Augmentum Fintech Interim Results
This morning we announced our Interim Results, for the six months ended 30 September 2020. You can read the full report here and find the Portfolio Manager’s Review, written by Tim Levene, below.
Overview
The period under review has seen the world in which we live change in many ways, in some ways beyond recognition, but in others the fundamental needs and requirements of consumers and businesses remain unchanged. It has become incumbent on suppliers and service providers to adapt the way they deliver their goods and services at an unprecedented rate if they want to keep their customers, and indeed if they want to grow.
As countries first locked down across the world in March of this year, most venture capital funds turned inward and focused on ensuring adequate liquidity amongst their own existing portfolio investments. This activity was further reinforced by state aid programmes quickly ushered in by governments around the world, encouraging further matched capital from private investors.
Fintech was already equipping the market with advantages that are now increasingly in demand as we transition to a “new normal” — enhancing access to capital, scaling distribution, digitising physical processes and reducing costs through automation of previously inefficient or labour intensive processes. Times of dislocation, such as we have seen this year, provide an opportunity for challengers to accelerate traction and to capitalise on shifts in consumer behaviour.
Fundamental attributes of successful fintech companies are world class technology, data driven processes, operational efficiency, and customer centricity, but the attributes that are particularly advantageous in these challenging and fast changing times are their responsiveness and agility.
Our Investments
Over the last six months, like most venture capital funds, we have been overwhelmingly focused on ensuring the stability of our own portfolio as companies responded to Covid-19, and over this period we have deployed investment totalling £5.1 million across seven of our existing portfolio companies.
In May, we invested a further €1 million (£0.9 million) in Grover alongside other existing investors. The funding round, alongside new debt facilities, has positioned Grover, with its consumer electronics subscription rental model, very well to benefit from the changing trends. In September Grover surpassed €50m in annual subscription value. More than 95% of subscriptions are now committed, representing a 2.2x annual increase in recurring revenue.
In July, we also added £2.6 million to our existing investment in Farewill as part of a £20 million Series B round led by European growth fund Highland Capital. The investment represented a 100% increase in the share price we paid for our initial Series A investment, although the majority of this uplift was captured in our March 31st results given the near completion of the round at the time. The business has performed strongly in 2020 with growth across all product lines, benefiting from Covid-related market conditions. Three products are live: Wills, Probate and Cremation with development efforts focused around further ‘planning for death’ and ‘dealing with death’ products.
In July we invested £1 million in Monese alongside a further £1 million investment from co-investors PayPal and Kinnevik. In response to market conditions Monese acted to reduce its cost base and improved its unit economics. In July Monese became the first European neobank to offer French and other individual EU country IBANs to its customers, and also launched a partnership with Paysafe, creating one of the largest cash networks in the UK and Europe with 87,000 cash top-up locations. At the end of the reporting period Monese signed a strategic partnership with Mastercard to deliver better local banking experiences to underserved consumers across Europe, and becoming a principal Mastercard issuer. Although the neobank industry has lost some of its sizzle in certain parts of the investment community we believe that Monese is sufficiently differentiated from other neobanks to continue to thrive, although there is still much to do.
Following the receipt of a full banking license from the PRA in June, we added a further £0.5 million to our investment holding in Zopa via a secondary purchase of shares. Since June, Zopa has launched a fixed term savings product and a credit card to address gaps in the market. Alongside this, demand has begun to return for unsecured personal loans, the core of Zopa’s current lending business, and where it is starting with a freshly capitalised clean balance sheet. With more than £5 billion lent in personal loans since inception, and £1 billion in 2019 alone, Zopa’s P2P business has been profitable since 2016. Although it took longer than expected for Zopa to become a fully licenced bank, we anticipate the new banking platform will create a number of opportunities for Zopa in 2021.
In addition, we have topped up our investments in three of our portfolio companies with a further £0.7 million of capital — iwoca, Habito and DueDil — alongside existing and new investors to ensure they had sufficient runway to navigate what has been an uncertain period.
Habito, despite the backdrop of a volatile home buying market, has experienced record revenue in Q3 benefiting from homeowners and first-time buyers shifting to digital platforms at the expense of many traditional brokers and lenders. In August, the business announced the successful close of its £35 million series C, with the addition of new investors SBI Group and Mojo Capital.
iwoca, an SME lender in UK and Germany, has faced significant challenges throughout the Covid period. New origination of loans as well as the performance of the loan book was challenged in March and April. Despite the early shock, the business nimbly adapted to the new conditions, leveraging its technology advantages and evolving its product to ensure the company is well placed to return to growth in 2021. iwoca was accredited in May by the British Business Bank for the Coronavirus Business Interruption Loan Scheme (“CBILS”) and is on track to issue £150 million of loans as one of the leading nonbank lenders under the scheme. iwoca is well capitalised and positioned to exploit the gap that banks are likely to leave, if they retrench from SME lending once the Government schemes wind down.
Interactive investor (ii) has continued to build on its strong foundations, delivering 53% year-onyear growth in revenues through the first three quarters. A record number of new customers were acquired in the first three quarters of 2020, with net new business of £0.8 billion in Q3 alone. This included a significant increase in younger investors, with commensurate levels of new assets added to the platform. On 3 July 2020, ii completed the part cash part share acquisition of Share plc and is now working on migrating these customers onto the ii platform.
In September, Tide (alongside its partner, Clearbank) was awarded a £25 million Banking Competition Remedies (“BCR”) Pool E grant, in addition to the £60 Million Pool A grant it was awarded in 2019. Tide/Clearbank is the only awardee to have received two major grants from the BCR, recognising Tide’s impact on competition in the SME banking sector and its on-track performance with its Pool A grant. The business has experienced strong growth in customer numbers in the past three months benefiting from the accelerated digitisation trend during the pandemic. Tide passed 4% market share of business accounts in September, and now serves close to 250,000 SMEs.
BullionVault has continued to perform strongly during the year, consolidating its position in the ‘digital gold’ space for private investors. Amid the financial uncertainty and lower interest rates, growth in new users coupled with increased activity amongst existing customers set record demand for gold, silver and platinum on the company’s platform, with price volatility further contributing to dealing commissions. Pre-tax profit as at the end of September 2020 saw over 100% growth YTD. In September WhiskyInvestDirect was spun out of BullionVault to become a standalone company and we now hold our investment in it directly.
In April Onfido successfully completed a $100 million financing round led by US investment fund TPG Growth, and recently announced Q2 revenue growth of 40% year-on-year driven in part by performance in its US business. The company now aims to build out its vision for an alternative “identity verification” layer of the internet with a new set of use cases such as virtual voting through to health passports and digital health wallets, now even more relevant due to the pandemic.
Performance
We are reporting an uplift of £3.7 million in our NAV as at 30 September 2020 in absolute terms, a 2.8% increase in NAV per share. Since IPO this represents an IRR of 14.1% on the capital that we have deployed.
Outlook
As we stated in our March results, the opportunity to capitalise on the shifts in consumer and business behaviour in regard to digital financial services is greater than ever. With the opportunity still in its nascency (incumbent players still control >90% of the global market for financial services) it’s all very much still to play for. Our focus remains on investing in exceptional companies where we have high conviction, and where we see significant potential returns. We anticipate that over the coming 12 months there will be increasing potential for M&A, consolidation, and in some parts of our sector some keenly priced investment opportunities.
Tim Levene
CEO Augmentum Fintech Management Limited, 1 December 2020
Read the full Half Year Report here, learn more about investing in fintech with Augmentum here and see more from Tim here.
