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Vertex Ventures Holdings Ltd: Temasek-linked Venture Capital

Phillip Bonds  |   28 Jul 2021  |    573 views

Vertex is a venture capital investment holding company wholly-owned by Temasek. The group’s expertise across many geographies and disruptive technologies has allowed it to grow AUM at a CAGR of 27% since 2008 to US$3.5bn in 2021. We believe vertex has the funding capabilities and expertise through its network partnerships and managers to continue growing through disruptive investment opportunities globally.

Company background

Vertex provides anchor funding and operational support to a proprietary global network of venture capital funds in Israel, SEA & India, China and the US. As at 25 June 2021, its portfolio AUM was US$4.5bn comprising more than 200 active companies including regional industry leaders like Grab and Binance. The group’s investment industries include fintech, security, consumer, artificial intelligence and biotech. Vertex is wholly-owned by Temasek and has five network partnerships and managers providing access to expertise and funding.

Investing into wider geographical and sectorial regions is performed through the Vertex Fund of Funds, with typical investment ticket sizes of US$5-10mn. In addition, the group also invests directly into startups with an early stage bias through its Vertex Exploratory Fund, with ticket sizes of US$1-5mn. Adjusted net profit in 2020 was US$146mn, -US$3mn in 2019, and US$29mn in 2018. Profits are lumpy as investment exits are unpredictable in nature.

Ability to invest into disruptive start-ups across entire lifecycle

Through its access to domain specialists, Vertex is able to bring startups from proof of concept stages all the way through to mergers and acquisitions or initial public offerings. Successful investment ventures provide attractive returns, ranging from 3x to 27x on initial investment. This has contributed to the group’s AUM growth from US$0.2bn in 2008 to S$4.5bn in 2021.

Established track record and expertise

A process of selecting and backing general partners who are native to their start-up ecosystems with deep domain knowledge and networks is employed. This grants Vertex access to the best deal flow, and is also crucial for the highly nuanced start-up ecosystem that requires local expertise. The group’s funds in the US, Israel, China and SEA & India are focused on each region’s specific innovation landscape and investment thesis.

Robust access to liquidity

Vertex has access to a range of liquidity sources. They comprise of redeemable preference shares issued to Temasek, bank loans facilities, divestments of portfolio companies through merger and acquisition or exit through initial public offering, and dividends from its fund investments. Of the redeemable preference shares, US$239mn remains undrawn from Temasek. In addition, the group’s low gearing ratio of 0.1x as at FY20 affords it a high headroom for raising debt through capital markets.

Summary

We believe Vertex is capable of continuing its growth in disruptive investments through its various funding avenues and expertise. Going forward, the group’s track record of growing AUM bodes well for its capital market raising efforts and access to future investment opportunities.

The VERTEX 3.3% 28Jul2028 Corp (SGD) senior unsecured bond gives investors access to the venture capital market in disruptive technologies. As at 28 July 2021, the bond has a yield to maturity of 3.1% and matures on 28 July 2028.

 

 

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