In the last month of the financial year the COVID-19 pandemic caused some of the gains of the prior 11 months to be reversed as government measures meant some of our businesses had to temporarily cease trading. As a result of COVID-19 we have seen the portfolio fall into three categories.
1. Mothballed and ready
The first category is businesses with physical sites that all had to temporarily suspend normal trade, in line with Government guidelines, to prevent the spread of the virus. As such, we
have prudently lowered the fair value by up to 90% to reflect the fact that these companies expect their full year results to be significantly impacted. Though at the time of writing,
some companies have been able to re-open their sites.
We have worked closely with the founders of these businesses and are particularly pleased how some of them have been
entrepreneurial during the lockdown. For example, Boom have partnered up with Apex Cycles, a competitor to Peleton, to be the exclusive provider of content and classes. With their
studios temporarily closed they have used this time to bring forward the production Apex need for their launch and first year of operation, generating significant alternative revenue.
2. Pivot trading
The second category is where businesses have seen COVID-19 change how they sell. These companies have pivoted their focus to online sales. Fashion brands which, while their stores have been closed, have pushed harder on their online offering with less reliance on catalogue drops and physical space. This has helped make up for delays and cancellations of wholesale orders. While consumers have spent more time at home, we have seen an increase in online demand for our brands and, in general, at a lower cost of customer acquisition. This has helped re-enforce the investment rationale for backing companies that have an omni-channel sales strategy and adaptable management teams that can quickly adapt to take
advantage of changes in consumer habits.
3. Strong performers
The third category is for companies where COVID-19 has led to a significant improvement in trading with performance over and above expectation as the purchasing habits of consumers has changed. Our portfolio companies that offer consumers new experiences while being ‘at home’ are seeing exponential rates of growth. Some even had to temporarily suspend accepting orders at one point, as their delivery partners were unable to keep up with demand.
Our companies in the strong performer category were able to react to the changing situation because of the quality of the founders and their management teams. They were able to increase production and capacity rapidly due to the flexibility and collaboration of all their staff. The founders of our portfolio companies in this third category have, with our help, also donated considerable amounts to our amazing NHS staff and to charities that look after vulnerable people most affected by the lockdown.