Investment manager Downing is seeking to raise £30m for its Downing Four venture capital trust (VCT).
Downing has £270m of assets in its existing range of VCTs and the latest offer is split between Downing Four's generalist and healthcare share classes, raising £20m and £10m respectively.
The Downing Four trust aims to achieve a dividend yield of 4 per cent a year from summer 2020.
Tony McGing, chief executive of Downing, said: "We launched our first VCT 20 years ago, which was focussed on healthcare and invested in care homes, and have been building our track record of managing VCTs ever since.
"We believe this wealth of experience supporting early-stage companies helps us pinpoint firms that are generating revenues but are still pre-profit, on the conviction that our funding can push them closer to profitability.
"At the same time, Downing Four also supports businesses that are profitable but do not have the cashflow to fuel their growth potential."
The generalist and healthcare share classes were originally launched in December 2016.
Current portfolio companies in the generalist share class include virtual and augmented reality software specialist Masters of Pie, and online retailer of pre-owned luxury goods Xupes Limited, while healthcare investments include Wales-based ADC Biotechnology, which specialises in improving the production of antibodies attached to cancer-killing drugs.
Looking ahead, the investment manager said it was interested in drug discovery, medical devices and healthcare tech such as e-health, as well as diagnostic technology. In the generalist share class it will focus on investing in revenue-generating, although in many cases pre-profit, companies "demonstrating positive traction and a foreseeable exit route".
This follows last year's rule change which saw Chancellor Philip Hammond introduce a new risk to capital condition to EIS, SEIS and VCT rules to exclude investments where the tax relief provided most of the return for an investor with limited risk.
The test means companies will have to satisfy the Treasury they had objectives to grow and develop over the long-term and that there was a significant risk there could be a loss of capital to the investor of an amount greater than the net return.
Jason Hollands, head of communications at wealth manager Tilney, said: "We are in a period of transition at the moment for VCTs, where both investors and advisers need to be conscious that recent rule changes mean looking at things with a fresh pair of eyes. The shift towards earlier stage and riskier investments, means even well-established managers are having to reinvent themselves to some degree.
"Downing is a long established VCT group who have historically had been associated with relatively more defensive strategies, but like others it has now refocused on growth and development capital deals into younger business, which are inherently more risky in nature than the past."
He added: "Downing has introduced some new features with this offer, including a nil discount buyback policy and a monthly investment scheme. Although no one would want to sell their shares in the first five years – as they would have hand back the 30 per cent income tax credit – the prospect of being able to exit at Nav, subject to market conditions, is very shareholder friendly."
david.thorpe@ft.com
