What is the outlook for VCTs post Covid-19

Bill Nixon speaks to Professional Paraplanner about Venture Capital Trusts, the role they play in supporting UK growth businesses, and why he believes they will continue to attract investment.

Approaching the end of the tax year, VCTs look set to match their fundraising figure from 2019-20 despite the impact of Covid-19. As of 3 March, VCTs had raised £470m so far this tax year, up 6.8% on the same point in the 2019-20 fundraising season when the market raised £685m overall. This confirms the increased popularity of VCTs over the past decade, in great part thanks to their 25-year track record of delivering robust tax free returns for investors.

Rule changes requiring VCTs to target earlier stage companies have allowed the underlying fund managers of this specialist, niche product to back the highest investment potential, often tech enabled, businesses which stand the greatest chance of success. The tax efficiency of VCTs is an additional draw for investors and VCTs should continue to attract investment as the economy hopefully stages a sustained recovery from the pandemic in 2021.

Vital capital for SMEs

VCT backed companies have proven to be a vital source of support for the UK’s growth businesses. A healthy VCT ecosystem will be crucial for kick-starting economic recovery led by the SME economy, which accounts for 61% of employment and 52% of turnover in the private sector. VCTs therefore perform a vital function, where specialist investment managers use their expertise to identify the next generation of high growth businesses and help them to fulfil their potential.

With more than 70 VCTs, and large portfolios actively managed by several hundred experienced executives, the VCT industry has raised more than £9bn of funding for SMEs, supporting approximately 1,000 private and AIM listed companies, and creating more than 27,000 jobs. In addition, VCTs have generated more than £1.4bn of exports, with a third of VCT-backed businesses trading internationally.

VCTs have been able to supplement the Government support made available to early stage businesses during the pandemic. For instance, while the Future Fund provides finance for firms which have raised at least £250,000 in equity from third party investors in the last five years, VCTs can act as a source of funding for those early stage businesses which have not been around long enough to qualify for Future Fund support. Indeed, VCT managers have been proactive in protecting value in their portfolios by supporting existing investees, as well as backing new businesses. For example, Maven’s four VCTs have made 11 new private company investments in the past twelve months.

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