With venture capital trusts (VCTs) on track to set a new fundraising record in this tax year, experts in the sector expect investor appetite to continue against a backdrop of economic recovery.
Ewan MacKinnon, partner at Maven Capital Partners, explains: “There has likely never been a better time to invest in VCTs and we are certainly seeing significant investor appetite. VCT portfolios comprise early stage businesses, often in emerging or high growth sectors that tend to do well against the backdrop of economic recovery and growth that we should return to once the Omicron wave subsides.
“As we emerge from the crisis of the past two years, these early stage companies will help build back the economy.”
VCT managers agree that retail investors continue to want access to the returns generated from high-growth, earlier-stage, privately owned companies and VCTs are one of only a handful of options to achieve this. The majority of VCTs offer investors dividend policies with yields that are often attractive, particularly in a low interest rate environment.
Jack Rose, head of retail sales at Triple Point, says: “I think there are a combination of factors driving this strong demand, as opposed to one standout reason. There is clearly pent-up demand for VCTs from investors who, given the uncertainty of the last 18 months, have sat on the side but are now perhaps feeling a little more confident about investing their capital.
“The combination of income tax relief and tax-free income that VCTs provide is very appealing, especially given the low interest rate environment of recent years and the hunt for alternative sources of yield for many investors.”
As well as offering attractive returns, VCT experts point to the vast economic benefits offered by the sector.
Many early-stage businesses that have received investment have grown to become large, successful businesses employing significant numbers of people.
Bevan Duncan, managing director, strategic equity at Gresham House, comments: “One of the key economic benefits of VCTs is job creation. Within Baronsmead’s unquoted portfolio alone we have seen a 41% rise in terms of jobs created and filled between December 2020 and December 2021.”
It was a sentiment echoed by Octopus Ventures, which said that across its Titan VCT portfolio, over 880 jobs were created in 2020.
John Glencroos, co-founder of Calculus Capital, adds: ““VCTs make an important contribution to the UK economy by supporting innovation and entrepreneurship. A good example from the Calculus VCT portfolio, which we recently exited, is a company called Mologic, a world leader in rapid diagnostics. Mologic was sold to Global Access Health, a not-for-profit company financed by the Soros Economic Development Fund in a transaction which demonstrates that the venture capital industry has a part to play in developing companies that can ultimately deliver significant benefits in the not-for-profit world.”
