Why I am Buying Powerhouse Ventures, page-4

Hi @gixxerboy,

So far, my position in PVL has an average entry price (aep) of 11 cents and the position comprises circa 4% of my total (personal) portfolio. The Capital H active fund also has a similar average entry price (of 10.2c), thus I believe this is the ground floor, if you will, for the share price of PVL 2.0

Initially, I was concerned that I wouldn't be able to accumulate a sizeable position. But, I managed to transact a decent amount. What I noted was that there was an offscreen seller who refilled the offers at 11c last week after I took small bites at them. Although this seller appears to be exhausted now, I would gradually test the waters with bids, rather than feel the need to start line-wiping to build a position.

The share price has churned at 8-13c across the past 6 months and the register is tightening up, but there may still be a decent opportunity to accumulate a reasonable amount around 11-14c levels, before supply is exhausted and the share price pushes on to 20c+. It will be interesting to see what Raven, Amherst and Ramsay (who were supporting the other board contenders: McGrath, Armstrong and Andrew Ramsay) do with their position — I believe that they are supportive of the change to Harley's new board team — their qualm was with the old board not Harley.

So, it is a fairly high-convicted idea (particularly with the firepower of Capital H accumulating), although I am leaving capacity and time to see how the situation evolves. I'd be willing to accumulate further if/when the new management team demonstrate success with the new strategic direction for the company. Even if that means averaging up.

I'm very confident on the upside to 20c for a c. $20m market cap (purely with attention, newsflow and a bit of noise in Q1-CY22), but success beyond this point will be largely dictated by the quality of investments made by the new team.

The ASX has a scattered history of unsuccessful attempts at holding a basket of unlisted private companies running inside a listed vehicle, such as with 8EC (now LAN) and YNB (now AVC). Normally, all of the best VC investments go to the best private VC funds (Blackbird etc), and listed ASX entities are just a back-door outback method of giving it a run. The best private start-ups don't need the ASX for funding. I did some work for Main Sequence Ventures a couple of years ago and they are the sort of outfit that PVL will have to compete against for deals.

But if PVL can get access to a few winners via their networks then it is game on...

It is such a competitive space: the best startups have lots of opportunities for funding in the Aussie VC landscape these days (unlike a decade ago). To attract the best start-ups you also need to offer them more than just funding — strategic support etc is all-important. This is exactly what Kruger did to get access to an investment in SkyCraft.

Another point to consider is that the current portfolio valuation of PVL is a lagging indicator (valued at cost initially and then at the most recent funding round). I think there is scope for the portfolio value to increase sizeably. This is because PVL has been quite conservative; for example, they wrote off EdPotential to $0, but then Kruger managed to divest it for a $330K NZD deal.

Ultimately, I don't think PVL will be valued on their cashflows. PVL will be valued based on the equity value of their portfolio. Any profits achieved on these investments will be recycled back into additional investments. Moreover, in time, I think the ASX will soon value PVL based on Harley Grosser's history of actively reshaping entities into something more valuable.

Courseloop is a perfect example of the new strategy. They are set to IPO this year, which will return cashflow to PVL, and allow more late-stage deals to be struck, accelerating the flywheel. There will be significant newsflow in 2022 for PVL and Capital H haven't started promoting it yet...



T.E.P.