Molten Ventures Plc (GROW) Earnings Call Transcript & Summary

Good morning, everyone. I think we're good to go. Several in the room. Thanks for coming and several online as well. So welcome, everybody, to the Molten Ventures interim results FY '25. These are our half year results to the end of September, which we pre-trailed with the trading update and then we'll now give you a little bit more detail and a bit of the movements underlying the numbers that you've seen already. I'm Ben Wilkinson, CEO, recently made CEO after 8 years as CFO, so as CFO during this period of results. I'll just reiterate the fact that it's a real privilege to take this team forward into the next stage of growth. I think, at Molten, we've got a fantastic platform to build from. And I would say, as you'll see in the results, we'll have a stabilizing environment, say stabilizing because the period of stabilization has been quite extended as we're seeing at the moment, but I think there's some optimism for the coming cycle and in particular, coming into next year as well. I'm very happy to have Andrew Zimmermann alongside me, who's stepping up from being our FD to interim CFO. Andrew brings a wealth of experience in the finance background, having been at firms like Alliance Trust and then Schroders and Carlyle and more recently in family offices. So a real breadth of experience that he's brought to bear at Molten, both public and private. So with that, we'll come into the results themselves, looking firstly at the highlights for the period. I would say, in line with this sort of message of stabilization, we've also had quite an active 6 months with deployment of GBP 51 million. We're seeing that evidence mostly, I would say, coming from stabilization of interest rates. I'm going to use that word quite a lot because obviously, the pace of those interest rates coming down has not been linear. And as we see inflation persisting, people are taking their views on how long that will be. But the improving environment has been evidenced with the M&A that we've been seeing coming through and that's led to increased realizations in the period. So I think that stabilization really is the buyer and seller disconnect to those expectations between those 2 groups, has started to come together as people get a bit more clarity on the environment that we're working within, be that interest rates or be that political. Obviously, a lot of elections through '24 has delayed quite a lot of the activity and I think that's therefore pent up. And hopefully, we'll see some of that coming to fruition in '25. But a feature of our model is the sort of active management that we have across the portfolio and those -- that active management has therefore meant that as that M&A environment has improved, we've been able to deliver on 4 realizations in the period, which we'd pre-trailed in our last set of results. And therefore, it was very important for us to be able to execute on that and we've executed on that ahead of the GBP 100 million guidance and we'll come into some of that detail in a moment. As I mentioned at the outset, had a transition of CEO, Martin have been with us for 5 years. So we're very grateful for his work and his tenure and now moving across with a stable team, a team that knows the business very well and we can take advantage of those opportunities that are coming to us in the growing market in the next stage of the cycle. Alongside that, we've had the integration of Forward Partners towards the end of the last financial year into March. We finalized that deal and closed that and that integration has been very smooth, both in terms of the assets and the portfolio that we've taken on, but also in terms of the team members that have come into the Molten Group. And with those realizations that we've been demonstrating, we've also put in place a capital allocation policy, which demonstrates to the shareholders how we'll put those realizations to work in terms of recycling that capital. We're very much focused on doing great investments, be their primary investments into new companies or be they secondary investments into existing portfolios of assets as we've again demonstrated in this period. And we see great opportunities on both sides at the moment, one for disruptive technology companies that are shaping the coming markets, but two, also for more mature businesses that we can invest in at good prices now and then turn those into capital in a shorter period of time. And that's certainly accretive to the balance sheet. And it's probably a moment in time where those types of deals exist and persist. And that's really a function of the liquidity that we haven't seen in the market over the last couple of years starting to come through now. But I think that there will be a lag effect for that liquidity having a benefit and therefore, the secondaries are still an area of focus for us. Behind all of the kind of realizations and integration of Forward is the effective management of the portfolio. That's a key feature of our model, obviously, investing in great companies, but being able to manage that portfolio through cycles, prioritizing capital into the winning companies, making sure we can double down on those great businesses and also putting smaller amounts of capital to make sure that those other companies in the portfolio can come to a good exit, come to their fruition. Sometimes that management of capital is overlooked. And I think over the last couple of years, we've done a good job. As a team, we've been able to manage our own liquidity position, but also the liquidity in the portfolio companies. And that really leaves us in a very strong financial position as we come through this period. We extended out the debt facility. So that has another 3 years running from early September. We've increased the size of the facility in line with the growth of the broader portfolio, but also some sort of future expected growth to come as well. And with the realizations on top of that, we have GBP 82 million of cash now. We'll have the M-Files realization that we expect to close in the next couple of weeks and then GBP 60 million undrawn on the RCF. So I think that gives us a good position to continue to scale and grow from. So with that, I will hand over to Andy, who can take you through the highlights and some specifics on the numbers. And Andy, just let me know and I'll do the movement through the slides for you.

Thank you very much. So these are the key numbers that I just want to run through with everyone this morning. So as Ben has touched on already, we've got GBP 76 million of cash proceeds from realizations so far. M-Files, we've already announced and talked about. We're actually just waiting for one more regulatory approval from Finland, should hopefully come through this week. You never know with governments, but it's very close to closing. That will take our realizations up to about GBP 124 million, well above the guidance of GBP 100 million that we gave at year-end. We've also completed the share buyback program that we announced at the year-end, GBP 10 million, finished at about September. It was definitely taken positively, I think. We've invested GBP 51 million of cash back into the portfolio and then a further GBP 12 million from our EIS and VCT funds, and I'll come on to what we've invested that in a further slide. So we've ended the period to 30th September with a good cash balance of GBP 82 million. And again, as Ben talked about, we have different opportunities that we can look at and how we deploy that in the rest of the year and going forward. In terms of the portfolio, there is a small fair value uplift of GBP 20 million, some things up, some things down, and we'll come on to that in a later slide and call out the highlights of that. The gross portfolio fair value movement was actually down slightly at 1%, mainly because of FX headwinds going against us or as with all companies actually in our sector in the U.K., but only a marginal decrease overall of 1%. That's taken us to a GPV of GBP 1.34 billion, just slightly down again from that March year-end and that results in a net asset position of GBP 1.2 billion, which then translates through to a NAV per share of 646p. In terms of the portfolio and what we're seeing there in the core, the average revenue growth was 48%, that's down a bit from before. It was about 72%. That's just really reflecting slower growth within the portfolio in the wider market context and also the maturity of the companies in the core. Margins have been solid. They're actually slightly up, but they've been fairly consistent over the last 3 years in that core portfolio. And then the cash runway within the portfolio companies, we've got more than 3/4 of them have -- I think it's about 78% exactly have more than 12 months cash runway. The ones that are under 12 months are all actively going raises just now, and it's all been viewed very positively. So good from the portfolio point of view. Next slide. Well, I’ll just gloss over this one quite quickly. This is a tabular form, I guess, of all the points that were on that highlight slide. You can just see the movement. We've just got the movement from where we were in the 6 months to March, but broadly consistent. Next slide. Thank you. And then this is just to give a bit of context about the results in terms of the history of Molten going back 6 or 7 years there. So in terms of the loss and the GPV movement, you can see our '23 was obviously a difficult year. '24 and '25, we're gradually coming back. But the point to note there is that overall, our average return is 28%, which is still well ahead of our target return of 20%. And obviously, we're hoping that will continue to increase off to the right as we go on.

Just one comment on that first slide. I think it's instructive to see -- obviously, we're in an asset class which exists over long periods of time. So it's instructive to see it through cycles. But I think an important feature of the work that we did there was in that '23 period, we're very quick to move down the valuations in line with the public market comp movements. We haven't really seen those comps improve over the period. They're still probably below 10-year averages. So that's one of the factors where we've seen stabilization in those returns, small negatives, but stabilizing over the last 2 reporting periods. But I think it's helpful for our investors to see that we took a lot of the value out of that portfolio straight away. And then actually, we haven't seen -- even though the companies have been continuing to grow, we haven't seen that those tech multiples have recovered yet.

Thank you. And then in terms of the chart on the right, realizations, again, you can see realizations are obviously quite lumpy. It really depends on the circumstances of each individual company as well as the wider market. But again, you can see things are ticking up a bit this year. We obviously have M-Files still to come, which will improve that further. But again, our realizations are 15%, which is ahead of the -- average 15% ahead of the target of 10% over that duration. In terms of the portfolio activity, we've deployed GBP 21 million into direct investment. So that's a mix of GBP 13 million into primary, the light blue blocks there. Sales APE is a sales assistant, AI-powered sales assistant. Sightline Climate is market intelligence for the climate economy and OneData is, again, AI-enabled data management. So we're pleased to welcome them to the Molten stable. There was also GBP 8 million of follow-ons spread across those dark blue ones in the existing portfolio. We invested GBP 11 million in our Fund of Funds program in Earlybird, which continues to grow well. And we also did GBP 19 million for the secondary acquisition for a majority stake in Connect Ventures Fund I, which again was announced previously. So that's GBP 51 million deployed at the half year. This is just -- again, this was announced at the time. So you'll have seen the details, but we acquired a 97% stake in Connect Ventures Fund I, 2012 vintage, a cost of GBP 19 million, 8 assets, but 2 really key assets, a more mature assets in the portfolio, which we really rate. So Soldo, payment and spend automation platform and Typeform for filling out forms on websites, which I'm sure everyone's used. Okay. Next one. So over to you, Ben.

So I wanted to put this back in. Sometimes this is a slide that sits in the appendices, but it's really to show the breadth of the portfolio and demonstrate that each of these companies can scale and grow. They're all innovative high-growth companies. But it's also to reflect on the fact that we've tended to bucket them into 4 main sectors depending on their end user. The majority is enterprise sales, but there's a lot going through in terms of hardware and deep tech. And I think the shape of our portfolio and the breadth of those opportunities has been reflected through this market cycle where we're not beholden to specific individual companies. We'll come to the core in a moment, but there's good balance amongst where the value sits. But there's also a sort of a plethora of emerging technology companies that are coming through in that emerging portfolio. So I think it's helpful for us to showcase just some of those broader trends. And what we then decided to do was just to think about some of the existing tech trends and see how they're covered within that portfolio. So those sort of tech subsectors that we invest into. And clearly, fintech has been a big theme for us over the last few years and it's quite a significant portion of the portfolio, some of that consumer-facing and some of that more enterprise-led for the infrastructure that goes behind it. Alongside that, we've been growing our climate-related platform. So looking at the transition of technologies and economies towards the climate space and clean fuels. And again, we're always looking at the data and intersection of those themes. So it's where data and technology intersect with a broader theme that where we have the skill sets to invest and to understand those underlying companies. So within the new investment of Sightline or whether it's in BeZero, which is creating carbon markets and looking at companies like called Altruistiq, which are helping large enterprises manage their supply chains in terms of their Scope 1, 2, 3 emissions. These are all data-driven businesses. And so that's where the intersection of the climate theme comes into our skill set of looking at technology companies. And we think each of these emerging sectors and trends in their own right are exciting, but we've aggregated those together in a generalist fund, and we think that that's appropriate for the public market investors where they get access to a broad swath of these trends. Space has been the same. Isar Aerospace is undertaking its first rocket launch out of Norway in the next few weeks, which is going to be super exciting. We'll see how that performs. Isar, which has a constellation now of getting on for 40 satellites already in low earth orbit. And then into other areas like health care, which we've invested in for a long period of time, again, where the data intersects with the thematic and then more recently, AI-driven, metadata-driven and quantum computing. So all sort of new emerging tech themes that we have within the portfolio. And that gives our public market shareholders exposure to, one, companies that may be transforming industries that they're already investing in, but also the growth areas that they're struggling perhaps to get access to in the existing public companies. We then just wanted to touch a little bit more because the focus for the last 6 months have been very much on these realizations. We recognize that as we trade at significant discounts to our asset value, these realizations take on even more significance and importance than perhaps they would do normally. I would say even in a normal market environment, realizations prove the holding value of where you're holding your companies, but they also prove the liquidity you can get from recycling that capital back into new opportunities. And these are 4 exits that we highlighted or had in mind, if you like, when we put the statement of GBP 100 million of target realizations at the start of the year. And what I'd probably say is it's quite abnormal for each of these 4 to come off. We have a few others in the portfolio we think will transact in the second half, but these are the larger ones and the more significant ones that we were hoping would come through. And each of these has its own profile, but there's a range of returns within that. So with Graphcore at 0.9x, that's at the lower end of the expectations, demonstrating the benefit of preference shares that give you downside protection, clearly not the outcome that we want, but it's important to explain that in a portfolio of returns, we can still create and recycle value for our investors coming from those companies that maybe don't stand out as the high return multiples. And then we have Perkbox, which is slightly more than a 1x at 1.4 and then leading on to Endomag where you start to get into that bracket of more significant returners at over a 3.9x multiple. And then finally, once it closes, M-Files has been in the portfolio for well over 10 years, but that will generate a 7.4x multiple of return. And therefore, I would say the spread of those, if we look at them in the context of all of the realizations we've had since IPO, there's over GBP 600 million of realizations that have come through. And the spread of those 4, you can see will sit within the sort of 4 cohort of categories that we've identified here. And venture is very much skewed to the winners. It's a power low return asset class. And therefore, the far right-hand side is where the majority of the value will come. It's those companies that continue to scale and grow and therefore, generate the significant majority of the returns. And it's therefore important for us to stay in those companies and to make sure that we're doubling down on those companies as they hit those proof points and then we're able to hold them to their fruition of their journey such that we can create the right level of value coming through. And I think that's a key point of differentiation of the evergreen model, I think being a public market company can be very positive, also has some downsides as we've seen trading at discounts more recently. But that evergreen balance sheet is a key point of differentiation for us where we can hold those winning companies to the right moments and then we can also recycle that capital into new opportunities and take advantage of either primary or secondary investing. And I think that's a key feature of our approach. And I would just say the other aspect of this is looking at the broader portfolio, we all have a tendency naturally to focus on specific companies, but it's actually the management of that portfolio that matters more. It's the management of those returns across several vintages of asset creation. And therefore, in venture, it's important to create those vintages through cycles and it's also important to manage the portfolio in a very disciplined way. So with that, we'll go back to Andy for some specifics on the core and the portfolio update.

Thank you, Ben. So this is our lovely gross portfolio fan with all the core assets on there. The key ones probably just -- I'm not going to go through everything, but probably the key ones just to call out in terms of the ones with a big fair value increase. Revolut, obviously, everyone knows Revolut. They announced that secondary round for to give liquidity to staff of GBP 44 billion, I think it was. We've not taken that full uplift. Revolut -- we're very confident in Revolut, but it's still proving its business model. We think there's more proof points to come out. That secondary was for a very specific reason. So we've taken about a 20% discount to that, but still very strong growth in Revolut. Other one to probably call out is Ledger, a crypto wallet and software business. Obviously, all the things going on in the world have been positive for crypto. Ledger has got a really good hardware product for keeping your crypto secure. So that's helped drive sales of both the devices and people then taking up the software. In terms of ones that we've had to pull back slightly, the main talking point is Thought Machine. We obviously still have a lot of confidence in Thought Machine. The nature of the business is it's signing up Tier 1 banks to its software. The implementation of those Tier 1 banks has just taken a bit longer than anticipated. So the revenues are not coming through quite as quickly as anticipated, but it's a really good business and we still see it growing and growing into that, but we've pulled that valuation back for just now. The other one is Aiven, which, again, is a good business. The growth has probably fallen away a little bit from where it was before. So with the growth slowing, again, we've just pulled that valuation back slightly. But again, we have confidence in that business and we see that growing back up into its valuation.

I would just reiterate that point that the valuation is very much at the balance sheet date. So we're looking at the commercial traction of the company at that point in time. And so the future upside potential that we see, particularly with companies like Thought Machine where it's just a question of time when they go fully live with those clients. It's just therefore a disconnect of timing as we see the future value still remaining. But obviously, we have to be sensible at that balance sheet date to market within that range of fair value based on its commercial traction at the time.

Yes. The slides on the valuation methodologies that we've used for the portfolio. So you can see that on the right-hand side there, there's actually quite an even split in terms of what we've applied between market comps and calibrated to last round. In terms of the ones that we did the calibrated to last round, you can see the range of discounts taken is still fairly consistent across the period, but the discounts have reduced slightly as the assets in the portfolio mature and they grow into their valuations, improve their valuation points. In terms of the market comps, again, you can see the range there is not wildly different, but the weighted average multiples, you can see the decrease, and that's just really being compressed in line with the market and the gradual decrease in those. But again, we still have lots of confidence in those.

Let me just give a little bit of market context. I think this is always instructive because there's a tendency to look to the U.S., particularly for new technologies and the depth of capital coming out of that market. But it is important for us to recognize that Europe is going through its own journey. And over the last sort of 10 years, it's been growing quite steadily as a market with some key peaks, if you like, in 2021, '22 in terms of the capital that was coming in. Since then, though, if you look what's happened post that peak coming off, yes, the capital has retrenched back, but it's still on a growth trend. So if you ignore those sort of 2 peak periods of '21, '22, you can see that market is still growing quite steadily. And I think this year, these are showing you 9-month numbers up to September, but we should be coming out at a similar level to the prior year in terms of deal activity from the capital invested perspective and in terms of fundraising activity, probably slightly ahead of the prior year. We have seen some reasonably significant fundraising at the fund level for some of our private market competitors in the last few months. And I think that's clearly a good sign that limited partner money is going back into the ecosystem and that will start to get invested into the next vintages of companies. But as I say in the interim report, what we've also seen is that capital levels have remained fairly stable, but the sort of number of deals has fallen off somewhat. So that's demonstrating where we've seen perceived Tier 1 winning companies to be getting a lot of capital at elevated valuations and then less capital currently going to the rest of the broader ecosystem. So when we talk about that initial headline of stabilization and then signs of improvement, I think that's another point to evidence those statements where the capital is there. It's being deployed, but it's not being deployed uniformly at the moment. And I think that will start to come through as the fundraisings in the venture market happened and the capital starts to get deployed, we'll see some of that happening in a more balanced fashion in terms of those investments. So with that, we'll just leave with sort of reiterating some of those key takeaways from the period. I think clearly, in the 6 months, stabilizing, improving investment climate, we are seeing. And really for us, the focus will be on making sure we're investing in the best founders, the best technologies across Europe. That is the way to win in venture, if you like, and it's doing that consistently and having the best teams and the platform that can raise capital and scale that we think we'll be able to optimize a growing European market. And I think at Molten, we have a fantastic opportunity to take that forward. Opportunities to further grow and scale will come from investing in those best companies because as those assets grow and scale, you end up with that positive flywheel effect of the brand, if you like, accelerating into new deals, new entrepreneurs that come to market and also raising additional capital. So I think by very much focusing on our core business, we will be able to be successful and we will be able to drive future growth. And I think the stability of our platform has been demonstrated over the last couple of years, but also the quality of the companies that we've been investing in across those technology subsectors that are disrupting entire market ecosystems. I firmly believe that the companies that are being built right now will disrupt the entire markets and disrupt the entire industries. We're seeing that pace of innovation just accelerating. It hasn't slowed down. And so I think we're at the next stage of the journey for European technologies growing and scaling and building category leaders that are global winners. So I believe at Molten, we have that capacity for the next stage of the cycle. And the team here and the platform that we've already built gives us a great opportunity to take advantage of just that. So with that, I think we'll say thank you to everybody and turn it over for questions.

Tintin, please, right at the front. Go for it. Here you go. There's a mic coming.

Tintin Stormont from Deutsche Numis. In terms of -- Andrew, I think in the beginning, you were saying that some of the ones that aren't part of the 75% that has more than cash -- 12 months cash runway is in the process of kind of raising. I know it's a bit early, but could you comment as to your confidence in terms of kind of -- in terms of valuation relative to the NAV that you're holding it at? How are those conversations happening? Is that a further support to your methodology? That's the first one. Second one, in terms of secondary transactions. So if -- in terms of the opportunity pool in the market, in terms of kind of what's out there, if you were to transact at the moment with secondary opportunities that you could see -- sorry, secondary transactions, what sort of discount are they trading at in terms of trading hands? And then just finally, the emerging portfolio, any color you can provide on that? That's the part of your portfolio. We don't see as much in terms of maybe cash requirements, in particular, in the next 12 months for them and in terms of kind of, I guess, the spread of kind of winners and maybe laggards in that portfolio.

Perfect. Okay. Andy, I'll leave the fundraising question to you, but maybe I'll take secondaries, and we'll talk about the emerging portfolio at the same time. So I'd say we still see secondaries as a really exciting opportunity in this part of the market where liquidity is being constrained. That means that as funds are raising their next vintage of funds, their LPs would like to recycle some capital to put into the new commitments. And given that we have a Fund of Funds program with over 80 funds within that, we have a quite unique network and ecosystem across Europe that gives us access to those relationships. And so where we see opportunities like Connect Ventures, it's a 12-year-old fund, these 8 assets, 2 of which drive the majority of the value and they're more mature companies, we're able to price those and project them forward in terms of where we think their growth potential is. And then that allows us to construct a transaction that gets to our returns profile of 2.5x to 3x type multiples. And then you kind of back solve for where is the current NAV and that sort of implies where the discount will come through, you then obviously go through an iteration of do LPs want to transact at those levels. And in the case of this, I would say that, that's proving at the moment to be discount levels very similar to where we've been trading in the public market. So I think that gives you a sense of how that's occurring. We absolutely think that this is a point in time. It's purely liquidity-driven. And so it is effectively an arbitrage on very good businesses that we can take advantage of. And I think we're uniquely placed to do that. We're one of the few that will invest in primary and in secondary opportunities because we just see it as a great way to access good companies that give future upside potential to our shareholders. So I think transacting in that market for now is still where we'll continue to focus and those discount levels mean that it's attractive place to put capital to work, but also the companies that are then coming into our portfolio are driving future growth and we should be able to turn those to realizations in more like a 3-year window, let's say, rather than a primary investment, which is a 7- to 10-year window. So I think as a strategy, it makes a lot of sense. But those discounts will narrow is my view. And as we come into improved market environments and as liquidity starts to flow through the system, we won't have those same opportunities. So now is a great time to do that. Touching on the emerging portfolio. There's a lot of companies in there that are scaling and growing well. And then there's others which we won't put future capital into. That's just the nature of the portfolio management. What I would say is that in terms of capital requirements, last year, we said we thought we'd deploy about GBP 20 million to support the portfolio as a whole and we did just slightly less than that amount. Actually, I think it was even more like GBP 10 million ultimately. This year, we said again, we think it will be about GBP 20 million, and we think we'll come out about that level. So that gives you a sense that there isn't a lot of capital required going in to support those companies. Sometimes it support for future scaling because we still believe in the opportunity. Sometimes it's just about giving them a little bit more runway to come to their next value inflection point, be that capital raising or be that an exit as it may be. And then there will be a cohort of companies where we won't put additional capital into naturally. So I think the management of that portfolio has been really robust. It's one of the things that probably sets us apart from others in the ecosystem. And the companies that do scale and grow, we want to add additional capital too. And that's also been a feature where we've got several capital pools. We've been able to manage EIS, VCT deployment alongside plc balance sheet investment and that's allowing us to be active in the market and where we see those companies continue to scale and grow, we can then subsequently add further plc capital into those companies as they move into the more sort of early growth stages of, say, a Series B.

Yes. And in terms of the companies raising, yes, there's been some raising activity in the core already. in this half year and it's been positive. So companies like Riverlane, Isar Aerospace, ICEYE, Schuttflix, they've all been doing raises and they've all been at valuations at or above where we were holding them. So we're confident in terms of where all the companies in the portfolio, how we're valuing them. And that's another -- again, another validation point as they go out to raise that the market is seeing that as well.

Patrick O'Donnell at Goodbody. A couple of questions really around -- starting with maybe the fair value. So just maybe some sense of why you sort of left off going with the full -- in terms of revenue, why you didn't give the full amount of the uplift, why you left that sort of that 20% below, just some rationale around that. And the second point, when you look at kind of Thought Machine and the sort of what you've taken off it now and it's partially due to sort of delayed customer contracts. When you're looking into '26, do you see an opportunity for an uplift there as that revenue comes back into the business? And then lastly, on realizations. You've talked about a strong H1. Perhaps we won't see as strong in H2. But in terms of kind of 2026, you've talked about a portfolio that's quite mature now. Any thoughts on momentum in '26 and the potential for material exits that we've seen in '25?

I think with Revolut, we've been quite consistent when we've talked about 2 decision points, if you like. One decision point is the investment decision. The capital has come into the business. People are seeing -- the new investors are seeing their returns profile, whatever that may be, it might be 2x, 3x times their money coming in at a GBP 45 billion valuation. So they see significant continued growth in that business. And I would say we would agree with that significant continued growth. We've obviously invested at a much earlier stage and therefore, we've got value accrued within the business already. And when we look at the separation between the investment decision and the accounting decision of the valuations, we're very much looking at what is the commercial traction at the date of the balance sheet and then what are the market multiples at that time. So we're less looking ahead to the future potential and pricing that in. So we'll often get strategic value perhaps priced into these rounds as well. We're very much looking at the fundamentals of where it is at that point in time. So I'd say there's almost a separation in that decision process and the accounting decision is following the valuation guidelines. So you can see a distinction in those points. In that case, we're therefore not pricing in some of the future growth that we anticipate will come, but we're just not pricing that in yet. We'd rather see that commercial traction occur and then we can be more sensible about slowly walking that up as it's delivered. And that's been consistent not just for Revolut but across the asset base. And so we're very excited about the company and its scale and its potential and we think that it's proving itself to be a category leader in that space, and it's got significant future upside potential. The point when that potential gets realized, it's most likely to be an IPO. And then there's a question of what's the timing of that. So if that's in '27, for example, is probably the most likely first year, that would obviously drive realizations for us coming off a more significant asset. And that somewhat goes to the response to what do the realizations look like in FY '26. It partly depends on the shape of the market and the opportunities for some of our more mature businesses either to IPO or transact at a strategic premium for a trade sale. And we feel like with some of the companies in the core, if you just take the accounting decision, you'll see them moving up with their growth. So take the Thought Machine example, you'll see that if the revenue comes through, if multiples are just stable, you'll obviously be able to walk them up with that improved commercial traction that you're seeing through the numbers. But what you won't ever see is the strategic premiums coming in until there's an exit. So if it's an IPO or a sale for any of those businesses, there's likely to be an uplift because that's when those premiums get unlocked. Any more questions from the floor? And if there aren't, we'd probably turn to the phones.

Yes, we can open for conference call questions, please.

[Operator Instructions] And we do have a question from James Lockyer from Peel Hunt.

I've got 3. I'll do them one at a time. Of your portfolio, you've talked about the types of companies and sectors you like, but I wonder if you could give us some more color of the types of models. For example, how much of your value is driven by recurring revenues versus volume-based? And how much of your value is driven by the direct end market uses versus a pick and shovel. For example, Revolut is obviously driven by the end customer choosing the brand of Revolut, whereas Form3 sits underneath multiple competing brands playing the theme instead.

James, so we'll start with -- I think you said you had 3 questions. Maybe do them one at a time is helpful for me. Thank you. So in terms of what types of revenues we value more, the multiples you get for recurring revenue are substantially higher. So as we're going through a valuation process, we'll obviously value that more, one, in terms of the business model when we're first investing. And I think you can see that the high gross margins is a reflection of recurring revenues coming through those businesses and therefore, higher gross margins being demonstrated through that. The one-off transactional revenues that come through tend to be part of the implementation, tend to be part of the business model, but they won't get as high a valuation multiple. So when we're looking at new investments and when we're valuing the companies that are already in the portfolio, we would very much look at them in that lens that recurring revenues have a much higher value.

Okay. And second question, just on the -- if you could give us some color around some of the proposed policies from the new U.S. President-elect such as tariffs on foreign imports, how much might that impact some of your companies that have U.S. revenues?

I think it's probably too early to say. Obviously, we'll have to focus on what comes out and see how our companies need to react. What I would say is that the businesses tend to have global revenues that would often have a U.S. SKU as they say scale and grow. But what they will have is U.S. presence and operations. So to all intents and purposes, a lot of these businesses that expand out of Europe move into the U.S. and effectively become U.S. companies. So I think to the extent that there are tariffs and such like, technology doesn't often get affected significantly by that, particularly on software. Obviously, you'll see it more distinctly in the semiconductor space that we haven't seen or rather we haven't got great exposure to pure semiconductor companies at the moment in the portfolio.

And then finally, just on -- in terms of guidance, you've already hit the GBP 100 million that you said guidance. What would you be expecting for the full year now, given you've mentioned that some of your companies are fundraising at the moment? And of those ones that are fundraising, are they being priced at discount or premium to your fair value?

So we haven't provided additional guidance on the realizations. We sort of went out with GBP 100 million, which was largely the 4 companies that have transacted and that's kind of overtaken the initial guidance. We do have a few other companies that are going through processes. So my expectation would be that there will be some additional realizations, but we're not giving guidance on additional quantums other than to say, I think the larger, more significant transactions have gone through for this period. So we're not expecting it to be much more significant than where we are right now. In terms of fundraising, the companies that are raising have been raising capital at or above existing values. Sometimes it's reaffirming their previous valuations from a couple of years ago, which by its nature, will show you that the multiples have come down, but the companies have grown. So just reaffirming previous valuations has been occurring. And then some companies have been getting the valuations slightly above -- modestly above where the previous valuations were. But we haven't, I would say, seen significant upticks that we've seen in prior periods. It's more muted than that, but still supportive to our NAV holding values.

And so no real uplift, but the point is it's supporting your current fair value, which is obviously a significant discount to the current share price.

Yes, correct. I mean we're having this debate endlessly, of course. But actually, the reaffirmation of the existing NAV when we're trading at such a discount is frankly quite significant in itself. And I think the more realizations we have at and above holding value, the more proof points of fundraising that we have with, in this period, another GBP 800 million of capital having gone into the portfolio from external sources. They're all proof points that show that our holding values are sensible.

There are currently no further questions over the conference call. So I would like to hand back to the room for questions via the webcast.

So we have a couple of questions that have come in through the webcast. We have 2 from Milosz Papst from Edison Group. Can you shed some light on the Thought Machine sales pipeline and expected timing of confirmed contracts? And secondly, what is the valuation methodology you use for Aiven and Aircall and are they valued on market -- are they value based on market multiples at present?

Maybe let you take the second one, Andy, and I'll deal with the first. Thought Machine as a model, it's an infrastructure play for banks. So it's putting core banking systems in place. And when we first invested in the company, we were making an assessment that we felt that banks would move from their own technology architecture and move to a third party. And thankfully, that's proven to be true. And the core banking system is really the Ledgers that underpin everything the bank does. So it's pretty fundamental tech. So the timing of them signing up new banks and proving that they can bring on new logos has been impressive. They've had constant traction there. But the timing to then go live with those new accounts and new offerings and what they call fully live, if you like, in terms of the whole suite of current accounts in a bank like EGA, JPMorgan, just takes a bit longer because of the fundamental nature of their technology and how important it is to the entire ecosystem for the banks, but also for the regulatory environment that they support. So that -- what we've seen is, therefore, that the timing to go fully live has taken slightly longer, but the opportunity to go fully live is still there. And we're seeing the proof points coming through in the conversations Thought Machine is having with those clients, but it's just a point of timing, therefore. So I think the upside potential remains. And we think that the proof points will come through. But it's just for us a question of from a valuation perspective, having to reflect where they are at this current point in time. Do you want to take the question on valuation?

Yes, I don't have all the details of the valuation in front of me. But from recollection, they are both -- they haven't raised recently. So they are both more enough market multiples. Aircall is actually progressing quite well. Just now, they've had a few changes and they're definitely growing well and the multiples are supporting that. Aiven, as we said, is just not growing quite as quickly as it had originally planned. There's been a bit of a slowdown in that one. So with the multiples being flat or reducing, then we've pulled the valuation down for that one a little bit.

I think that's just, again, an important point to reiterate, which is as we're valuing the companies, when they're raising new capital, particularly if they're growing very strongly, there's an Aiven of the future being priced in. And so the implied multiples will often be higher than where we're going to hold them if we're valuing just on public market comps. The company then if it's growing very strongly, will grow into those multiples quite quickly. If those growth rates drop off, we'll start marking them down in our books to be more in line with the public comps but they're still growing. They're still executing on their journey. That's an important differentiation. This is just about the pace of growth that we're measuring here rather than them going backwards or having significant problems. Companies like Aiven are well-funded. They're in architecture for managing open source data sets, which the enterprises that have to spin out new developments and new apps constantly need management of those open source developer tools. And Aiven is therefore well placed. It's a big growing market. It's just a question of can that pace of growth be continued. And so we're reflecting shifts in that pace of growth.

Great. We have a question from Barry Haimes from Sage Asset Management. Are you considering any more share repurchases?

So we've gone out to market with our capital allocation policy and first line of that policy says that we'll look at opportunities to invest in private and in secondary deals. So at the moment, we see fantastic opportunities in the market and we're very mindful of creating the vintages that will drive the growth in the subsequent period, so for the next 2, 3 years. So that's still going to be our primary focus. As we then move into covering our operating cost base and looking ahead for 18 months, we're in a good position there. What I would say is if we have significant new realizations, we'll look again at the buyback policy and whether we want to put more capital into buying back the shares. But as we stand right now, that's not the plan currently. We think the opportunity set for deploying that capital is significant.

Great. And one last question from the webcast from Ian Robertson from Progressive. Can you say a bit more about the preference shares and how the investments are structured and whether this is a mix -- this mix has changed or is changing the fluctuations in the health of the market? Do you have a fixed policy on this? Have you found a change in policy to this amongst other VCs?

So preference shares are a feature of the venture capital model. If you think about venture capital, you're investing in a swath of companies, you're creating vintages. You're looking at technology opportunities that can have significant market upside, so significant growth potential. But you're recognizing, as we showed on the chart previously that maybe in our case, 30% to 40% of what we do drives those significant returns. And therefore, you're having protection measures that manage your downside in the rest of the portfolio. One of those protection measures is active management being on the board of those companies, helping them with that growth journey and seeing all of the monthly data that comes through from the companies. And another feature is just the portfolio approach that we take to manage risk. The final feature, which is prominent across all of venture capital is the structure of the shares that we invest in. And the downside protection comes from a preference share such that we would be the first capital out of a business if we've led their most recent round of financing. And it's normally a case that it's a 1x preference share. So effectively, the cost of value that you put into the business is what would come out as a first priority. And I would say that, that's not changing in the market. That's still a feature and it's very much consistent across all of our portfolio or nearly all of the portfolio. And I would say that the venture capital peers in the market that we invest alongside would be following the same approach.

Great. There are no further questions on the webcast. I'll hand back to the room for closing remarks.

Excellent. Thank you very much. Well, look, thank you, everyone, again for your time. And I think from the results, you can see that we're in a really great position to take advantage of where we are, strong, stable base, good financial prospects, and an exciting portfolio in all of the emerging tech things that we'd like to be invested in, but also crucially capital to go into new thematics and new companies. And I think as Europe scales and grows, hopefully, the capital that's coming alongside that, be that from pension funds or from public markets will scale and grow and we're fantastically well placed to take advantage. So I think the coming years are exciting. So thank you all for your time.