Chrysalis Investments cuts valuations as shares drop

The company said it is shifting its focus to the 40 per cent of its portfolio that is profitable.

The investment company that backs Starling Bank, Klarna and Wise has written down its assets by £234m because of “grim” market conditions.

Set up to back potential unicorns, the company has seen shares fall 7.7 per cent to 96.25p, meaning all investors who have taken part in its £830m of capital raises since 2018 lost money.

The tech-heavy portfolio of investments was hit by soaring inflation and a sharp decline in valuations.

“Profitability, not growth at any cost, is now the focus as companies look to extend funding runways,” co-portfolio managers Nick Williamson and Richard Watts said.

“Chrysalis’ portfolio companies have not been immune to this environment, although for our profitable companies, or those with very strong balance sheets, the difficult funding market is of less or no concern.”

In results released last week, the trust said its net asset value per share had fallen 16 per cent from 251.96p to 211.76p in the six months up to March.

Its share price also fell by more than a third (33.7 per cent), “driven by weakening valuations of listed peers in the tech space”, the firm said.

With approximately 40 per cent of the portfolio already profitable, the focus has been working with the remaining 60 per cent, Williamson and Watts said.

This includes its share of digital challenger Starling Bank.

They said they have supported “a number of companies” to balance opex budgets with growth aspirations. 

The current stance is to reserve sufficient capital to support its existing portfolio while the market remains as it is.

“If and when market conditions allow, or Chrysalis generates capital, share buybacks or new investments might be considered,” Williamson and Watts said. 

The company’s focus is now on ensuring its companies are prepared for “tighter funding conditions” and that it has the required capital to help its companies across a “potentially prolonged period”.

The firm’s total net assets also dropped 8.6 per cent in value over the first six months from £1.38bn to £1.2bn

The trust said it has been working with the unprofitable companies in its portfolio to refine funding plans, with plans to draw on cash reserves of £55m.

It also said it would be withdrawing from new investments to support its existing portfolio as the “challenging environment” persists.