Pembroke VCT, the £233 million venture capital trust, is looking to raise an additional £60 million of investment in the current tax year.
One third of the cash raised will be invested in new growth-stage companies, with the rest being spent on second and third round investments in existing portfolio businesses.
Current portfolio businesses include burger chain Five Guys, fashion designer Bella Freud and ice-cream brand Hackney Gelato.
Pembroke CEO Andrew Wolfson said that he did not want to raise more than £60 million because he did not want to feel he had to invest in businesses for the sake of it. “Otherwise, you get into deployment issues,” he said.
It has £233 million worth of assets under management (AUM) – a mixture of cash in hand and net asset value – and has a portfolio of 44 live investments, having exited from 18 businesses to date.
Part of the €9 billion private-equity firm Oakley Capital , Pembroke VCT was founded in 2013 to invest in non-digital businesses, which is the focus of sister company PROfounders, and instead concentrate on a consumer-business focused fund.
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Unlike a regular venture capital firm, investors invest in a spread of growth businesses, not specific startups, as is the case with a VC.
Pembroke typically invests up to £5 million over a three-year period in three tranches.
Wolfson said: “We are very wary of businesses raising too much money too quickly. It doesn’t serve investors well and it doesn’t serve founders well either. If founders raise too much money, they might end up chasing sales at a negative contribution margin, while we prefer steady, sensible growth where we can re-invest year-on-year.”
Pembroke VCT looks for businesses that are already turning over £1 million a year. The business has now shifted focus to the consumer, technology and business sectors – no longer focusing solely on consumer businesses.
Wolfson is careful as to what percentage of equity the VCT wants in exchange for its investment, saying it depends on the amount invested and company valuation. VCTs themselves are prohibited from owning more than half a company’s shares. For example, Pembroke owns 1 per cent of Five Guys in exchange for its £3.3 million investment, but 36 per cent of Hackney Gelato (£3.2 million invested) and 46 per cent of Bella Freud (£4.3 million invested).
Typically, Pembroke VCT stays invested in each company for anything between three to five years. Recent exits include Pasta Evangelists, PLENISH and ME+EM.
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Pembroke VCT history
Wolfson is a former entrepreneur who set up hotels, telecoms companies and even a furniture manufacturer before almost a chance conversation led him to venture capital trusts.
Back in 2008, he was playing golf with Peter Dubens, founder of private equity firm Oakley Capital, who offered him a job looking after investments considered too small for private equity money.
“A VCT seemed a good way to set up a fund. What we liked about it would be that our investors’ risk would be spread out around the portfolio,” he says, “not understanding how difficult it would be to set up a VCT.”
Pembroke VCT raised just over £18 million in its first year “which gave us a platform with which to make our first investments,” said Wolfson.
Wolfson says that the problem with any newbie VCT is that IFAs want to see returns before advising clients to invest, so it becomes a chicken-and-egg situation.
Today, Pembroke VCT has expanded to a team of 16 based in Oakley Capital’s Chelsea, London headquarters alongside PROfounders.
As to what his favourite investments are to date, Wolfson shrugs and says, “That’s a bit like asking, who is your favourite child?” He does, however, point to beauty and wellness brand LYMA, which began as a high-end vitamin-supplement brand and has now expanded into skincare.
Wolfson is seeing more of a B2B play when it comes to founders too. Wolfson says that they are seeing more people who developed an in-depth understanding of their own industry and can see what the pain point is; developing a solution, which, ultimately could be sold to an industry incumbent, too much of a slow-moving dinosaur to itself effect change.
“There’s a feeling that, once you get ahead with technology, you stand a chance of remaining ahead of the chasing pack,” said Wolfson.
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