ISIS Equity outlines software successes

Michael Probin, director of investor relations for ISIS Equity Partners, identifies one key theme that runs through the businesses the group invests in is that many are "software" focused.

The venture capital group manages a family of five generalist Baronsmead venture capital trusts (VCTs). The group is looking to raise £10 million for each of the four VCTs  and £5 million for VCT 5. The minimum investment is £4,000.

Probin explains ISIS Equity invests in UK growth companies with robust business models, valued from £5 million to £100 million and looking to raise capital in the range of £2 million to £40 million. Dividends are paid out twice a year.

He says: "Baronsmead VCTs represent around 12% of assets under management of the entire VCT industry, according to Association of Investment Company statistics. Baronsmead VCTs are all ISIS Equity funded and no other people are involved in the investments."

The next fundraising for the VCTs will begin early 2014.

Successful software exits

The group announced on Monday it has sold its stake in Yorkshire-headquartered CSC World to Trimble, an innovative software company that supports structural engineers across six continents. Financial details were undisclosed.

In January 2008, ISIS invested in a management buyout led by ISIS Equity Partners' managing director Mark Roberts with the aim to expand the business internationally. The group says the successful realisation has delivered a return in excess of 2.4 times for ISIS's clients, the Baronsmead VCTs.

ISIS Equity also recently sold CableCom Networking, a company that designs, installs and delivers a managed internet service inclusive of a customer centric digital media platform. The group says the exit delivered a return of 4.8 times for ISIS's clients.

Probin says: "A key thing about Baronsmead is the consistency through which the VCTs deliver returns to their investors, that is played out mostly through dividends. The portfolio mix is about delivering consistency and the Baronsmead VCTs are very much in the category of income smoothers.

"So when we realise a profitable investment... the Baronsmead VCTs don't distribute that entirely in the year it is generated. Otherwise you would have some years you would have a lot of dividend and some years you would get nothing."

He explains: "As the timing of selling investments is unpredictable, what the VCTs do is to establish reserves of undistributed profits in those years when profits are being generated from the sale of investments so that it can distributed to shareholders in future years when fewer investments are being sold."

Current Baronsmead VCT offerings

ISIS Equity first launched Baronsmead VCT in 1995, the VCT is managed by David Thorp and Andrew Garside. Over one year the VCT has returned 14.8% compared with an average of 7.7% VCT Generalist sector as at 22 November.

The next offering is the £74 million Baronsmead VCT 2 and is also managed Garside. Top holdings include Cable Networking Holdings, Crew Clothing, CSC Holdings, Fisher Outdoor Leisure, Idox, Inspired Thinking Group, Kafevend Group, Netcall, Nexus and Staffline Group.

Garside also manages the £72.6 million Baronsmead VCT 3 - top holdings include Woodstreet Microcap Investment fund, Valldata Group and Inspired Thinking. Over one year, the VCT has returned 18.6% compared with an average of 7.7% for the VCT Generalist sector as at 22 November.

Baronsmead VCT 4 is also managed by Garside and is 35% invested in business services, 33% in telecom, media and technology, 18% in consumer services and 12% in healthcare. Over one year, the VCT returned 15.3% compared with an average of 7.7% for the VCT Generalist sector as at 22 November.

Changing VCT 5 from AIM to Generalist

Probin explains: "Baronsmead VCT 5 started life in 2006 as an alternative investment market (AIM) specialist VCT and has been converted to become a generalist in 2010. Its portfolio is in transition from becoming predominantly AIM as its founding investment strategy would suggest, it is in transition to becoming a Generalist like other Baronsmead VCTs."

He said 2010 was a tough period for the VCT because it specialised in AIM investments, along came the financial crisis and Baronsmead 5 lost a lot of value.

Probin adds: "We wanted to get to a point where we could recover value and growth for the VCT but didn't see that would be solely achieved through making further AIM investments. There was more consistency in the returns that were being invested from the private equity unquoted investments and so we sought shareholder approval to change strategy. So it is predominantly unquoted."

The £34 million Baronsmead VCT 5 is managed by Henrietta Marsh and its top holdings include Tasty, Anpario, Netcall, Accumuli, TLA Worldwide, Escher Group, Plastics Capital, Driver Group, Sinclair IS Pharma and Electric Word. Over one year, VCT 5 has returned 31.4% compared with an average of 7.7% for the VCT Generalist sector as at 22 November.

Probin says all VCTs have some level of exposure to quoted markets and with the first four Baronsmead VCTs the strategy involves them being predominantly invested in unquoted companies.

Probin says: "Currently 40% is invested in quoted that's not for asset allocation but because it has increased in value twelve months or so. VCT 5 is around 70% in quoted companies."

He adds: "In the last 12 to 15 months quoted markets have recovered substantially and there has been a lot of growth and value in the quoted portfolios."