David Hall, manager of the British Smaller Companies venture capital trust, said new rules governing the types of assets that can be held in the investment vehicles have already made them riskier.
VCTs are no longer permitted to invest in management buyouts and certain other sectors, such as some media investments, where HM Treasury’s view is the funds were taking insufficient risk to justify the 30 per cent tax break investors receive.
Mr Hall’s products had focused on management buyouts as part of the strategy. He said: "Demand for VCTs from investors remains strong, but there are fewer qualifying investments.
"Of course that means valuations for companies are higher, and that’s why we are not trying to raise hundreds of millions of new money, but it also means there will be greater volatility."
He said that under the previous VCT rules, he would have expected about one in five of the companies that he invested in to lose him money, but under the new rules, he would expect this to be closer to one in three, and added: "it means more volatility of returns, so while there will be more loss markers, those that make money will make more than before."
In terms of how he is mitigating the risks he said he is avoiding what he calls "the Shoreditch bubble" as he seeks to raise for £35m from investors.
Mr Hall said: "The technology sector generally looks expensive, and so our view is the further away we are from fintech the better, and the further away we are from Shoreditch the better.
"We have always been activist investors, and we want to find a small number of companies where the management want to work with us, want to engage with us."
Alex Davies, chief executive at Wealth Club, said: "The slower pace of this year’s fundraising is not a sign the demand for VCTs is waning, just that last year, people worried about potential VCT tax changes, and brought their contributions forwards to before the Budget.
"Indeed, we expect that with restrictions on pensions and buy-to-let continuing to bite, and the ever-encroaching dividend tax, the total raised this year will top last year’s decade-high figure of £728m.
"Whilst there are plenty of decent offers opening, VCT capacity is by its nature limited. Therefore, if you spot something you like, we suggest you invest whilst you can. Popular VCTs such as the British Smaller Companies ones have such a following of loyal investors that if you wait, you’ll likely miss out."
Jason Hollands, managing director for business development and communications at Tilney said: "The tax features are certainly a powerful draw, especially for those investors already maximising Isas and who are limited in how much they can contribute into pensions because of the tapered allowance.
"However, anyone who has been following the fund flow patterns from the Investment Association this year, will also be aware that private investors have become more risk averse and are especially wary of UK assets, with UK equity funds seeing relentless outflows.