SuperSeed Capital Limited (WWW AQSE)
Full Year Results See NAV Grow 15%
SuperSeed Capital Limited (WWW ASE) is a registered, closed-ended, collective investment scheme that invests in seed stage B2B Software as a Service (SaaS)/AI companies, primarily through funds managed by SuperSeed Ventures LLP. The Company recently reported results for the Full Year ending December 31st 2023 (FY 2023). Revenue comprised £222k unrealised and £297k realised gains on investments, £3k of other income and £151k of costs, produced a profit of £372k and EPS of 15.8p. This reflected the year end trading update published in March 2024 (see VSA Capital note dated 11 March 2024). Portfolio companies saw their SaaS revenues grow by 96% year-on-year, a resilient performance and SuperSeed sees a positive outlook for 2024. SaaS revenue growth supports investee company valuations. This, alongside two exits achieved during the period, saw the FY 2023 NAV rise by 15% to 113p per share vs. a current share price of 85p.
U.S. Acquirers Attracted - Portfolio Exits For A High IRR
In FY 2023, the Fund backed seven new AI-led companies. During the period two investee companies, Techsembly and Garvis, in which SuperSeed first invested in Q2 2021 and Q3 2022 respectively, saw sales grow strongly. This attracted US acquirers Sabre Corporation (NASDAQ: SABR) and Logility Inc., respectively. SuperSeed targets holding investments for three to seven years. However, in a short holding period, SuperSeed has achieved a 78% combined IRR from Techsembly and Garvis. During Q4 2023, £0.3m was invested into three new companies. Post period end, SuperSeed led a £1.4m pre-seed investment round in Messium, which applies AI to hyperspectral satellite imagery and machine learning algorithms to optimise the application of fertiliser to wheat plants.
Portfolio Companies’ AI SaaS Revenues Accelerate
SuperSeed is focused on investing in companies that have created machine learning/AI software algorithms capable of learning from extensive datasets and are able to make predictions in a controlled manner, which have practical applications such as improving customer productivity and removing costs. In Q2 2023, SaaS Annualised Recurring Revenue (ARR) produced by portfolio companies rose by 21% (vs. Q1 2023). In Q3 2023, the ARR growth rate slowed to 9% as business buyers became more cautious. In Q4 2023, ARR recovered seeing a 13% on the previous quarter and reflecting an annualise growth rate of 60%. The Company reported at Full Year results that,” there is a general sense in the industry that software revenue growth bottomed out in 2023, with a positive outlook for 2024.”
Working With Founders to Build Large Software Companies
SuperSeed stated strategy is to back the best technical founders and support them in building successful global software companies. It works closely with investee companies on commercialisation strategy to drive SaaS growth. The fund also helps founders to build strong teams that can significantly scale their businesses. During FY 2023, it brought in a number of business leaders across several portfolio companies, including:
Uhura: as new VP Sales, Pete O’Neil (former Chief Revenue Officer of Blue Prism Group plc);
Octaipipe: as Chief Revenue Officer, Arnaud Lagarde (former VP Europe of Automation Anywhere) as Chief Revenue Officer; and
Finteum: as Vice Chair of the board, Rupert Hume Kendall (former chairman of Bank of America Merrill Lynch in Europe).
Valuation: AI Investment Track Record & NVA Growth at a Discount
The Company focuses on B2B SaaS and AI companies; investing at earlier stage many quoted funds exposed to the technology sector. External acquirers have already been attracted to its portfolio companies even though they are early stage of evolution. The Fund’s focus on commercialisation is seeing strong growth in portfolio company SaaS revenues and this is enabling a number to raise new investment at higher valuations. SuperSeed is building a strong track record in identifying and accelerating growth of early-stage AI software businesses and this should see the best early-stage companies and founders attracted to the Fund for its capital and skills. This creates an opportunity for the Fund to generate high returns. AI-led software is technologically complex area to invest in and SuperSeed Capital, as a listed fund, enables to investors to gain exposure whilst opportunities are at seed stage. The Company grew the NAV by 15% during FY 2023 and yet the share price fell by 16% during the period. This leaves SuperSeed Capital trading on just a 0.7x NAV/share multiple as it invests in the high growth technology sectors of B2B SaaS and AI. The Company, given its successful track record in software and AI businesses merits a premium to the wider technology funds sector on a 0.7x multiple. Buy
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