The investing policy of Vela Technologies plc is focused on enterprises using disruptive technology either to gain an advantage in an existing market or to create a new market. Within that over-arching strategy, Vela applies the following criteria in reaching an investment decision.
Stage of development
Usually (but not necessarily) investee businesses will have been operating for a number of years. They may be established businesses that are developing a new line or technology, or they may have been formed specifically in order to exploit a particular product which is expected to disrupt the market or create a completely new one. The investee business may not yet have achieved profitability.
Investee companies will usually be based in the UK (including the Channel Islands) or derive a material proportion of their business from the UK. Conversely, investee companies may derive a significant proportion of their income from overseas but be based in the UK. It is unlikely that Vela would invest in a business headquartered overseas and deriving a majority of its business from outside the UK.
Disruptive technology is not confined to the pure technology sector, but may be found in IT software businesses, including SaaS (software as a service); or in ‘bricks and mortar’ businesses which use IT in innovative ways in order to disrupt the sector in which they operate.
The definition of disruptive may also extend to pharmaceutical businesses where, for example, a new drug may have the potential to make a beneficial impact on the treatment of medical conditions; as well as to companies operating in the wellness and life sciences sectors.
Vela aims to have a mix of private and publicly-traded investments.
The private companies will generally need to have ambitions for a public listing in a relatively short time period (i.e. within two years of investment); or, failing that, a plan to find a buyer for the business or to scale up the business (e.g. by merging with or acquiring another or by raising material additional equity funding) within a similar timescale.
Investments in public companies will usually be made as part of a development capital financing designed to accelerate the growth of the business.
Vela will generally expect to make investments in the form of equity. It will also consider investing in loan stock which is convertible (at Vela’s option) into equity shares. In certain cases (e.g. a new drug which may be one of a number being developed by the promoter) it may be appropriate for Vela to take an interest in the future cash flows from that drug. Vela’s investments will rarely be in the form of pure debt.
Investments will usually be in the form of cash but may also take the form of an issue of new Vela shares.
In the case of equity investments, the Directors intend to take minority positions and investments will therefore typically be of a passive nature.
Vela invests with the intention of realising its investment within three years of investment. Investments can be made at the pre-IPO stage and in anticipation of a public listing for the shares, often within a few months. In such cases the whole or part of the investment may be sold on admission of the investee company’s shares to trading on a stock exchange.
Investments in companies whose shares are not traded on a public exchange are, of course, inherently more difficult to realise; and so, although there may be an intention to list the shares or to sell the business, Vela may need to hold an investment in a private company for a longer time period.
The Directors intend to re-invest the proceeds of disposals in accordance with the Company’s investing policy unless, at the relevant time, the Directors believe that there are no suitable investment opportunities in which case the Directors will consider returning the proceeds to shareholders in a tax efficient manner.
Number and size of investments
There is no limit on the number of projects into which the Company may invest except the capacity of Vela’s investment team to appraise and monitor them. Similarly, the monetary quantum of each investment is a factor of the funds available to Vela at the point of investment. Both the number and size of investments will therefore vary according to Vela’s human and monetary resources. Each of these will be referred to in Vela’s annual and interim reports. As investments are made and new promising investment opportunities arise, further funding of the Company may be required to enable Vela to make further investments.
The Company will pursue a balanced portfolio of an even mixture of early stage, pre-liquidity event and liquid investments. While the aim is to have the portfolio split fairly evenly between the different stages of liquidity, there will be no set criteria for the proportion of the portfolio which will be represented by each investment type.
Equity interests will rarely exceed 10% of an investee’s issued capital; and generally will be less than 3%.
As a result of Vela’s network of contacts in the financial markets, it occasionally receives invitations to invest in businesses which do not meet the core criteria of the investing policy. Nevertheless, if the Board considers that there is an opportunity to benefit by investing in such a proposition and thus allowing its shareholders access to investments in which they may otherwise not be able to participate, it may consider doing so. Such investments will be limited at 5% of the Company’s net asset value and would usually be made on the strict understanding and expectation that any such investment would be held for the short term only.
In order to mitigate investment risk, the Directors will carry out a thorough appraisal of each potential investment. This appraisal may include site visits, analysis of financial, legal and operational aspects of each investment opportunity, meetings with management, risk analysis, review of corporate governance and anti-corruption procedures and, where the Directors see fit, the seeking of third party expert opinions and valuation reports. Vela will not have a separate investment manager.
Nature of returns
It is anticipated that returns to Vela will be delivered through a combination of capital gain, dividend income and interest on convertible loans.
Given Vela’s expected percentage holdings in investee businesses, it will be unusual for Vela to seek or be offered a position on the investee’s board of directors. However, in those instances where it is felt desirable and appropriate for Vela to appoint a director, the fee earned from any such post held by a director or employee of Vela would be payable to Vela and form part of the return earned by Vela on its investment.
Cash held by the Company pending investment, reinvestment or distribution will be managed by the Company and placed on deposit with banks so as to protect the capital value of the Company’s cash assets. The Company may, where appropriate, enter into agreements or contracts in order to hedge against interest rate or currency risks.
Review of investing policy
The Directors will keep the investing policy under continuous review and will make and announce any non-material changes or variations as may be appropriate. Any material change or variation of the investing policy will be subject to prior approval of shareholders.