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2018Audited Annual Report and Financial Statements for the year ended 30 September 2018

Baronsmead Second Venture Trust plc

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www.baronsmeadvct3.co.uk www.baronsmeadvcts.co.uk

Our Investment ObjectiveBaronsmead Second Venture Trust is atax efficient listed company which aimsto achieve long-term investment returnsfor private investors.

Investment PolicyTo invest primarily in a diverseportfolio of UK growth businesses,whether unquoted or traded on AIM.

Investments are made selectivelyacross a range of sectors in companiesthat have the potential to grow andenhance their value.

Dividend PolicyThe board of Baronsmead SecondVenture Trust has the objective tomaintain a minimum annual dividendlevel of around 6.5p per ordinary share ifpossible, but this depends primarily onthe level of realisations achieved andcannot be guaranteed.

Key elements of the Business Model

Access to an attractive,diverse portfolioBaronsmead Second Venture Trust givesshareholders access to a diverse portfolioof growth businesses.

The Company will make investments ingrowth businesses, whether unquoted ortraded on AIM, which are substantiallybased in the UK in accordance with theprevailing VCT legislation. Investmentsare made selectively across a range ofsectors.

The Manager’s approachto investingThe Manager aspires to select the bestopportunities and applies distinctiveselection criteria based on:

Businesses that demonstrate, or havethe potential for, market leadership intheir niche.

Management teams that candevelop and deliver profitable andsustainable growth.

Companies with the potential tobecome an attractive asset appealingto a range of buyers at the appropriatetime to exit.

In order to ensure a strong pipeline ofopportunities, the Manager invests insector knowledge and networks andundertakes significant proactive marketingto interesting target companies in preferredsectors. This is building a database ofbusinesses that are keen to maintaina relationship with the Manager ahead ofpossible investment opportunities.

The Manager as aninfluential shareholderFor unquoted investments, the Manageris an involved shareholder (on behalf ofthe Company) and representatives of theManager often join the investee board.The role of the Manager, with investees isto ensure that strategy is clear, thebusiness plan can be implemented andthe management resources are in placeto deliver profitable growth. Theintention is to build on the initialplatform and grow the business into anattractive target able to be either sold orfloated in the medium term.

A more detailed explanation of how the business model is applied is provided in the Other Matters section of the Strategic Reporton pages 18 to 21. The full investment policy can be found on page 62.

About Baronsmead Second Venture Trust plc

On 8 November 2018, Livingbridge VC LLP announced the sale of its fund and investment management business, including itsBaronsmead VCT business, to a subsidiary of Gresham House plc, a specialist alternative asset manager listed on the LondonStock Exchange. The transaction is expected to complete on or around 30 November 2018.

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Baronsmead Second Venture Trust plcAudited Annual Report & Financial Statementsfor the year ended 30 September 2018Contents

Strategic Report

Financial Headlines 2Performance Summary 3Chairman’s Statement 4Manager’s Review 7Ten Largest Investments 12Principal Risks & Uncertainties 16Other Matters 18

Directors’ Report

Report of the Directors 22Board of Directors 22Corporate Governance 25Directors’ Remuneration Report 33Statement of Directors’ Responsibilities 37KPMG Independent Auditor’s Report 38

Financial Statements

Income Statement 44Statement of Changes in Equity 45Balance Sheet 46Statement of Cash Flows 47Notes to the Financial Statements 48

Appendices

Investment Policy 62Dividend History in the Last Ten Years 63Dividends Paid Since Launch 63Performance Record Since Launch 64Cash Returned to Shareholders 64Full Investment Portfolio 65Glossary 67

Information

Shareholder Information and Contact Details 68Corporate Information 70

If you have sold or otherwise transferred all of your shares in Baronsmead Second Venture Trust plc, please forward thisdocument and the accompanying form of proxy as soon as possible to the purchaser or transferee, or to the stockbroker,bank or other agent through whom the sale or transfer was, or is being, effected, for delivery to the purchaser or transferee.

Some examples of our recent Investments

SilkFred LtdSilkFred is an online fashionmarketplace for independentbrands, providing consumersaccess to fashion not availableon the high street. Brandsbenefit from a wider audiencethan available through theirown channels, data-ledfeedback on best-selling styles,in-house photography andlogistics services, allowing themto focus on design. The SilkFredplatform is thus a growthenabler for young and inspiringfashion brands.

SecureCloud+ LtdFounded in 2014, SecureCloud+is a provider of specialistmanaged IT services to defenceand other public sectororganisations with demandingsecurity requirements. It candeliver bespoke solutions tosolve complex issues facinggovernment agencies, andspecialises in informationcollaboration systems allowingcustomers to store and sharehigh security level informationacross multiple locations inreal time withoutcompromising the security ofthat information.

Beeks Financial CloudGroupBeeks Financial Cloud providescloud connectivity solutions forinstitutional capital markets.Founded by CEO GordonMcArthur in 2010, Beeks focuseson reducing barriers to entryand time to market forinstitutional trading clients.

Access Intelligence Access Intelligence providescorporate communications andreputation managementsoftware to public and privateorganisations in the UK. Thecompany’s solutions helpcustomers protect and enhancetheir brands, influence relevantpolitical agendas andcommunicate across the fullrange of interested parties.

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Financial Headlines

Strategic Report

Net Asset Value per shareNAV per share increased 5.5 per cent to 95.1p in the yearended 30 September 2018, before deduction of 2018dividend payments.

+5.5%

NAV total returnNAV total return to shareholders for every 100.0p invested atlaunch.

330.6p

New Investments

£8.3minvestments made during the year.

Dividends in the yearDividends totalled 7.5p in the year to 30 September 2018,including the proposed final dividend of 4.5p to be paid on8 March 2019.

7.5p

Net asset value total return

Pence

275

285

295

305

315

325

335

201820172016

60

70

80

90

100

2018*20172016

Pence

* includes proposed !nal dividend of 4.5p

Dividends*Net asset value per share (p)

Dividends

Pence

0

5

10

15

20

2018**20172016*

* nine months to 30 September 2016** includes proposed !nal dividend of 4.5p

£m

0123456789

10

201820172016** nine months to 30 September 2016



Baronsmead Second Venture Trust plcAudited Annual Report & Financial Statementsfor the year ended 30 September 2018

Performance Summary

Ten Year Performance Record

Cash Returned to Shareholders by Date of InvestmentThe chart below shows the cash returned to shareholders based on the subscription price and the income tax reclaimedon subscription.

2017(October)

2016(February)

2012(December)

2010(March)

2005(March) –C share

2001(January)

Cash invested (p) Income tax reclaim (p)

*includes proposed !nal dividend of 4.5p.

Pence

2014(March)

Cumulative dividend (p)*

0

20

40

60

80

100

120

140

160

* Net asset value total return (gross dividends reinvested) rebased to 100p. Source: Livingbridge VC LLP

Net asset value per share Share price (mid) Net asset value total return per share* Total net assets (£m)

Pence £m

0

50

100

150

200

250

300

350

400

450

30/09/1830/09/1730/09/1631/12/1531/12/1431/12/1331/12/1231/12/1131/12/1031/12/0930

50

70

90

110

130

150

170

190

210

52.9m64.6m 60.1m

74.6m 74.9m 76.6m79.2m

140.9m

186.7m

199.4m



I am pleased to report a 5.5 per cent (5.0p) increase in the Company’s NAV per shareto 95.1p per share for the year to 30 September 2018, before dividend payments.

During the year to 30 September 2018 theCompany has invested in 13 new and 3 followon investments, and I am delighted to report ithas also successfully realised investments fromboth the unquoted and AIM-traded portfolio.

The Company paid an interim dividend of 3.0p inSeptember 2018. In line with previous years andunderpinned by the successful realisations thisyear, the Board has recommended a finaldividend of 4.5p to be paid in March 2019,subject to shareholder approval.

Results Pence per ordinary share

NAV as at 1 October 2017 (after final dividend) 90.1

Valuation uplift (5.5 per cent) 5.0

NAV as at 30 September 2018before dividends 95.1

Less:

Interim dividend paid on 21 September 2018 (3.0)

Proposed final dividend of 4.5p payable, after shareholder approval, on 8 March 2019 (4.5)

Illustrative NAV as at 30 September 2018 after dividends 87.6

Portfolio ReviewAs at 30 September 2018, the portfoliocomprised direct investments in a total of75 unquoted and AIM-traded companies,providing shareholders with diverse exposure.LF Livingbridge UK Micro Cap Fund (“Micro Cap”)consisted of 44 companies and there were

45 companies held by LF Livingbridge UK MultiCap Income Fund (“Multi Cap”), in which thecompany has invested, providing yet furtherdiversification.

The underlying value of the unquotedinvestments increased by 14.6 per cent duringthe year to 30 September 2018 reflecting thecontinued positive performance of this portfolio.I am also pleased to report that the AIM-tradedportfolio increased by 4.1 per cent, Micro Capincreased by 18.8 per cent and Multi Cap alsoincreased by 14.0 per cent in value. Although theperformance across both unquoted and listedbusinesses has been strong during the year, thecurrent volatility in the markets and uncertaintyover Brexit may impact this over the comingmonths. However, the portfolio remains diversewith investments in both established unquotedand AIM-traded companies, as well as earlierstage growth businesses all of which are spreadwidely across the sectors in which the Managerinvests.

Investments and DivestmentsIn line with the more recent VCT regulationchanges, the Manager has adapted itsinvestment strategy to focus on the provision ofdevelopment capital to earlier stage companieshelping them to grow organically rather thanthrough acquisition. The Board is thereforepleased to report that during the year theCompany invested a total of £8.3m in 13 newand 3 follow-on unquoted and AIM-tradedinvestments. The new investments in earlier stageopportunities may result in greater volatility inreturns over time, albeit that the more mature,established portfolio of investments shouldcontinue to determine returns for shareholdersfor several years to come.

AnthonyTownsendChairman

Strategic ReportThe Chairman’s Statement forms part of the Strategic Report.

Chairman’s Statement




7.5p pershare in totaldividendpayments forthe year,includingproposedfinal dividendof 4.5p.

£8.3minvestedduring theyear.

NAV totalreturn of330.6p per100pinvested forfoundershareholders.

In addition to these new investments, I ampleased to report that the Company has realised10 unquoted and AIM-traded investments duringthe year, as well as 3 loan repayments, realisingtotal proceeds (including interest due at time ofrealisation) of £25.4m. This included the sale fromthe unquoted portfolio of Crew ClothingHoldings, one of the longest standingBaronsmead investments, for a 2.3x return; Eque2for a 3.0x return; and Key Travel for a 3.2x return.The AIM-traded portfolio realisations includeda 1.4x return from the sale of FreeAgent Holdings;1.1x return from the sale of Escher GroupHoldings, and EG Solutions which realised1.4x return. Against these successes, losses wererealised on In the Style Fashion, Ubisense Groupand Plant Impact.

Details of all the Company’s investments anddivestments during the year are set out in thetables on pages 10 and 11 and furthercommentary on portfolio companies is providedin the Manager’s Review on pages 7 to 9.

FundraisingThe Board is pleased to confirm its intention toraise new funds in the 2018/2019 tax year. Asannounced in August this year, the Companyplans to launch a joint fundraising withBaronsmead Venture Trust plc in early January2019 to raise £25m in aggregate which isprincipally to fund new investments in the shortto medium term. We will send the Prospectuscontaining the full details of the offer toshareholders as soon as it is available.Subscriptions to the fundraising will only beaccepted on a first come, first served basis.However, this year for the first time, I can confirmthat it will be possible to subscribe online as wellas with the more traditional paper subscriptionform. We will include details of how to do thiswith the Prospectus.

Dividend PolicyThe Company has for many years maintaineda policy of paying a minimum annual dividend

level of around 4.5p per ordinary share but theBoard is very pleased to report that since 2007a dividend of at least 7.5p has been paid toshareholders. With the large and diverseportfolio it is anticipated that there will bea continued flow of realisations from which topay dividends and the Company also hasconsiderable reserves to cover any year wherethere are fewer disposals. It would thereforeseem appropriate to adopt a more realisticdividend policy, which I have set out below.

The board of Baronsmead Second Venture Trusthas the objective of maintaining a minimumannual dividend level of around 6.5p perordinary share if possible, but this dependsprimarily on the level of realisations achievedand cannot be guaranteed.

Change of Management ArrangementsAs I communicated in my letter to shareholderson 8 November 2018, the Investment Managerfor the Company, Livingbridge VC LLP(“Livingbridge” or the “Manager”), will change toGresham House plc (“Gresham House”), aspecialist alternative asset manager listed on theLondon Stock Exchange, on or around30 November 2018.

I can confirm that no changes are being made tothe terms of the investment management andco-investment agreements for the Company.

As you would expect, the Board completed duediligence on Gresham House during the processand was satisfied that its management teamappreciates the important heritage of theBaronsmead VCTs and is committed tomaintaining the strong governance culture ofthe Company as well as its investmentperformance.

Since the Company was founded in 2001 therehave been several changes in the ultimateownership of the Manager. Throughout thesechanges the Board has focused on ensuringthere has been continuity in the executive team



Strategic Report

who make and manage the investments and can confirm thatthe team that has been responsible for the investmentmanagement of the Company will all transfer fromLivingbridge to Gresham House. The 16 transferringemployees are led by a senior team of five people who havean average tenure of 12 years at Livingbridge working withthe Baronsmead VCTs. The two key Partners, Andrew Garsideand Sheenagh Egan, will continue as consultants to GreshamHouse for up to three years to provide continuity and support.

Additionally, an agreement has been put in place betweenLivingbridge and Gresham House to enable a smoothtransition over a three-year period including passing oninsight, best practice and networks for the future benefit ofthe Company and its shareholders.

We are confident that this transaction will benefit both theCompany and its shareholders as it will provide additionalresources for the team going forward. This will enable them tomaintain and develop the VCT business, specifically focussingon increasing the deployment of capital under the new VCTrules as well as managing the existing diverse portfolio. Webelieve that Gresham House is committed to working with theBoard to deliver consistent performance over the long termfor all our shareholders.

Board SuccessionAs I advised shareholders, I am Chairman of Gresham Houseand for this reason I took no part in the decision to appoint it asthe new Investment Manager for the Company. John Davies, assenior non-executive director of the Company, led the Boarddiscussions, due diligence and final decision on the matter.

Given my role at Gresham House, I have proposed that I standdown as Chairman of the Company following completion, butthat I remain as a non-executive director to ensure Boardcontinuity going forward. The Board has agreed that JohnDavies, previously the Chairman of Baronsmead VCT5 plc, willassume the role of Chairman on an interim basis while itconsiders the longer-term arrangements.

The Board has been discussing succession planning anddiversity over the past year and will commence a search fora new Director in the New Year. We will be seeking shareholderapproval for an increase to the Directors fee cap at the nextAGM. This will enable the Board to accommodate up to fiveDirectors, on a temporary basis only, to ensure continuity and

minimise disruption, particularly in view of the change ofManager.

Annual General MeetingWe look forward to meeting as many shareholders as possibleat the Annual General Meeting to be held at 11.00 am on28 February 2019, at Saddlers’ Hall, 40 Gutter Lane, London,EC2V 6BR. As usual the Company will present a review of theyear and will be joined by both Livingbridge and GreshamHouse. We would be delighted if you would join us afterwardsfor lunch.

Outlook It was expected that by now the UK would have had greatercertainty on the timing and terms of its exit from theEuropean Union, however the outcome remains uncertain.Consequently, while the UK economy has remained largelyresilient over the past year, volatility in global markets, theongoing uncertainty in the UK and decreasing consumerconfidence, have resulted in a degree of UK market volatilitywhich we anticipate may remain a feature in the short term.

However, we continue to invest in the future of Britishbusinesses, supporting innovative growth companies whichwe believe are the driving force of the UK economy. Despitethe macro-economic uncertainties we are experiencing, theCompany’s investment strategy remains consistent. Theinvestment team continues to be disciplined when deployingcapital, particularly in the earlier stage companies which carrymore risk and we closely manage all investments once theyare in the portfolio. Therefore, I continue to believe that ourlarge and diverse investment portfolio should underpin thereturns to our shareholders over the medium to long term.

PersonalIt has been an honour and a privilege to be Chairman of thisCompany and I am sorry that the impending change ofmanagement obliges me to stand down; I will howeverremain on the board and continue to hold my investment inthe Company. I am very pleased that all of the key members ofthe Livingbridge team will continue uninterrupted to managethe Company.

Anthony TownsendChairman

22 November 2018




Manager’s Review

During the year there were:

13 new and 3 follow on•investments in unquoted andquoted companies totalling £8.3m

10 realisations and 3 loan note•repayments delivered proceedstotalling £25.4m

The year has seen another strong overall performance from the investment portfolio. We have continued to increase theinvestment rate following the changes to VCT legislation in 2015.

PORTFOLIO REVIEWOverviewThe net assets of £199m were invested as follows:

NAV % of Number of % return in(£m) NAV* investees the year**

Unquoted 52 26 23 15AIM-traded companies 90 45 52 4LF Livingbridge UK Microcap Fund 24 12 44 19LF Livingbridge UK Multi Cap Income Fund 3 2 45 14Liquid assets 30 15 N/ATotals 199 100 164

* By value as at 30 September 2018.

** Return includes interest received on unquoted realisations during the year.

Each quarter the direction of general trading and profitability of all investeecompanies is assessed so that the Board can monitor the overall health andtrajectory of the portfolio. At 30 September 2018, 87 per cent of the75 companies directly held in the portfolio (excluding the investments heldby Collective Investment Vehicles) were progressing steadily or better.

The tables on pages 10 and 11 show the breakdown of new investmentsand realisations over the course of the year and overleaf is commentary onsome of the key highlights in both the unquoted and quoted portfolios.

Andrew GarsidePartner

Ken WottonHead of Quoted Investments

Sheenagh EganPartner

Steve CordinerHead of Unquoted Investments

Bevan DuncanHead of Portfolio Management



Strategic Report

Investment Diversification at 30 September 2018

Sector by value

Total assets by value

Time investments held by value

Business Services 25% Consumer Markets 12% Healthcare & Education 19% Technology, Media &

Telecommunications (“TMT”) 44%

Less than 1 year 5% Between 1 and 3 years 13% Between 3 and 5 years 24% Greater than 5 years 58%

Unquoted – loan note 15% Unquoted – equity 11% AIM

45%

Collective investment vehicles

29%

Investment Activity – Unquoted and QuotedBelow are descriptions of some of the new investments made;

SecureCloud+ (unquoted) is an accredited provider of•specialist managed IT services to the defence andsecurity sector focussed on delivering services to uppertiers of security including official-sensitive, secret and top-secret environments.

Pointr (unquoted) is an Internet of Things smart indoor•location positioning business looking to improve thelocation accuracy for consumers when indoors andprovide meaningful data and insight to businesseslooking to better understand consumer behaviours inphysical locations.

Equipsme (Holdings) (unquoted) is an innovative•provider of health insurance products to SMEs, allowingthem to customise products for employees whilstdelivering an affordable, simple, modular and accessiblesolution.

Your Welcome (unquoted) supplies tablets and•software into vacation rental, Airbnb and corporate

letting properties, with their proprietary softwareimproving the guest experience through an informationportal, providing tips and recommendations on the localarea and a guest communication tool.

Labrador (unquoted) is a technology business•providing an automated energy switching service forconsumers. This is a free consumer product which can beplugged into a home to deliver energy savings for life bymonitoring energy usage and switching to the mostappropriate and lowest cost tariffs.

Munnypot (unquoted) is a software business which•delivers automated, regulated financial advice to its users(‘robo-advisory’). The business provides its solution tofinancial institutions, employee benefits providers and IFAnetworks.

PCI-Pal (quoted) is a suite of secure card payment•solutions designed to solve the Payment Card Industry’scompliance issues faced by contact centres & the world’slargest organisations including All Saints, Virgin, IKEA andMADE.COM.




IXICO (quoted) provides data analytics services for•pharma companies and clinical research organisationswith a particular focus on neurodegenerative diseases.IXICO’s analytics solutions combine technology andspecialist services for customers running clinical trials, aswell as real world data applications.

Unquoted PortfolioPerformanceThe unquoted portfolio has had a strong year of progress witha 15 per cent increase in value over the course of the year. Theportfolio is valued by the Board using a consistent processevery quarter. The majority of the value created by portfoliocompanies comes from trading and operationalimprovements including revenue and margin growth, ratherthan financial leverage.

Divestments During the year the unquoted portfolio returned £19.3m inproceeds following the full realisation of Key Travel (3.2x cost),Crew Clothing Holdings (2.3x cost) and Eque2 (3.0x cost). Thisrepresents an excellent trio of realisations. Kirona and CreateHealth made loan note repayments within the year.

Alongside this strong performance, we had one significantdisappointment in realising our investment in In The StyleFashion at nil proceeds. This business needed investmentbeyond the levels we anticipated and rather than investfurther we were diluted and replaced by another funder. The15 per cent unquoted portfolio returns includes the negativeof this divestment.

After the year end, the Company realised it’s investment inSymphony Ventures returning proceeds of £4.3m (2.4x cost).

Quoted Portfolio (AIM-traded investments)PerformanceThe quoted portfolio has had a good overall performanceduring the year with an increase of 4 per cent. Stand outperformers were: Ideagen, a provider of governance, risk andcompliance (“GRC”) software to highly regulated industries,following strong financial results and a successfuloversubscribed placing to fund the acquisition of MK Insight;Netcall, a customer engagement software provider, whichtraded well through the period and completed the acquisitionof low code platform provider MatsSoft; and Cerillion, aprovider of carrier-grade enterprise CRM and billing softwareto telecoms companies, following in line trading updates and

some good customer wins. These were partially offset byweaker share price performance from IDOX, a software andservices provider to the local government sector, followinga profit downgrade and change of CEO, and Dods (Group),a business to business media and information provider, whichwas de-rated on no specific news.

DivestmentsProceeds totalled £6.1m during the year following 5 fullrealisations. The two largest divestments were EG Solutionsand Escher Group Holdings returning £2.7m and £1.5mrespectively, generating returns of 1.4x cost and 1.1x cost.

Collective Investment VehiclesMicro Cap had strong performance over the year increasing by18.8 per cent (2017: 26.9 per cent). At 30 September 2018,Baronsmead Second Venture Trust’s cumulative £6.2minvestment was valued at £24.2m. As at 30 September 2018,Micro Cap held investments in 44 AIM-traded and listedcompanies.

The investment into Multi Cap has had a good performanceover the year increasing by 14.0 per cent. At 30 September2018, Baronsmead Second Venture Trust’s investment wasvalued at £3.0m. As at 30 September 2018, Multi Cap heldinvestments in 45 AIM-traded and listed companies.

Liquid assets (cash and near cash) Baronsmead Second Venture Trust had cash of approximately£32m at the year-end. This asset class is conservativelymanaged to take minimal or no capital risk, a strategy outlinedin prospectuses that have been issued in the past.

OUTLOOK

The majority of investee companies continue to perform well,providing good returns over the year and a firm foundation forfuture returns. The investment management team continues toadapt its deal origination and sourcing activities which haveresulted in the Company adding 6 unquoted and 7 AIM-tradedcompanies to the portfolio and the investment managementteam look forward to making further additions over the comingyear.

Livingbridge VC LLPInvestment Manager

22 November 2018



Strategic Report

Investments in the year

Book costCompany Location Sector Activity £’000

Unquoted investmentsNew

SecureCloud+ Ltd Berkshire TMT Defence and public sector IT systems 789

Pointr Ltd London TMT AI/ IOT Indoor Positioning Platform 526

Equipsme (Holdings) Ltd London Business Services SME Health Insurance Plans Provider 421

Your Welcome Ltd London TMT Supplier of tablets and software for vacation 368rental properties

Munnypot Ltd West Sussex TMT Automated online investment platform 273

Labrador Ltd London TMT Smart energy switching technology 263

Follow on

Custom Materials Ltd London Consumer Markets Retailer of customisable products 722

SilkFred Ltd London Consumer Markets Online fashion market place 275

Total unquoted investments 3,637

AIM-traded investmentsNew

IXICO plc London Healthcare & Provides technology enabled services to the 825Education biopharmaceutical industry worldwide

I-nexus Global plc West Midlands TMT Strategy and continuous improvement software 688

Access Intelligence plc London Business Services Provider of corporate communications and reputation 633management software

Fusion Antibodies plc Belfast Healthcare & Development of antibodies for both therapeutic and 550Education diagnostic applications

KRM22 plc London TMT Software as a service platform buy & build in risk 550and compliance software

PCI-Pal plc London TMT Secure payment services provider 495

Beeks Financial Cloud Group plc Renfrewshire TMT Cloud hosting services for the financial trading sector 413

Follow on

CloudCall Group plc Leicestershire TMT Cloud based telephony platform 549

Total AIM-traded investments 4,703

Total investments in the year 8,340




Realisations in the year

First Overallinvestment Proceeds‡ multiple

Company date £’000 return*

Unquoted realisations

Key Travel Ltd Trade sale Jul 13 6,430 3.2

Crew Clothing Holdings Ltd Trade sale Nov 16 5,362 2.3

Eque2 Ltd Trade sale Apr 13 5,129 3.0

Kirona Ltd Loan repayment Dec 14 1,201 1.2

IP Solutions Ltd Loan repayment Dec 14 642 0.3

Create Health Ltd Loan repayment Mar 13 550 1.0

In The Style Fashion Ltd Write Off Apr 17 0 0.0

Xention Pharma Ltd Write Off Jul 05 0 0.0

Total unquoted realisations 19,314

AIM-traded realisations

EG Solutions plc Scheme of arrangement May 05 2,728 1.4

Escher Group Holdings plc Take over Aug 11 1,486 1.1

FreeAgent Holdings plc Scheme of arrangement Nov 16 1,375 1.4

Plant Impact plc Scheme of arrangement Feb 15 493 0.3

Ubisense Group plc Market sale Jun 11 29 0.2

Total AIM-traded realisations 6,111

Total realisations in the year 25,425†

‡ Proceeds at time of realisation including interest.

* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.

† Proceeds of £332,000 were received in respect of Optimisa which has been written off in a prior period. Deferred consideration of £115,000 was received inrespect of Nexus Vehicle Holdings and £54,000 in respect of Kingsbridge Risk Solutions, both of which had been sold in a prior period.



Ten Largest Investments

Strategic ReportThe top ten investments by current value at 30 September 2018 illustrate the diversity of investee companies within the portfolio. For consistency across the top ten and based onguidance from the AIC, data extracted from the last set of published audited accounts is shown in the tables below. However, this may not always be representative of underlyingfinancial performance for several reasons. Published accounts lodged at Companies House are out of date and the Manager works from up to date management accounts and hasaccess to draft but unpublished annual audited accounts prepared by the companies. In addition, pre-tax profit in statutory accounts is often not a representative indicator of underlyingprofitability as it can be impacted by, for example, deductions of non-cash items such as amortisation that relates to investment structures rather than operating performance.

Netcall PlcHertfordshire

Quoted

www.netcall.comNetcall is one of the UK’s leading providers ofcustomer engagement solutions. Theysupport organisations to deliver outstandingcustomer service and achieve a realistic returnon their investment. Some of the challengestheir solutions can help to overcome includecustomer contact across multiple channels,resource utilisation, improving customersatisfaction ratings, process automation,unifying communications effectively andmaximising available budget.

Currently over 700 organisations in the public,private and healthcare markets use one ormore of the Netcall solutions which includecontact management, business processmanagement, workforce optimisation andenterprise content management.

All funds managed by Livingbridge†

First investment: July 2010Total original cost: £4,354,000Total equity held: 17.3%

Baronsmead Second Venture Trust onlyOriginal cost: £2,616,000Valuation: £9,245,000Valuation basis: Bid Price% of equity held: 10.4%

Year ended 30 June2018 2017

£ million £ millionSales: 21.9 16.2Pre-tax profits: 0.0 1.7Net Assets: 21.7 21.0No. of Employees: 217 169

(Source: Netcall Plc, Annual Report and Accounts,30 June 2018.)

2 Bioventix PlcSurreyQuoted

www.bioventix.comBioventix manufactures and supplies highaffinity sheep monoclonal antibodies for usein diagnostic applications such as clinicalblood testing. The company was founded in2003 as a biotechnology company and theirstrategy is to identify new or existingcommercial assays for which there is a needfor improved antibodies. They supplyantibodies to almost all of the globalmultinational immunodiagnostics companies.Since the Baronsmead VCTs first invested in2013, the company has tripled its revenuesand almost quadrupled profits.


First investment: June 2013Total original cost: £1,008,000Total equity held: 7.5%

Baronsmead Second Venture Trust onlyOriginal cost: £555,000Valuation: £6,621,000Valuation basis: Bid Price% of equity held: 4.1%

Year ended 30 June2018 2017


(Source: Bioventix Plc, Annual Report and FinancialStatements, 30 June 2018.)

3Ideagen PlcNottinghamshireQuoted

www.ideagen.comIdeagen is a governance, risk managementand compliance (“GRC”) software andsolutions business operating predominantly inthe healthcare, transport, aerospace &defence, manufacturing and financial servicessectors. It provides content lifecycle solutionsthat enable organisations to meet theirregulatory and compliance standards, helpingthem to reduce corporate risks and deliveroperational excellence. Its solutions coverenterprise and incident risk management,operational safety and quality management,audit risk management, as well as content andclinical solutions for the NHS. Since theBaronsmead VCTs invested, the company hassuccessfully executed a buy-and-build strategyin the GRC software market to add capabilityand build on its market position.


First investment: January 2013Total original cost: £3,000,000Total equity held: 5.1%


Year ended 30 April2018 2017


(Source: Ideagen Plc, Annual Report and Accounts,30 April 2018.)

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The top 10investmentsrepresent 45 percent of the value ofthe investmentportfolio

Excluding collective investment vehicles.

Cerillion PlcCerillion provides•carrier-grade CRM andbilling software to telecomscompanies globally

Revenue has increased•from£13.3m in 2014 to£16.0m in 2017

Market Value has increased•90% since investment

Inspired Energy Plc Baronsmead first invested at•2011 IPO. Since thenrevenues have grown 9.5xorganically throughacquisitionsRevenue up 28% from 2016•to 2017 financial yearsIt is now managing £2.5bn•worth of annual utility costsfrom over 1,800 clients

Happy Days Consultancy LtdCornwall

Unquoted

www.happydaysnurseries.comHappy Days is a leading child day care andearly years education provider operating from19 settings across the South West. Thebusiness focusses on delivering outstandingquality childcare in premium settings withinits geographic target markets.

The investment enables Happy Days tocontinue its UK expansion strategy throughsupporting the funding to develop newleasehold nursery settings in attractivemarkets.

All funds managed by LivingbridgeFirst investment: April 2012Total original cost: £7,617,000Total equity held: 65.0%

Baronsmead Second Venture Trust onlyOriginal cost: £4,180,000Valuation: £6,214,000Valuation basis: Earnings Multiple% of equity held: 31.5%

Year ended 31 December2017 2016

£ million £ millionSales: 8.0 7.0Pre-tax profits: (2.2) (1.8)Net Assets: (6.5) ( 4.2)No. of Employees: 398 309

(Source: H. Days Holdings Ltd Annual Report andFinancial Statements 31 December 2017.)

4 Carousel Logistics LtdKentUnquoted

http://www.carousel.euCarousel Logistics, based in Kent, designs andmanages bespoke supply chain managementsolutions for clients with time critical,challenging or high touch customer careneeds. Carousel has a wide range ofinternational clients for whom it deliversa complete integrated service includinge-fulfilment, procurement, warehousing,distribution, reverse logistics and internationalin-night services.

Carousel merged with German businessLSi Logistik in 2017 increasing its Europeanreach.

All funds managed by LivingbridgeFirst investment: October 2013Total original cost: £5,595,000Total equity held: 40.0%




(Source: Carousel Logistics Ltd Financial Statement31 December 2017.)

5



Strategic Report

Pho Holdings LtdLondon

Unquoted

www.phocafe.co.ukPho is a fast casual restaurant chain servingVietnamese food. Pho – a noodle soup – is thenational dish of Vietnam. Pho also offer anarray of Vietnamese dishes, coffees, beers andfresh juices.

Pho was founded in 2005 and nowsuccessfully operates from 27 sites in severaldifferent channels: London High St sites (e.g.Soho, Clerkenwell); regional sites(e.g. Brighton, Leeds); and food courts inshopping centres (e.g. Westfield).

All funds managed by LivingbridgeFirst investment: July 2012Total original cost: £4,415,000Total equity held: 28.0%


Year ended 28 February2017* 2016**


(Source: Pho 2012 Ltd, Directors' Report and FinancialStatements 26 February 2017.)

* 52 week Period ended 26 February 2017.**52 week Period ended 28 February 2016.

Create Health LtdLondon

Unquoted

www.createfertility.co.ukCreate Health is a renowned fertility clinicspecialising in Natural and Mild In VitroFertilisation (“IVF”) and In Vitro Maturation(“IVM”). Natural and Mild IVF uses lower levelsof drugs making it cheaper, safer and healthierfor the mother and baby.

Its leading edge fertility service has aninternational reputation through its researchand development of advanced ultrasoundtechniques, IVM and the one stop fertility MOT.

All funds managed by LivingbridgeFirst investment: March 2013Total original cost: £1,253,000Total equity held: 29.0%

Baronsmead Second Venture Trust onlyOriginal cost: £680,000Valuation: £5,722,000Valuation basis: Earnings Multiple% of equity held: 14.0%

Year ended 31 March2017 2016


(Source: Create Health Holding Ltd Annual Reportand Consolidated Financial Statements 31 March2017.)

7 8Inspired Energy PlcLancashireQuoted

www.inspiredplc.co.ukInspired Energy is an energy consultancybusiness for commercial and industrial clients,providing energy procurement, managementand advisory services to optimise energy costsand carbon emissions. Established in 2000, thecompany now has a team of 240 energyprofessionals who advise and manage over11,500 clients. The corporate division comprisesfive subsidiaries and provides review, analysisand negotiation of gas and electricity contractson behalf of corporate clients; the SME divisionoffers reduced tariffs and contracts based onunique customer situation. The BaronsmeadVCTs first invested as cornerstone investors inthe 2011 IPO and since then Inspired Energyhas grown revenues 9.5x through both organicand acquisitive means.


First investment: November 2011Total original cost: £1,437,000Total equity held: 7.6%




(Source: Inspired Energy Plc, Annual Report andAccounts 2017.)

6




Year on year salesgrowth of 33 percent p.a. across thetop 10 investments

Source: Top Ten Audited Financial Statements.

Ideagen PlcGovernance, risk and•compliance softwaresolutions.Number of employees•increased by 23 per centduring 2018.Ideagen has grown•revenues from £6.5m in2013 to £36.1m in 2018.

Carousel LogisticsLtd

Revenues up 49% from•2016 to 2017

Carousel led a merger with•German-based LSi Logistiksin 2017 to developa European platform

Setting up a new Sales &•Innovation centre inFrankfurt

Cerillion PlcLondon

Quoted

www.cerillion.comCerillion provides carrier-grade enterprise CRMand billing software to telecoms companiesglobally. Cerillion’s core product providesmission critical functionality to allowcustomers to manage their billing, charging,network provisioning, workflow and CRMprocesses, all of which are key from a businessoperations, revenue delivery and customerpipeline management perspective. CurrentlyCerillion provide solutions to customers across43 countries, which include their core productas well as Cerillion Skyline, an industryagnostic software as a service billingapplication.

All funds managed by LivingbridgeFirst investment: November 2015Total original cost: £4,000,000Total equity held: 17.8%


Year ended 30 September2017 2016*


(Source: Cerillion Plc, Annual Report and Accounts2017.)*Revenue from acquisition, as the Group came intoexistence on 18 March 2016.

†Excludes collective investment vehicles

9 Anpario PlcNottinghamshireQuoted

www.anpario.comAnpario is a producer of natural feed additivesfor the global agriculture and aquaculturemarkets. Their products are designed to boostgrowth and improve the health of the animalsto which they are fed. In an era where thetraditional antibiotic based growthsupplements are being steadily phased out,Anpario’s natural solutions can help to fill thegap. Sales growth is supported by both theincreasing global demand for meat (andhence feed) as well as the trend towardsorganic foods and healthy eating.

All funds managed by LivingbridgeFirst investment: November 2006Total original cost: £965,000Total equity held: 6.0%




(Source: Anpario Plc Annual Report 2017.)

10



Strategic Report

Principal Risks & UncertaintiesThe Board has included below details of the principal risks & uncertainties facing the Company and the appropriate measures taken in order to mitigate these risksas far as practicable.

Principal Risk Context Specific risks

The financial risks faced by the Company are covered within the Notes to the Financial Statements on pages 58 to 60.

Loss of approvalas a VentureCapital Trust

The Company must comply with section 274 of the Income TaxAct 2007 which enables its investors to take advantage of taxrelief on their investment and on future returns.

Breach of any of the rules enabling the Company to holdVCT status could result in the loss of that status.

Legislative VCTs were established in 1995 to encourage private individualsto invest in early stage companies that are considered to berisky and therefore have limited funding options. In return, thestate provides these investors with tax reliefs which fall underthe definition of state aid.

A change in government policy regarding the funding ofsmall companies or changes made to VCT regulations tocomply with EU State Aid rules could result in a cessation ofthe tax reliefs for VCT investors or changes to the reliefs thatmake them less attractive to investors.

Investmentperformance

The Company invests in small, mainly UK based companies,both unquoted and quoted. Smaller companies often havelimited product lines, markets or financial resources and maybe dependent for their management on a smaller number ofkey individuals and hence tend to be riskier than largerbusinesses.

Investment in poor quality companies with the resultant riskof a high level of failure in the portfolio.

Economic,political andexternal factors

Whilst the Company invests in predominantly UK businesses,it relies heavily on Europe as one of its largest trading partners.This, together with the increase in globalisation, means thateconomic unrest and shocks in other jurisdictions, as well as inthe UK, can impact on UK companies, particularly smaller onesthat are more vulnerable to changes in trading conditions. Inaddition the potential impact of leaving the European Unionremains uncertain.

Events such as economic recession, movement in interestor currency rates, civil unrest, war or political uncertainty orpandemics can adversely affect the trading environment forunderlying investments and impact on their resultsand valuations.

Regulatory &Compliance

The Company is authorised as a self-managed AlternativeInvestment Fund Manager (“AIFM”) under the AlternativeInvestment Fund Managers Directive (“AIFMD”) and is alsosubject to the Prospectus and Transparency Directives. It isrequired to comply with the Companies Act 2006 and theUKLA Listing Rules.

Failure of the Company to comply with any of its regulatoryor legal obligations could result in the suspension of itslisting by the UKLA and/or financial penalties and sanctionby the regulator or a qualified audit report.

Operational The Company relies on a number of third parties, in particularthe Investment Manager, to provide it with the necessaryservices such as registrar, sponsor, custodian, receiving agent,lawyers and tax advisers.

The risk of failure of the systems and controls of any ofthe Company’s advisers leading to an inability to serviceshareholder needs adequately, to provide accurate reportingand accounting and to ensure adherence to all VCTlegislation rules.




Possible impact Mitigation

The loss of VCT status would result in shareholderswho have not held their shares for the designatedholding period having to repay the income taxrelief they had already obtained and futuredividends and gains would be subject to incometax and capital gains tax.

The Board maintains a safety margin on all VCT tests to ensure that breaches are very unlikely to becaused by unforeseen events or shocks. The Investment Manager monitors all of the VCT tests on anongoing basis and the Board reviews the status of these tests on a quarterly basis. Specialist advisorsaudit the tests on a bi-annual basis and report to the Audit Committee on their findings.

The Company might not be able to maintain itsasset base leading to its gradual decline andpotentially an inability to maintain either its buyback or dividend policies.

The Board and the Investment Manager engage on a regular basis with HMT and industryrepresentative bodies to demonstrate the cost benefit of VCTs to the economy in terms of employmentgeneration and taxation revenue. In addition, the Board and the Investment Manager have consideredthe options available to the Company in the event of the loss of tax reliefs to ensure that it can continueto provide a strong investment proposition for its shareholders despite the loss of tax reliefs.

Reduction in both the capital value of investorsshareholdings and in the level ofincome distributed.

The Company has a diverse portfolio where the cost of any one investment is typically less than 5 percent of NAV thereby limiting the impact of any one failed investment. The Investment Managementteam has a strong and consistent track record over a long period. The sixteen transferring employeesare led by a senior team of five people who have an average tenure of twelve years working with theBaronsmead VCTs. The Investment Manager undertakes extensive due diligence procedures on everynew investment and reviews the portfolio composition maintaining a wide spread of holdings in termsof financing stage and industry sector.

Reduction in the value of the Company’s assetswith a corresponding impact on its share price mayresult in the loss of investors through buybacks andmay limit its ability to pay dividends.

The Company invests in a diversified portfolio of companies across a number of industry sectors, whichprovides protection against shocks as the impact on individual sectors can vary depending upon thecircumstances. In addition, the Manager uses a limited amount of bank gearing in its investmentswhich enables its investments to continue trading through difficult economic conditions. TheCompany always maintains healthy cash balances so that it can support portfolio companies withfurther investment should the investment case support it. The Board reviews the make up and progressof the portfolio each quarter to ensure that it remains appropriately diversified and funded.

The Company’s performance could be impactedseverely by financial penalties and a loss ofreputation resulting in the alienation ofshareholders, a significant demand to buy backshares and an inability to attract future investment.The suspension of its shares would result in the lossof its VCT taxation status and most likely theultimate liquidation of the Company.

The Board and the Investment Manager employ the services of leading regulatory lawyers, sponsors,auditors and other advisers to ensure the Company complies with all of its regulatory obligations.The Board has strong systems in place to ensure that the Company complies with all of its regulatoryresponsibilities. The Investment Manager has a strong compliance culture and employs dedicatedcompliance specialists within its team who support the Board in ensuring that the Companyis compliant.

Errors in shareholders records or shareholdings,incorrect marketing literature, non compliance withlisting rules, loss of assets, breach of legal dutiesand inability to provide accurate reporting andaccounting all leading to reputational risk and thepotential for litigation.

The Board has appointed an Audit Committee who, along with the external auditors, review the internalcontrol (ISAE3402) and/or internal audit reports from all significant third party service providers,including the Investment Manager, on a bi-annual basis to ensure that they have strong systems andcontrols in place including Business Continuity Plans. The Board regularly reviews the performance of itsservice providers to ensure that they continue to have the necessary expertise and resources to providea high class service and always where there has been any changes in key personnel or ownership.



Strategic Report

Other Matters

Applying the Business ModelThis section of the Strategic Report sets out the practical stepsthat the Board has taken in order to apply the business model,achieve the investment objective and adhere to the investmentpolicy. The investment policy, which is set out in full on page 62,is designed to ensure that the Company continues to qualifyand is approved as a VCT by HM Revenue and Customs.

Investing in the Right CompaniesInvestments are primarily made in companies which aresubstantially based in the UK, although many of theseinvestees may have some trade overseas. Investments areselected in the expectation that the application of privateequity disciplines, including an active management style forunquoted companies, will enhance value and enable profits tobe realised from planned exits.

The Board has delegated the management of the investmentportfolio to Livingbridge. The Manager has adopted a ‘top-down, sector-driven’ approach to identifying and evaluatingpotential investment opportunities, by assessing a forwardview of firstly the business environment, then the sector andfinally the specific potential investment opportunity.

Based on its research, the Manager has selected a number ofsectors that it believes will offer attractive growth prospectsand investment opportunities. Diversification is also achievedby spreading investments across different asset classes andmaking investments for a variety of different periods.

The Manager’s Review on pages 7 to 9 provides a review of theinvestment portfolio and of market conditions during the year,including the main trends and factors likely to affect the futuredevelopment, performance and position of the business.

Risk is spread by investing in a number of different businesseswithin different qualifying industry sectors using a mixture ofsecurities. The maximum the Company will invest in a singlecompany (including a collective investment vehicle) is 15 percent of its investments by value of its investments calculatedin accordance with Section 278 of the Income Tax Act 2007(as amended) (“VCT Value”). The value of an individualinvestment is expected to increase over time as a result oftrading progress and a continuous assessment is made of itssuitability for sale.

The Company invests in a range of securities including,but not limited to, ordinary and preference shares, loanstocks, convertible securities and permitted non qualifyinginvestments as well as cash. Unquoted investments are usuallystructured as a combination of ordinary shares and loan stocksor preferred shares, while AIM-traded investments areprimarily held in ordinary shares. Pending investment in VCTqualifying investments, the Company’s cash and liquid fundsare held in permitted non qualifying investments.

VCTs are required to comply with a number of differentregulations and the Company has appointedPricewaterhouseCoopers LLP (“PwC”) as VCT Tax StatusAdvisers to advise it on compliance with VCT requirements.PwC reviews new investment opportunities, as appropriate,and regularly reviews the investment portfolio of theCompany. PwC works closely with the Manager but reportsdirectly to the Board.

Environmental, Human Rights, Employee, Socialand Community IssuesThe Company seeks to conduct its affairs responsibly and theManager is encouraged to consider environmental, humanrights, social and community issues, where appropriate, withregard to investment decisions.

The Company is required, by company law, to provide detailsof environmental (including the impact of the Company’sbusiness on the environment), employee, human rights, socialand community issues; including information about anypolicies it has in relation to these matters and the effectivenessof these policies. The Company does not have any employeesand as a result does not maintain specific policies in relation tothese matters.

Livingbridge has an Environmental, Social and Governance(“ESG”) policy. As a responsible investor, Livingbridge fullyincorporates ESG factors into its investment programme. TheESG policy focuses on environmental, social and corporategovernance factors, including risks and opportunities,affecting both the Company and/or specific portfoliocompanies.




Livingbridge undertakes an in-house risk assessmentquestionnaire pre-investment to highlight any significant ormaterial ESG issues. Should any such issues be identified, theseare then addressed via specific due diligence pre-investment.

Upon completion of an investment the completed in-housequestionnaires are assessed by an external consultant tocorroborate risks identified, advise the company how toaddress any ESG issues and also to identify any potentialupside opportunities (e.g. energy savings). Relevant ESGmatters are then included in the portfolio company boardmeetings as appropriate and also in the standard Livingbridgeportfolio progress reports allowing Livingbridge to assess theimpact of any interventions or recommendations.

Global Greenhouse Gas EmissionsThe Company has no greenhouse gas emissions to reportfrom the operations of the Company, nor does it haveresponsibility for any other emissions producing sourcesunder the Companies Act 2006 (Strategic Report and Directors’Reports) Regulations 2013, including those within itsunderlying investment portfolio.

Gender DiversityThe Board of Directors of the Company comprises four maleDirectors. The Manager has an equal opportunity policy andcurrently employs 56 men and 40 women.

Appointment of the ManagerAs announced on 8 November 2018, the Investment Managerfor Baronsmead Second Venture Trust, Livingbridge, willchange to Gresham House, a specialist alternative assetmanager listed on the London Stock Exchange, on or around30 November 2018.

The Board expects the new Manager to continue to delivera performance which meets the objective of achievinglong-term investment returns, including tax free dividends.A review of the Company’s performance during the financialyear, the position of the Company at the year end and theoutlook for the coming year is contained within theChairman’s Statement on pages 4 to 6. The Board assesses theperformance of the Manager in meeting the Company’sobjective against the KPIs.

The management agreementUnder the management agreement, the Manager receivesa fee of 2.5 per cent per annum of the net assets of theCompany. In addition, the Manager is responsible forproviding all secretarial, administrative and accountingservices to the Company for an additional fee. The Managerhas appointed Link Alternative Fund Administrators Limited toprovide these services to the Company on its behalf. TheCompany is responsible for paying the fee charged by LinkAlternative Fund Administrators Limited to the Manager inrelation to the performance of these services.

Annual running costs are capped at 3.5 per cent of the netassets of the Company (excluding any performance feepayable to the Manager and irrecoverable VAT), any excessbeing refunded by the Manager by way of an adjustment to itsmanagement fee. The running cost as at 30 September 2018was 2.7 per cent.

The management agreement may be terminated at any dateby either party giving twelve months’ notice of terminationand, if terminated, the Manager is only entitled to themanagement fees paid to it and any interest due on unpaidfees.

Performance feesA performance fee is payable to the Manager when thetotal return on net proceeds of the ordinary shares exceeds8 per cent per annum (simple). To the extent that the totalreturn exceeds the threshold over the relevant period thena performance fee of 10 per cent of the excess will be paid tothe Manager. The amount of any performance fee which is paidin an accounting period is capped at 5 per cent of net assets.

No performance fee was payable for the year to 30 September2018 (2017: £nil).

Management retentionThe Board is keen to ensure that the Manager continues tohave one of the best investment teams in the VCT and privateequity sector. A VCT incentive scheme was introduced inNovember 2004 under which members of the Manager’sinvestment team invest their own money into a proportion ofthe ordinary shares of each eligible unquoted investmentmade by the Baronsmead VCTs. The Board regularly monitorsthe VCT incentive scheme arrangements but considers thescheme to be essential in order to attract, retain and



Strategic Report

incentivise the best talent. The scheme is in line with currentmarket practice in the private equity industry and the Boardbelieves that it aligns the interests of the Manager with thoseof the Baronsmead VCTs.

Executives have to invest their own capital in every eligibleunquoted transaction and cannot decide selectively whichinvestments to participate in. In addition, the VCT incentivescheme only delivers a return after each VCT has realised apriority return built into the structure. The shares held by themembers of the VCT incentive scheme in any portfoliocompany can only be sold at the same time as the investmentheld by the Baronsmead VCTs is sold. Any prior rankingfinancial instruments, such as loan stock, held by theBaronsmead VCTs have to be repaid in full together with theagreed priority annual return before any gain accrues to theordinary shares. This ensures that the Baronsmead VCTsachieve a good priority return before profits accrue to the VCTincentive scheme.

Prior to January 2017, executives participating in the VCTincentive scheme subscribed jointly for a proportion (12 percent) of the ordinary shares (but not the prior ranking financialinstruments) available to the Baronsmead VCTs in each eligibleunquoted investment. The level of participation was increasedfrom 5 per cent in 2007 when the Manager’s performance feewas reduced from 20 per cent to its current level of 10 per cent.With effect from January 2017, an additional limb was added tothe VCT incentive scheme to accommodate the increasingnumber of “permanent equity” investments being made by theBaronsmead VCTs (being investments in which theBaronsmead VCTs hold an insufficient number of prior rankingfinancial instruments (if any) relative to the number of ordinaryshares they hold in order to yield a priority return for theBaronsmead VCTs before any gain accrues to the ordinaryshares).

Under the terms of the amended VCT incentive scheme, incircumstances where the Baronsmead VCTs hold a sufficientnumber of prior ranking financial instruments (a “TraditionalStructure”), the terms are identical to those set out above.However, in circumstances where the Baronsmead VCTs makea “permanent equity” investment, the executives participatingin the incentive scheme are required to coinvest alongside theBaronsmead VCTs for a proportion (currently 0.75 per cent) ofthe ordinary shares available to the Baronsmead VCTs and theyalso receive an option over a further proportion (currently 12per cent) of the ordinary shares available to the Baronsmead

VCTs. The ordinary shares can only be sold and the option canonly be exercised by the scheme participants when theinvestment held by the Baronsmead VCTs is sold. The optionexercise price has a built in hurdle rate to ensure that theoptions are only “in the money” if the Baronsmead VCTs achievea good return (equivalent to the priority return they wouldhave to achieve prior to any value accruing to the ordinaryshares in a Traditional Structure).

Since the formation of the scheme in 2004, 74 executives haveinvested a total of £943,000 in 57 companies. At 30 September2018, 37 of these investments have been realised generatingproceeds of £306.9m for the Baronsmead VCTs and £15.5m forthe VCT incentive scheme. For Baronsmead Second VentureTrust the average money multiple on these 37 realisations was1.9 times cost. Had the VCT incentive shares been held insteadby the Baronsmead VCTs, the extra return to shareholderswould have been the equivalent of 3.7p a share (based on thecurrent number of shares in issue). The Board considers thissmall cost to retain quality people to be in the best interests ofshareholders.

Advisory and Directors’ feesDuring the year the Manager and an affiliate received £16,000(2017: £48,000) advisory fees, £356,000 (2017: £448,000)directors’ fees for services provided to companies in theinvestment portfolio and incurred £42,000 (2017: £14,000) abortfees with respect to investments attributable to BSVT.

Alternative Investment Fund Manager’s Directive (“AIFMD”)The AIFMD regulates the management of alternative investmentfunds, including VCTs. On 22 July 2014 the Company wasregistered as a Small UK registered Alternative Investment FundManager under the AIFMD.

Viability StatementIn accordance with principle 21 of the AIC Code of CorporateGovernance (“AIC Code”), the Directors have assessed theprospects of the Company over the three year period to30 September 2021. This period is used by the Board during thestrategic planning process and is considered reasonable fora business of our nature and size. The three year period isconsidered the most appropriate given the forecasts that werequest from the Manager and the estimated time line forfinding, assessing and completing investments.

In making this statement the Board carried out a robustassessment of the principal risks facing the Company, including




those that might threaten its business model, futureperformance, solvency, or liquidity.

The Board also considered the ability of the Company to raisefinance and deploy capital. Their assessment took account ofthe availability and likely effectiveness of the mitigating actionsthat could be taken to avoid or reduce the impact of theunderlying risks, and the large listed portfolio that could beliquidated if necessary.

This review has considered the principal risks as outlined onpages 16 and 17. The Board concentrated its efforts on themajor factors which affect the economic, regulatory andpolitical environment. The Board also paid particular attentionto the importance of its close working relationship with theManager, Livingbridge.

The Directors have also considered the Company’s income andexpenditure projections and find these to be realisticand sensible.

Based on the Company’s processes for monitoring costs, shareprice discount, the Manager’s compliance with the investmentobjective, policies and business model, asset allocation and theportfolio risk profile, the Directors have concluded that there isa reasonable expectation that the Company will be able tocontinue in operation and meet its liabilities as they fall dueover the three year period to 30 September 2021.

Returns to InvestorsDividend policyThe Board of Baronsmead Second Venture Trust has theobjective to maintain a minimum annual dividend level ofaround 6.5p per ordinary share if possible, but this dependsprimarily on the level of realisations achieved and cannot beguaranteed.

Since launch, the average annual tax free dividend paid toshareholders has been 7.3p per ordinary share.

Shareholder choiceThe Board wishes to provide shareholders with a number ofchoices that enable them to utilise their investment in

Baronsmead Second Venture Trust in ways that best suit theirpersonal investment and tax planning and in a way that treatsall shareholders equally.

Fund raising | From time to time the Company seeks to•raise additional funds by issuing new shares at a premiumto the latest published net asset value to account for costs.The Company has announced its intention to raise funds inearly 2019.

Dividend Reinvestment Plan | The Company offers•a Dividend Reinvestment Plan which enablesshareholders to purchase additional shares through themarket in lieu of cash dividends. Approximately 1,844,000shares were bought in this way during the year to30 September 2018.

Buy back of shares | From time to time the Company buys•its own shares through the market in accordance with itsshare price discount policy. Subject to certain conditions,the Company seeks to maintain a mid-share price discountof approximately 5 per cent to net asset value wherepossible. However, shareholders should note this discountmay widen during the periods of market volatility.

Secondary market | The Company’s shares are listed on•the London Stock Exchange and can be bought usinga stockbroker or authorised share dealing service in thesame way as shares of any other listed company.Approximately 811,000 shares were bought by investorsin the Company’s existing shares in the year to30 September 2018.

On behalf of the BoardAnthony TownsendChairman

22 November 2018



Board of Directors

Report of the DirectorsThe Chairman’s Statement on pages 4 to 6, the Corporate Governance Statement on pages 25 to 32 and the StrategicReport on pages 4 to 21 forms part of the Report of the Directors.

As at 30 September 2018

Anthony Townsend Chairman

Appointed: 4 August 2009

Past experience Anthony has over 40 years experience in financial services. He was previously a director ofRea Brothers Group plc, a non-executive director of Worldwide Healthcare Trust plc and waschairman of the Association of Investment Companies.

Other appointments He is chairman of F&C Global Smaller Companies plc, Finsbury Growth & Income Trust plc andGresham House plc and a non-executive director of Hansa Capital Ltd.

Beneficial Shareholding 197,935 Ordinary Shares

Malcolm Groat Audit and Risk Committee Chairman

Appointed: 11 March 2016

Past experience Malcolm is a fellow of the Institute of Directors, the Institute of Chartered Accountants in Englandand Wales and the Royal Society for the encouragement of Arts, Manufactures and Commerce.During his career, Malcolm has worked as finance director for global businesses in engineering,construction and financial services. He has also served as chairman or non-executive director ina number of significant businesses.

Other appointments He currently holds directorships at established companies Corps Security, Maritime House andTekcapital plc, and at young ventures daVictus plc, Tomco Energy plc and Golden SaintTechnologies plc.


Ian Orrock Non-Executive Director

Appointed: 21 October 2010

Past experience Ian has wide experience having founded, developed and sold a number of businesses particularlyfocussing on the international media, technology and telecoms sectors, and has worked at boardlevel in quoted global organisations. He was also a non-executive director of Henderson PrivateEquity Investment Trust plc.

Other appointments He is currently a director of a number of TMT businesses including Arkessa Limited, Iotic-Labs Ltd andSilchester Limited.


John Davies Senior Independent Director

Appointed: 30 November 2016

Past experience John was a director of BlackRock Smaller Companies Trust plc until his retirement in July 2011. He wasmanaging director of 3i Asset Management Ltd (1985-2002) responsible for the management ofthree investment trusts and the group’s quoted portfolio. He has extensive experience of smallerquoted companies, particularly where there have been private equity shareholders on flotation. Johnhas a special interest in portfolio construction, the merits of investment vehicles and their risk profiles.

Other appointments He is a director of Gardens Pension Trustees, a corporate trustee of the 3i Group Pension Scheme. He isalso a member of the investment committee of the scheme.


Baronsmead Second Venture Trust pp22-24 23/11/2018 09:18 Page 22


The Directors of Baronsmead Second Venture Trust plc (Reg: 04115341) present their Eighteenth Report and AuditedFinancial Statements of the Company for the year to 30 September 2018.


Shares and ShareholdersShare capitalDuring the year, the Company bought back a total of5,005,000 ordinary shares to be held in Treasury, representing2.15 per cent of the issued share capital as at 30 September2018, with an aggregate nominal value of £500,500. The totalamount paid for these shares was £4,410,184.5. TheCompany’s remaining authority to buy back shares from theAGM held in 2018 is 29,791,984. During the year, there were400,000 ordinary shares sold from Treasury.

As at the date of this report the Company’s issued sharecapital was as follows:

% of Shares in NominalShare Total issue Value

In issue 232,791,189 100.0 £23,279,118.90

Held in Treasury 16,298,214 7.0 £1,629,821.40

In circulation 216,492,975 93.0 £21,649,297.50

The maximum number of shares held in Treasury during theyear was 16,298,214. Shares will not be sold out of Treasury ata discount wider than the discount at which the shares wereinitially bought back by the Company.

ShareholdersEach 10p ordinary share entitles the holder to attend and voteat general meetings of the Company, to participate in theprofits of the Company, to receive a copy of the Annual Report& Financial Statements and to a final distribution upon thewinding up of the Company.

There are no restrictions on voting rights, no securities carryspecial rights and the Company is not aware of any agreementbetween holders of securities that result in restrictions on thetransfer of securities or on voting rights. There are noagreements to which the Company is party that may affect itscontrol following a takeover bid.

In addition to the powers provided to the Directors underUK company law and the Company’s Articles of Association,at each AGM the shareholders are asked to authorise certain

powers in relation to the issuing and purchasing of theCompany’s own shares. Details of the powers granted at theAGM held in 2018, all of which remain valid, can be found inthe previous Notice of AGM.

The Board is not, and has not been throughout the year, awareof any beneficial interests exceeding 3 per cent of the totalvoting rights.

DividendsThe Company has paid or declared the following dividends forthe year to 30 September 2018:

Dividends £’000

Interim dividend of 3.0p per ordinary 6,517share paid on 21 September 2018

Final dividend of 4.5p per ordinary share tobe paid on 8 March 2019 9,742*

Total dividends paid for the year 16,259

* Calculated on shares in circulation as at 30 September 2018.

Subject to shareholder approval at the AGM, a final dividendof 4.5p per share will be paid to shareholders on the register at8 February 2019.

Annual General MeetingThe notice of the AGM of the Company to be held at 11.00amon 28 February 2019 at Saddlers’ Hall, 40 Gutter Lane, LondonEC2V 6BR will be sent to shareholders and will be available onthe Company’s website.

Directors

AppointmentsThe rules concerning the appointment and replacement ofDirectors are contained in the Company’s Articles ofAssociation and the Companies Act 2006. Further details inrelation to the appointed Directors and the governancearrangements of the Board can be found on page 22 and inthe Corporate Governance Statement.

Directors are entitled to a payment in lieu of three monthsnotice by the Company for loss of office in the event ofa takeover bid.



Report of the Directors

Directors’ IndemnityDirectors’ and Officers’ liability insurance cover is in place inrespect of the Directors. The Company’s Articles of Associationprovide, subject to the provisions of UK legislation, anindemnity for Directors in respect of costs which they mayincur relating to the defence of any proceedings broughtagainst them arising out of their positions as Directors, inwhich they are acquitted or judgement is given in their favourby the Court.

Save for such indemnity provisions in the Company’s Articles ofAssociation and in the Directors’ letters of appointment, thereare no qualifying third party indemnity provisions in force.

Conflicts of InterestThe Directors have declared any conflicts or potential conflictsof interest to the Board of Directors which has the authority toapprove such situations. The Company Secretary maintainsthe Register of Directors’ Conflicts of Interests which isreviewed quarterly by the Board, when changes are notified,and the Directors advise the Company Secretary and theBoard as soon as they become aware of any conflicts ofinterest. Directors who have conflicts of interest do not takepart in discussions which relate to any of their conflicts.

Responsibility for accounts and going concern The Directors who held office at the date of approval of thisDirectors’ Report confirm that, so far as they are each aware,there is no relevant audit information of which the Company’sAuditor is unaware and each Director has taken all the stepsthat they ought to have taken as a Director to make themselvesaware of any relevant audit information and to establish that theCompany’s Auditor is aware of that information.

After making enquires, and bearing in mind the nature of theCompany’s business and assets, the Directors consider that theCompany has adequate resources to continue in operationalexistence for the foreseeable future. In arriving at thisconclusion the Directors have considered the liquidity of theCompany and its ability to meet obligations as they fall due fora period of at least twelve months from the date that thesefinancial statements were approved. As at 30 September 2018,the Company held cash balances and investments in readilyrealisable securities with a value of £31.8m. Cash flow

projections have been reviewed and show that the Companyhas sufficient funds to meet both its contracted expenditureand its discretionary cash outflows in the form of the sharebuyback programme and dividend policy. The Company hasno external loan finance in place and therefore is not exposedto any gearing or covenants.

The Directors have chosen to include their report on globalgreenhouse emissions in the Strategic Report under thesection on environmental, human rights, employee, social andcommunity issues.

By Order of the BoardLivingbridge VC LLPSecretary100 Wood Street London EC2V 7AN

22 November 2018



The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Corporate GovernanceGuide for Investment Co

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