Here’s how ASX venture capital stocks are trying to cope with the Tech Wreck of 2023

Nick Sundich Nick Sundich, June 2, 2023

ASX venture capital firms have been doing it tough in the last 18 months. Just look at the share price of Touch Ventures (ASX:TVL) to illustrate what’s happened to the sector.

ASX venture capital firms invest in early stage companies, particularly tech companies. With valuations crashing as inflation and interest rates rise, so does the value of their investor companies.

 

Touch Ventures (ASX:TVL) share price chart, log scale (Source: TradingView)

 

 

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What ASX venture capital firms are doing

Powerhouse Ventures (ASX:PVL) – another ASX venture capital company – told investors it recognised the dilemma. The irony is that its NTA (Net Tangible Assets) has actually increased, but so has the P/NTA discount.

It told shareholders it recognised this discount limited the ability to expand its horizons. So, it put forward a 2 point plan:

  1. To monetise legacy investments (in other word, look for an exit)
  2. To only invest in opportunities with a high return hurdle, that are more liquid, have shorter duration and, consequently, are less likely to be discounted by investors.

It told investors that if and when it narrowed the P/NTA discount, it would consider new investments and potentially M&A.

Back to Touch Ventures, it last addressed its shareholders at its ATM last month. It admitted that ‘With the benefit of hindsight, we listed a technology investment company at close to the zenith of the valuation cycle for the sector’.

It claimed to have taken steps to preserve cash including reducing cash burn at existing companies, ceased making new investments and limited additional investments in existing companies to small amounts.

 

Not all bad news for ASX Venture Capital firms, but it is for investors

Both companies have claimed to have successes, such as a handful of individual exits as well as increasing their NTA. But shareholders would be disappointed that shares have fallen so much. It’s not clear when the turnaround may come. Lower interest rates would certainly help, though.

 

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