Schroders Capital Global Innovation Trust plc

Q3 2023 Quarterly Net Asset Value - 30 September 2023

Schroders Capital Global Innovation Trust plc (the "Company") today announces its net asset value ("NAV") as of 30 September 2023.

Summary

·     NAV of 23.46p per share as of 30 September 2023, a decrease of 5.1% relative to the NAV per share as of 30 June 2023 (24.73p).

·      Performance over the quarter was impacted by decreases in the valuations of the holdings in Atom Bank, Genomics and Federated Wireless.

·      Innovative email cybersecurity company, Tessian, announced that it had entered into a definitive agreement to be acquired by Proofpoint.

·      During the quarter, the Company made three new investments:- data privacy and management platform Securiti, B2B platform for made-to-order goods Bizongo and an investment into an AI software company. After the quarter end the Company also made an investment into Memo Therapeutics, a clinical-stage biopharmaceutical company.

·      ​As of 30 September 2023, the Company had £19.9 million in cash and £47.9 million in public equity investments¹ to meet the funding requirements of the existing portfolio, execute the buyback program and target new investments in innovative venture, growth and life science businesses.

·      In accordance with its capital discipline policy, the Company commenced a share repurchase programme in September 2023. In line with the Company's stated intention to repurchase at least 5 per cent. of its issued share capital during 2023, the Company has repurchased 35 million shares for cancellation as at 30 November 2023, returning over £5m to investors, and remains on track to meet its 2023 target.

1. Excluding BenevolentAI which is fair value priced by the AIFM.

Introduction

Economic backdrop

Global equity markets fell in the third quarter as concerns about the impact of higher interest rates and weaker Chinese economic growth affected investor sentiment. Central banks around the world continued to raise interest rates to combat inflation, which has been sticky in both the service sectors and in wages given the tightness in most western labour markets. Bond and equity markets have been looking for signs that inflation is under sufficient control for central banks to signal the monetary tightening is done. Government bond yields increased across most major markets in the quarter.

Global venture capital deal activity presented a mixed picture in Q3 2023, however there were some reasons for optimism. During the quarter, funding increasing 11% by value (from $58.2 billion in Q2 2022 to $64.6 billion in Q3 2023) and deal volumes decreased 11% (from 6,888 deals in Q2 2023 to 6,111 deals in Q3 2023), the seventh straight quarterly decline, indicating that any improvement in the market was not broad based. In particular, the number of mega-rounds (funding rounds of more than $100 million), which declined sharply in 2022, continued to see quarter-on-quarter volatility, rebounding 47% by value (from $20.2 billion in Q2 2022 to $29.6 billion in Q3 2023) and 13% by volume (from 103 deals in Q2 2023 to 116 deals in Q3 2023). However, the growth in larger rounds did not seemingly filter through into valuations with only 12 unicorns created in Q3 2023, the lowest quarterly level since 2016. The environment for exits also presented a mixed picture. The number of M&A transactions, the predominant exit route for venture backed businesses, declined 8% quarter-on-quarter (from 2,061 in Q2 2023 to 1,887 in Q3 2023), while the number of initial public offerings ("IPOs") increased 24% (from 102 in Q2 2023 to 126 in Q3 2023). Overall, the current market continues to be characterised by weak exit activity counterbalanced by a favourable environment for new investments.

Source for data: CB Insights Q3 2023 State of Venture Report.

Financial Performance

Following the quarterly revaluation, the NAV as of 30 September 2023 was £209.8 million, reflecting a decrease of 6.0%² compared with the NAV as of 30 June 2023 (£223.2 million).

The 6.0% decrease in NAV over the quarter comprised:

·      Public equity holdings: -1.1%

·      Private equity holdings: -4.3%

·      Costs and other movements: -0.6%

²The change in NAV differs to the change in NAV per share due to the impact of share buybacks.

Portfolio performance

The Company's private equity holdings saw a decrease in value of 7.0% contributing -4.3% to the change in the NAV over the period. The largest detractor to performance was Atom Bank, the UK app-based bank. The company has raised £100 million in new equity capital from existing shareholders BBVA, Toscafund and Infinity Investment Partners, which will be used to accelerate lending and balance sheet growth as the bank continues to scale. Following this news, the Company's AIFM revalued the holding in Atom Bank to £23.1 million, which was reflected in the daily unaudited NAV as of 3 November 2023. The valuation implemented represents a discount to the valuation of the fundraise. Whilst the valuation impact of this fundraise is disappointing in the short term, this significant investment is a good signal of confidence in Atom Bank. The company now has the capital to scale up and demonstrate the operating efficiency of its platform. Although much work remains, Atom Bank is one step closer to a planned future liquidity event.

Additionally, the valuations of holdings in pioneering healthcare company Genomics and wireless communications company Federated Wireless were also decreased, reflecting the AIFM's latest quarterly assessment of the Company's private equity holdings. The AIFM's fair value assessment considers factors specific to each holding, including changes in financial position and forecasts, planned fundraise terms, valuations of comparable businesses and exit expectations.

Innovative email cybersecurity company, Tessian, announced that it had entered into a definitive agreement to be acquired by Proofpoint, a people-centric cybersecurity and compliance company. The agreement is expected to close in late 2023 to early 2024, subject to customary closing conditions and required regulatory approvals. We hope to be able to share more details with the Company's investors when the transaction closes.

The Company's public equity holdings saw a decrease in value of 4.3% contributing -1.1% to the quarterly decrease in NAV. The share price of Oxford Nanopore Technologies ("ONT"), the Company's largest holding, declined 3.6% over the quarter. However, in recent news, bioMérieux, a leading company in the field of vitro diagnostics, made a strategic £70 million investment in ONT, while expecting to make further market share purchases, up to a further 3.5% of Oxford Nanopore's shares. Through this partnership and this investment, the two companies intend to leverage ONT's ground-breaking nanopore-based IVD solution and bioMérieux's IVD expertise in R&D, Regulatory, Medical and Market Access. Additionally, the Mayo Clinic and ONT announced a multi-year joint development collaboration to develop new clinical tests for diseases and improve patient care.

Foreign Exchange

During the quarter, the fair value of investments denominated in the Euro (EUR), United States Dollar (USD), Swiss Franc (CHF) was positively impacted by the depreciation of the British pound sterling (GBP) relative to these currencies.

Cash, debt, and net current assets

As of 30 September 2023, the Company held £19.9 million in cash.

Investment Activity

Realisations

During the quarter, the Company made realisations totalling £2.7 million. This included a full exit of public equity holding IDEX Biometrics and a reduction in the holding of Oxford Nanopore.

New Investments

During the quarter, the Company completed new investments totalling £12.5 million.

Since 30 June 2023, the Company has taken advantage of the current environment of slower fundraising activity and lower valuation expectations to deploy capital in each of the portfolio's three sub-strategies (venture, growth and life sciences) across different geographies.

The Company made an investment of $8.0 million (£6.3 million) in India-based vendor digitisation company, Bizongo. This investment formed part of the $50.0 million Series E funding round that was led by Schroders Capital with participation from other investors including IFC, BCap, Chiratae Ventures, and British International Investment. Bizongo, which was founded in 2015, is transforming supply chain operations for large enterprises, as well as for micro, small and medium enterprises (MSMEs) in India, through its foundational vendor digitisation platform. Bizongo enables vendors to source raw materials across a broad range of categories, including steel, aluminium and textiles, and to optimise their procurement processes. Customers leverage the Bizongo vendor digitisation platform to source suppliers, optimise for cost, seamlessly place orders, all whilst managing invoicing and order tracking in real-time. Bizongo has a capital efficient, inventory-free operating model, that connects vendors directly with suppliers. The vendor digitisation platform has seen a three-fold rise in its gross merchandise value, the total value of sales through the platform, from ~$215 million in FY22 to ~$750 million in FY23. With its platform, the company has also opened doors to embedded financing through its network of more than 40 partner banks and non-banking financial corporations (NBFCs), who can evaluate MSMEs based on deep transactional and behavioural insights, allowing them to take better financing calls, and enabling MSMEs to scale their growth through efficient working capital. The Company's investment in Bizongo is in line with the portfolio's sub-strategy of backing innovative growth businesses while utilising the Company's broadened global investment remit. Schroders Capital has been an investor in Bizongo since 2019, over which time we have seen the company grow exponentially, achieve scale, and expand into more sectors. The company is playing a transformational role in enabling vendors in India to digitalise their supply chain, which has accelerated since the COVID pandemic. We are excited that the Company is now participating in Bizongo's future growth.

The Company also made an investment in US-based cybersecurity company, Securiti, the pioneer of the Data Command Center, a centralized platform that enables the safe use of data and GenAI.  Its solution unifies controls for data security, privacy, governance and compliance in one place. This unification of data intelligence is revolutionizing important but arduous processes, allowing organisations to retire disparate, legacy solutions which add cost and complexity. The Company's investment in Securiti is in line with the portfolio's sub-strategy of backing innovative venture-stage businesses while utilizing the Company's broadened global investment remit. Schroders Capital has known Securiti for a number of years, having been an investor since 2019 through our fund investments. We believe Securiti is playing a key role in transforming how organisations can innovate with vast quantities of data while meeting their data obligations and we are delighted to make this investment to accelerate the company's progress.

Furthermore, the Company made an investment of $2.0 million (£1.7 million) into an early leader in an emerging segment of artificial intelligence (AI) software. The Company invested through its co-investment partner, MMC Ventures, via a single asset fund, MMC SPV 3 LP. Schroders Capital has been investing in venture capital for over 25 years. Over that time, our team has seen various waves of technological innovation and witnessed first-hand the ripple effect through different sectors and regions. Our belief is that AI, most recently focused on the field of generative AI that has been enabled by the advent of large language models, has the potential for innovation and disruption on a scale comparable to the introduction of email, the internet and the smartphone. We see significant opportunity in the AI sector, justifying its position as one of our eight key global innovation themes. This investment, which forms part of our sub-strategy of backing innovative venture-stage business, is in an access-restricted software company that is an early leader in an emerging application of AI. Currently, we are not able to name the company due to confidentiality, however, we believe it represents a highly complementary addition to the portfolio. Furthermore, we are delighted to be partnering with MMC Ventures.

Post period end, the Company made a commitment of CHF 0.9 million (£0.8 million) to Memo Therapeutics AG ("Memo"), a Switzerland-based clinical-stage biopharmaceutical company. The Company participated in Memo's Series C financing round, which raised CHF 25 million and was led by Pureos Bioventures. Existing investors Swisscanto, Vesalius Biocapital, Adjuvant Capital, Verve Ventures, GF Group, Fresenius Medical Care Ventures, and Red Alpine also joined the round. Memo develops novel therapeutic antibodies for patients with viral infections and cancer. Memo's unique antibody discovery and functional screening platform enables the identification, isolation, and selection of antibodies from patient samples or vaccinated animals. This technology helps Memo to discover antibodies with the potential to treat diseases using rare antibodies that other methods might miss. The Series C funding will support Memo in completing the U.S. Phase II clinical development of their leading antibody, AntiBKV. This antibody is designed to neutralize BK virus (BKV) infection in kidney transplant recipients. BKV infection can have serious adverse effects on graft function and patient survival following a transplantation procedure. Currently there are no regulatory approved therapeutics to treat BVK infection in kidney transplant recipients. With Phase II clinical data expected in 2024, the funding will also enable Memo to prepare for large-scale manufacturing of AntiBKV for a Phase III study and potential market entry. Additionally, the investment will help Memo advance its pipeline of other experimental antibody therapeutics. This is the seventh new investment in our portfolio sub-strategy of backing innovative life science companies at the near-clinical or clinical stage of development. We believe Memo is a highly complementary addition to the company's portfolio. AntiBKV has solid pre-clinical efficacy and clinical safety data with near term Phase II clinical efficacy data expected in 2024. A positive phase II readout has the potential to drive a significant value inflection for Memo and may enable a material improvement in the quality of life for kidney transplant recipients with BKV infection.

Top 10

The Company's top 10 holdings as of 30 September 2023 compared with the respective holding as of 30 June 2023.

Outlook

In the interim report and accounts, we commented on our frustration at the lack of selling opportunities in the current market. While the exit environment remains challenging and we continue to work hard to create opportunities when underlying company progress allows, we are encouraged by the recent news announced by Tessian that it is entering into a definitive agreement to be acquired by Proofpoint. Meanwhile, clinical-stage biopharmaceutical company, Carmot Therapeutics, recently filed for an initial public offering, and a Nasdaq listing.

We continue to focus on rebalancing the portfolio to ensure the appropriate liquidity mix to efficiently execute the buyback programme and support the portfolio. In this context, we are closely monitoring the capital available for new investments, which remains dependent on the execution of the Board's buyback strategy, which is the priority. However, we have made considerable progress recently with new investments, making additions to each of our three sub-strategies (venture, growth and life sciences) across different geographies, taking advantage of the current environment of slower fundraising activity and lower valuation expectations to deploy capital.

Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. The securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

Enquiries:

Schroder Investment Management Limited