They generally raise around £400m each tax year, with the bulk of the fundraising being launched around calendar year ends, with the majority of investments made in the January to March periods prior to the tax year end.
Fundraisings are usually undertaken by existing vehicles which means that incoming investors get immediate access to an invested portfolio and any income that it produces.
It is estimated that around 20,000 people a year invest in the trusts, with the average amount usually just below £20,000.
What do VCTs invest in?
As mentioned earlier, VCTs were initially established to invest in the UK’s unquoted small businesses and that’s where the focus remains.
They are a major source of what is today called “scale-up” capital. Businesses receiving investment tend to be less than seven years old (10 if they are deemed “knowledge intensive”). The businesses have also achieved a degree of market penetration and sales, so generally they are not start-ups and have some infrastructure, but need to invest to support the sales growth they are experiencing.
Recent well-known examples of some of the types of businesses include Zoopla, GoOutdoors and Swiftkey, but there are many more less well known in sectors as diverse as engineering; medical supplies; logistics; cable manufacture to name but a few.
The average investment by a trust into a business is in the range of £2m to £5m; with the capability to invest up to a maximum of £12m (£15m if they are knowledge intensive).
Investments into these businesses can be in a mixture of equity and loan stock with the latter repaid within three to five years. The equity tends to be invested for anything between three to seven years, with the longest recorded being 18 years.
As the investments mature, the trusts receive dividends and when the equity is sold it can then be passed through the trust and returned as a dividend.
Within these overall criteria, there are three broad types of VCT:
- The generalist - These account for approximately 75 per cent of the trusts available to investors. These invest in a broad spread of unquoted investments and recycle the capital for future investment and distribute the gains.
- The Alternative Investment Market (Aim) funds - These are around 15 per cent of the market and, as the name implies, invest in businesses either listing on Aim or seeking a listing generally within 12 months.
- The limited life fund - These venture capital trusts are designed for those seeking to invest for a shorter period as the fund is liquidated within five to six years, returning all capital to investors.
Making an investment
