VSQTF: A Liquid Way to Diversify Into Early-Stage Venture at a Deep Discount to NAV

By Lisa Thompson

OTC:VSQTF

READ THE FULL VSQTF RESEARCH REPORT

➢ Victory Square Technologies (VST) VSQTF is an early-stage investor primarily in technology and health care companies in the US and Canada. It operates with a small staff that runs a startup incubator and takes large positions in startup companies. As a public company, it can use stock for these investments eliminating the need to constantly raise cash to support its business model.

➢ VST strives to increase the value of its holdings. In 2021 it increased its Net Asset Value (NAV) to CN$102 million (CN$1.05 per share) from $66 million (CN$0.66 per share) the year before.

➢ The company has a portfolio of 25 companies, eight of which are subsidiaries and others are classified as investments. When it makes sense, VST enters into liquidity events for its subsidiaries and investments—either through a sale or a spin off to its shareholders.

➢ The company trades an 86% discount to its current estimated NAV of US$0.66 per share, well below comparable companies. At US$0.10 per share, the stock trades at less than the value of sum of its publicly traded investments alone.

➢ In 2022, one company in the portfolio has already been spun off into a separate public company, Turnium Technology Group, Inc. TTGI. Hydreight and DiscreetCare are expected to be next. Also Creator.co may do a token offering. This could add to the total return to shareholders of Victory Square as well as aid those companies in fund raising and M&A.

➢ Hydreight's listing should add significant value to the company's holdings as it is rapidly growing and is expected to provide the majority of revenues to VST this year. In Q1 it generated CN$780,217 CAD in revenues and management expects it may be able to reach US$4-5 million in sales this year. It may then be valued between three and nine times its year end revenue run rate of US$8.7 million, or US$26 million to US$78 million. Management also expects it to generate CN$4-5 million in EBITDA this year. After the deal is completed VST will own 73.34% down from 100%, making its ownership potentially worth at least CN$25 million by year end, up from the $17.9 million current post money valuation of VST's piece.

➢ An investment in VST is a liquid way to invest in early-stage venture companies without the usual lock up required by venture funds who require multiyear investments. It also can be purchased by non-accredited investors who are restricted from buying venture funds. It is an excellent way to diversity into early-stage venture. Due to market conditions, investor have the ability to now buy VST stock at an unprecedented discount to its NAV.

➢ The company's current enterprise value is approximately CN$14.3 million or US$11.0 million. It is trading below the value of its public holdings alone (minus the discount for illiquidity the auditors give). If we say that the company is worth at least the value of its public entity holdings (and include soon to be public IV Hydreight) which equals CN$31.8 million, plus 50% of the rest (CN$62 million) VST might be worth CN$62.8 million or CN$0.64 per share (US$0.49).

Victory Square Technologies was founded in 2015 and headquartered in Vancouver BC, Canada. It employs five people at its parent company and another 27 in its wholly owned subsidiaries. It functions like an early-stage venture capital company combined with an incubator, but is structured as a public company allowing investors and co-owners of its subsidiaries and portfolio companies liquidity. In addition, VST invests primarily using its common stock and does not require a liquidation preference thus providing founders with better economics than traditional venture capital.

VST sources investments by actively searching for promising companies that fulfill real world solutions in areas of health and technology that management deems areas of potential high growth. It has particular interest and expertise in: the Creator Economy, Digital Health, Gaming, Web 3.0, VR/AR and Climate Tech. It has a vast global network that it taps to find entrepreneurs with these solutions. Management at VST then provides capital, guidance, hands on help, and shared resources such as office space and accounting to grow these companies and increase their value.

The value of Victory Square Technologies is primarily derived by its holdings in other companies. It accounts for these holdings in two ways. It has subsidiaries (as listed below) of which it owns 22% to 100% that are consolidated with VST the parent company's financials. They comprise the revenues on the company's income statement. The rest of the companies in the portfolio are classified as investments and comprise the "Investments" number on the balance sheet. The company revalues these holdings periodically and the total of the value of VST's ownership in the subsidiaries, plus the investments, equals its Net Asset Value.

Shareholders of VST benefit in two ways. First management strives to increase the value of the companies it which it invests and hopefully increases the share price of the stock. Secondly, the company creates liquidity events for its investments either selling them to raise cash to redeploy into new investments or by spinning them off into separate entities to shareholders. In the past year the company showed the second strategy by taking GameOn and XR Immersive public and listing the Covalent token. Going forward, the company plans to hold its public company investments for a longer time than the past before it spins the new stock off to shareholders in order to create a more stable trading environment and gather natural shareholders. There is also the possibility the company could sell its public company stock holdings for cash and distribute that cash to VST shareholders to minimize price disruption and taxes.

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