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Three VCTs to consider

Richard Troue looks at the characteristics and investment strategies of three VCTs.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

It’s an exciting time for small businesses and the entrepreneurs behind them. Technology is fuelling innovation across virtually every industry sector.

It’s possible to reach more customers, offer them a greater range of products and services, and challenge traditional distribution and operating models. Competition is more viable than ever before and ideas can travel faster. Help and advice is accessible 24/7. Flexible and collaborative work-spaces have popped up all over the country.

The way young businesses get access to finance has also changed. Since the financial crisis, banks have less of an appetite for risk.

Venture Capital Trusts (VCTs) and crowdfunding platforms have helped fill the void. They have a rich variety of exciting young companies to choose from. In turn there is no shortage of opportunities for private investors who seek exposure to early-stage, unquoted companies.

This is a high risk area though and investors should tread with caution. Less-established companies are more prone to failure and these investments are aimed at adventurous investors with larger portfolios.

We feel VCTs are the best starting point for exposure to unquoted, fledgling companies. A VCT typically has exposure to lots of companies, across different sectors and with investments made at different times.

Risk can be spread further by splitting an investment across several VCTs with different managers. The diversification this brings should help smooth returns – there will be some failures, but hopefully a greater chance of some successes as well. Like all investments VCTs fall as well as rise in value so you could get back less than you invest, particularly in the short term.

VCTs: an investment in tomorrow

Below I highlight three VCT offers to consider for the 2017/18 tax year. We think you have a better chance of investing in the winners of tomorrow with an experienced team in your corner.

Don’t forget, once ISA and pension allowances have been used VCTs are a highly tax-efficient investment option. You can receive up to 30% tax relief on an initial investment – though you will have to hold the VCT for at least five years to retain the tax relief – while dividends and growth are also tax free. Please ensure you are comfortable with the risks and charges, which can be found in the prospectus for each offer, before investing. Remember that tax rules can change and benefits depend on personal circumstances.

  • Mobeus – these VCTs have a core of more established and profitable companies; investments made when the VCT rules were different. New investments are blended with earlier investments, and this will be the focus of the VCT in future. The team will look at businesses across all sectors, but likes those using technology to fuel change or innovation. They target revenue-generating companies where the business model has already been proven to a degree.

    View current Mobeus VCTs open to new investment

  • Northern – the team in charge of these VCTs had a more conservative approach, with investments in later-stage companies. They still form the core of the portfolios, but these days new investments are made in younger businesses as required by the new VCT rules. We think they have the experience and resources to make this transition well. They will aim to back companies early and offer them all the help and support they need to reach their full potential with a view to possibly listing on the stock market one day.

    View current Northern VCTs open to new investment

  • Pembroke – these are true early-stage VCTs. They have a bias to consumer-facing businesses, primarily those in the leisure and luxury brands sectors. We like the approach of supporting promising entrepreneurs in a traditionally competitive area, where it could be difficult for businesses to obtain funding elsewhere. Given the narrow focus on just a few sectors, we view this as higher risk than other VCTs.

    Be the among the first to hear about a new Pembroke VCT offering

For more information on VCTs, plus this year’s other fundraisings, please visit our dedicated VCT page.

Find out more about VCTs

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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