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Chrysalis Investments (5.8% weight):

Chrysalis Investments (“Chrysalis”) is a London-listed closed-ended fund which owns a concentrated portfolio of late-stage, technology-driven private companies.

The company came to market at 100p per share in 2018 with a remit to invest in late-stage private companies as a “crossover” investor. An excess of VC money drove underlying valuations higher, and the shares peaked at 277p in 2021 – then trading at an +23% premium to its reported NAV.

We started building a stake in April 2024 at the inception of the fund’s life, after the NAV and share price had corrected by -42% and -72%, respectively.

At this point we felt the company had a number of key attractions: 1) abnormally wide -46% discount to a heavily written-down NAV; 2) Chrysalis’ top five largest holdings accounting for 69% of NAV were all mature, and (mostly) performing strongly; 3) multiple credible prospects for liquidity events, which our analysis indicated could lead to significant uplifts on carrying value; and  4) a new capital allocation policy, in which £100m of buybacks (24% of the then prevailing market cap) would be undertaken once a cash reserve of £50m from exits was hit.

Two successful exits in recent months has generated sufficient cash levels to surpass the £50m reserve and kickstart the buyback program. Graphcore was sold to Softbank for c.£44m (a +25% premium to carrying value) and Featurespace to Visa for £89m (a +21% premium to carrying value).

Elsewhere in the Chrysalis portfolio, we continue to see credible prospects for liquidity events in names such as Starling Bank (30% of NAV) and Klarna (14% of NAV).

Starling Bank is a cloud-native, UK challenger bank built on a proprietary digital platform known as Engine. Being built from the ground-up, as a digital-first business, Starling not only benefits from significant cost advantages versus the incumbent UK banks but is also able to develop and launch new products far quicker as a result.

As an example, Starling’s banking platform is accessed solely via an app, meaning its annual running cost per customer is only around £40, whereas traditional banks have annual customer costs of around £250 due to their legacy tech stack and brick-and-mortar bank branches. This drives up both Starling’s margins and its return on tangible equity, which stands at c. 30% vs. peers at c.10%, and affords it a premium valuation. We remain confident in Starling’s ability to deliver meaningful levels of profitability despite its relatively low loan-to-deposit ratio and its conservative balance sheet.

Klarna is a global-leading payments provider and a company with which many readers will likely be familiar. Klarna’s core products are 1) Buy-Now-Pay-Later (BNPL), which gives consumers the ability to pay for purchases, on an interest-free basis, over an extended period; 2) Pay in 30 days, in which the customer pays no interest if they pay in full within that time period; and 3) Financing – consumers can choose the term of their loan and pay the interest accordingly.

Klarna’s aim is to offer consumers a limited range of standardised financing products which emphasise short-duration and low-amount transactions, in return charging its merchant network a variable commission of up to 6% of GMV (dependent on size of item), at an average rate of 2.1%. This commission income represents 85% of Klarna’s total revenues.

The low value nature of these consumer loans means that the average order size is only $100, the average outstanding balance per Klarna user is only $150 (vs. $6,500 for credit card users), 99% of all balances are repaid on time, and Klarna’s average loan book duration is only c. 40 days, giving the company greater control over its credit risk.

Klarna is anticipated to IPO in H1 2025, at a speculated valuation range of $15bn- $20bn. At these figures, a full exit from Klarna would realise between 20-27% of Chrysalis’ current market cap. Chrysalis’ carrying value for Klarna is supported by private trades in the secondary market.

Chrysalis’ other largest portfolio holdings are Smart Pension (15% of NAV), a UK Pension Master Trust and technology platform; and The Brandtech Group (10% of NAV), a US-based marketing technology group.

The prospect for further realisations of large holdings, such as Klarna or Starling, and the still wide -27% discount to NAV makes for a compelling investment case.

Today, Chrysalis is a 5.8% position. AVI, across our funds, is the largest shareholder owning over 14% of the shares.

Our biggest detractors were both in our early-stage private equity growth basket; Chrysalis Investments (“Chrysalis”) and Seraphim Space (“Seraphim”). Chrysalis’s share price was hit by poor news flow from its holding in WeFox and investors unhappiness with the trust commenting on making new investments while the discount remains wide. We believe that cash from realisations in Chrysalis’s portfolio should continue to be used to buy back shares. We remain positive in the outlook for Seraphim, but unlike some comparable peers, it is yet to fully benefit from the effects of falling interest rates.

Our biggest detractors were both in our early-stage private equity growth basket; Chrysalis Investments (“Chrysalis”) and Seraphim Space (“Seraphim”). Chrysalis’s share price was hit by poor news flow from its holding in WeFox and investors unhappiness with the trust commenting on making new investments while the discount remains wide. We believe that cash from realisations in Chrysalis’s portfolio should continue to be used to buy back shares. We remain positive in the outlook for Seraphim, but unlike some comparable peers, it is yet to fully benefit from the effects of falling interest rates.

Chrysalis Investments (“Chrysalis”) is a London-listed closed-ended fund which owns a concentrated portfolio of late-stage, technology-driven private companies. It is currently a 5.4% weight in the portfolio.

The company came to market at 100p per share in 2018 with a remit to invest in late-stage private companies as a “crossover” investor. An excess of VC money drove underlying valuations higher, and the shares peaked at 277p in 2021 – then trading at an +23% premium to its reported NAV.

We started building a stake in January 2024, after the NAV and share price had corrected by -37% and -74%, respectively.

At this point we felt the company had a number of key attractions: 1) abnormally wide -48% discount to a heavily written-down NAV; 2) Chrysalis’ top five largest holdings accounting for 69% of NAV were all mature, and (mostly) performing strongly; 3) multiple credible prospects for liquidity events, which our analysis indicated could lead to significant uplifts on carrying value; and  4) a new capital allocation policy, in which £100m of buybacks (24% of the then prevailing market cap) would be undertaken once a cash reserve of £50m from exits was hit.

Two successful exits in recent months have generated sufficient cash levels to surpass the £50m reserve and kickstart the buyback program. Graphcore was sold to Softbank for c.£44m (a 25% premium to carrying value) and Featurespace to Visa for £89m (a 21% premium to carrying value).

Elsewhere in the Chrysalis portfolio, we continue to see credible prospects for liquidity events in names such as Starling Bank (30% of NAV) and Klarna (14% of NAV).

Starling Bank is a cloud-native, UK challenger bank built on a proprietary digital platform known as Engine. Being built from the ground-up, as a digital-first business, Starling not only benefits from significant cost advantages versus the incumbent UK banks but is also able to develop and launch new products far quicker as a result.

As an example, Starling’s banking platform is accessed solely via an app, meaning its customer acquisition cost is only around £40, whereas traditional banks have a customer acquisition cost of around £250 due to their legacy tech stack and brick-and-mortar bank branches. This drives up both Starling’s margins and its return on tangible equity, which stands at c. 30% vs. peers at c.10%, and affords it a premium valuation. We remain confident in Starling’s ability to deliver meaningful levels of profitability despite its relatively low loan-to-deposit ratio and its conservative balance sheet.

Klarna is a leading global payments provider and a company with which readers will likely be familiar. Klarna’s core products are 1) Buy-Now-Pay-Later (BNPL), which gives consumers the ability to pay for purchases, on an interest-free basis, over an extended period; 2) Pay in 30 days, in which the customer pays no interest if they pay in full within that time period; and 3) Financing – consumers can choose the term of their loan and pay the interest accordingly.

Klarna’s aim is to offer consumers a limited range of standardised financing products which emphasise short-duration and low-amount transactions, in-return charging its merchant network a variable commission of up to 6% of GMV (dependent on size of item), at an average rate of 2.1%. This commission income represents 85% of Klarna’s total revenues.

The low value nature of these consumer loans means that the average order size is only $100, the average outstanding balance per Klarna user is just $150 (vs. $6,500 for credit card users), 99% of all balances are repaid on time, and Klarna’s average loan book duration is short at c. 40 days, giving the company greater control over its credit risk..

Klarna is anticipated to IPO in H1 2025 at a speculated valuation range of $15bn-$20bn. At these figures, a full exit from Klarna would realise between 24-32% of Chrysalis’ current market cap. Chrysalis’ carrying value for Klarna is supported by private trades in the secondary market.

Chrysalis’ other largest portfolio holdings are Smart Pension (15% of NAV), a UK Pension Master Trust and technology platform; and The Brandtech Group (10% of NAV), a US-based marketing technology group.

The prospect for further realisations of large holdings, such as Klarna or Starling, and the still wide -40% discount to NAV makes for a compelling investment case.

Today, Chrysalis is a 5.4% position. AGT is the largest shareholder owning over 12% of the shares.

Chrysalis Investments was our best performer after announcing a sale of one of its underlying companies, Featurespace, at a premium to carrying value. Not only was this reassuring for investors on the quality of the companies within the portfolio but more importantly the cash from the sale moves above the level which tiggers Chrysalis’s capital allocation policy. Funds will now be returned to shareholders via a buyback.

One of Chrysalis’ largest holdings, Klarna, announced that they were looking for a $20bn valuation at their potential IPO later in the year. This would add 13p to Chrysalis’ net asset value and the shares rose in response.

One of Chrysalis’ largest holdings, Klarna, announced that they were looking for a $20bn valuation at their potential IPO later in the year. This would add 13p to Chrysalis’ net asset value and the shares rose in response.