Venture Capital Trusts (VCTs) invest in early-stage, high-growth businesses across the UK, much like traditional venture capital funds. They are publicly listed companies, meaning they have to comply with strict regulations, and they provide considerable tax relief to UK investors.
To learn more about VCTs, their history, how they work and the types available, check out our deep dive guide here.
So, why might retail investors want to invest in VCTs?
The Benefits:
1. Experienced professionals manage your investment
A benefit of investing in VCTs is that investors’ funds are managed by an expert team of investors.
Given the high risks associated with investing in startups, investment into most venture capital funds is restricted. VCTs, however, are structured in such a way that retail investors are able to invest.
Having experts manage your portfolio brings a number of benefits to investors:
- Active selection of the best businesses and opportunities – VCTs have investment teams and committees that evaluate all potential investment opportunities based on their likelihood to generate returns, and invest into the best available. VCT investors benefit from this expertise and selection through their investment.
- Access to deal flow otherwise unavailable – retail investors seeking to invest in startups have quite limited options, and can only invest in opportunities that choose to equity crowdfund. This means that sectors and deals of choice can be restricted. VCTs, however, have investment track records, provide support to startups they invest in, and have team members actively sourcing the best deals across a vast range of sectors, so have access to rounds that aren’t otherwise available to retail investors. VCT investors benefit from this level of access through their investment.
Beringea, the manager of the ProVen VCTs, has an investment team of nine with backgrounds in banking, consulting and startups who support with sourcing, vetting, and executing investments. The fund’s investment decisions are led by the highly experienced three-person investment committee of partners and the Chief Investment Officer, with a combined experience in investing of over 80 years.
As an investor, you can rely on the expertise of these individuals to pick the right businesses to invest in, and execute the deals on the best possible terms.
2. Immediate diversification across multiple businesses
Another key benefit of investing in a VCT is that your investment is immediately diversified across multiple startups.
Diversification is crucial to any informed investment strategy, enabling the risk of startup failure to be spread across multiple investments and businesses. When investors choose to invest in the ProVen VCTs, they will immediately have their investment diversified across 53 businesses, in sectors ranging from consumer brands like DASH Water, to SaaS businesses like CreativeX.
For retail investors to achieve this level of diversification in their portfolio of startup investments, they’d have to source, review, execute and manage 53 individual investments, which would take a considerable amount of time.
3. Substantial tax relief on investment, dividends, and sale
Provided certain criteria are met, anyone who invests in a VCT will be able to take advantage of the several attractive tax benefits, including:
- 30% income tax relief on the initial investment – which can be claimed immediately, but which will be forfeited if the shares are held for less than five years.
- Tax-free dividends – most VCTs pay annual dividends, which are tax-free. The ProVen VCTs target a dividend yield of approximately 5% of NAV per annum, and they have consistently met this target. However, there is no guarantee about the level of dividends, if any, which will be paid in the future.
- No capital gains tax on profits from the sale of shares – As the investments made by the fund grow, and the fund makes new investments, the Net Asset Value will change. If VCT shareholders sell their shares at a profit, the profit is exempt from Capital Gains tax.
Tax relief is only available to UK taxpayers, on amounts invested up to a maximum of £200,000 per person, per tax year, and is restricted to the amount which reduces the investor’s income tax liability to nil.
In summary, as with any investment, there are risks – the details which can be found in our deep dive guide here – but there are many benefits of investing in VCT funds. These include relying on experienced professionals to choose businesses on your behalf, immediate diversification across multiple investments, and access to substantial tax reliefs.
What VCTs are available now?
We have made ProVen VCT (PVN) and ProVen Growth and Income VCT (PGI), two of the UK’s largest and longest-standing trusts, available on the Republic Europe platform.
Since the launch of PVN VCT in 2000 and PGI VCT in 2001, the ProVen VCTs have been behind many of the UK’s entrepreneurial success stories. From their investment in the Vinader sisters and their eponymous jewellery brand, Monica Vinader, which was sold at a blended 8x* return to the ProVen VCTs, through to Chargemaster, one of the country’s leading electric vehicle charging networks that was acquired by BP in 2018, many successful businesses have been fuelled by the Proven VCTs’ investments.
As generalist VCTs – meaning that the funds back companies across emerging technologies such as fintech and software-as-a-service as well as established industries such as retail and healthcare – the ProVen funds have grown to more than £330m under management and a portfolio spanning 53 startups and scale-ups including:
- DASH Water – the UK’s leading seltzer brand known for its innovative use of wonky fruit and veg to flavour its drinks.
- Gorilla – a technology company that enables energy retailers to gather and process vast amounts of data.
- MPB – one of the world’s best leading platforms for buying and selling pre-owned camera equipment, which raised £50m in its Series D in 2021.
- CreativeX – an AI-enabled platform used by the likes of Google, Meta, Amazon and Nestlé to analyse the performance of visual marketing, which raised $25m in its Series B in 2022.
Please note that an investment in a VCT involves risk and is not suitable for everyone. Key risks are outlined below: Capital at risk, you may lose part or all of your investment. VCT tax reliefs are subject to change, possibly retrospectively. Income tax relief is only available to UK taxpayers, on amounts invested up to a maximum of £200,000 per person, per tax year, and is restricted to the amount which reduces the investor’s income tax liability to nil. VCTs should be considered as a long-term investment, if you sell your investment within 5 years you will have to repay the initial income tax relief. VCTs invest in smaller companies which can fall or rise in value much more sharply than shares in larger, more established companies. They can also be harder to sell. Important notice: Prospective investors should only subscribe for shares in the VCTs on the basis of information contained in the prospectuses approved by the Financial Conduct Authority and published by the VCTs.