amadeus Capital, Robert Bosch Ventures, C4 Ventures, Dell Technologies Capital, Foundation Capital, and AI experts such as Demis Hassabis (co-founder of DeepMind) as an angel investor.

Since raising just over £20 million in the last two tax years, and since building its association with Draper Esprit, your Company has committed to fourteen new technology investments totalling £11.25 million since April 2017. At the time of writing, twelve of these deals have completed and two are subject to HMRC giving VCT advanced assurance in writing to the company. Given this strong rate of investment, your Board consider this is a good time to raise a limited amount of further capital.

The recent changes to the VCT legislation designed to encourage more investment into fast growing companies has had a significant impact on the VCT industry. The Board believes that many established VCT managers can no longer access the type of deal flow which they have nurtured over many years. This has led to a significant reduction in their ability to invest money. A typical Draper Esprit investment, by contrast, would be largely unaffected by these changes, allowing them to continue to invest in the sectors from which they have nurtured a strong deal flow. This is illustrated by the notable increase in the number of deals the VCT has invested in since the Manager’s co-investment agreement with Draper Esprit was enacted.

Draper Esprit plc has access to quality growth opportunities often in much larger and more mature companies compared to other VCT managers. By co-investing alongside the Draper Esprit plc and the EIS, the VCT gains access to some companies requiring funds in excess of $10m. There are many other VCTs without access to such deal flow. These deals typically have relatively shorter investment holding periods and are not as prone to fail completely. For example, Draper Esprit plc has only had one complete write off since its IPO in 2016.

Portfolio
Today, by percentage of net asset value, new subscribers would be buying into a portfolio made up of 31% Draper Esprit technology investments (including committed but not completed investments), cash of 30% to be invested in further technology investments and a legacy portfolio representing 39% of the total.

Consequently, if this offer is taken up in full, once invested, the Company will have over £30 million allocated predominantly to technology investments which will be driven by one of the UK’s leading technology investment managers.

As for the legacy portfolio, 91% is made up of four companies. Two are AIM quoted and the other two are private companies which are profitable engineering and manufacturing businesses and which the Board are confident can be realised at considerable gain in the future.

A VCT for income
In 2018 the Company has paid dividends of 3p per share. The Board believes that in a generally low global interest rate environment the possibility of a tax free yield of 3p (equivalent to a 6.9% tax free return based on the Estimated Offer Price after factoring in initial tax reliefs), represents a good yield and will help to deliver consistent returns in the future. Further details on the potential yields can be found on page 10. Investors should note that the level of dividend is not guaranteed, and no profit forecast is to be inferred or implied from these statements.

Early Investment Incentives
An Early Investment Incentive is being offered for Applications for New Ordinary Shares which are received and accepted in good time. The Manager will rebate to early investors 1.5% of the Promotion Fee, in respect of which the Investor will receive additional New Ordinary Shares and will also rebate the cost of initial commission payable to authorised intermediaries where this saving is passed on by the intermediary to the Investor, subject to a cumulative maximum rebate of 4.0%, for applications received before the deadline of 28 February 2018.

Key tax benefits
• 30% income tax relief is available on the amount subscribed up to £200,000, provided the New Ordinary Shares are held for at least five years. Further information on the initial tax benefits can be found on page 33.

• Tax free dividends, distributions and capital gains.

Furthermore, the Company’s focus on Knowledge Intensive technology companies is in line with recent changes to VCT investment rules and the Government’s drive to refocus VCT investment on higher growth companies.

Next steps
In order to invest please read this document and then complete the Application Form which is set out at the end of this document. If Investors have any questions regarding this investment, they should contact their own financial intermediaries. For questions relating to an application, please telephone Elderstreet on 020 7831 5088. Prospective Investors should note that no investment advice can be given by Elderstreet and their attention is drawn to the risk factors set out on pages 25 – 27 of this document.

Yours sincerely

David Brock
Chairman

A downloadable version of the Offer Document is available from www.elderstreet.com. The Offer Document will also be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.


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