Unicorn VCT, the last Venture Capital Trust (VCT) of the tax year to launch, raised over £15 million yesterday, selling out completely in less than 8 hours.
All VCTs from the 2022/23 tax year are now open, or have already filled, with total capacity this tax year to £1.324 billion. So far £661.9 million has been committed by wealthy investors, which despite the economic downturn, points firmly towards a second consecutive bumper year for the industry.
|Amount raised by 6 Feb (£m)||488.6||405.4||384.3||387.1||783.1||661.9|
Last year 27 offers were launched across 42 trusts, raising over £1.1bn from private investors. This year there are 25 offers launched across 45 trusts.
Alex Davies, CEO and Founder Wealth Club said: “This years’ VCT season has delivered a second consecutive bumper year and there are still two months left to run. While the last two years have been incredibly challenging for many businesses, VCTs have been a break in the darkness – enabling young entrepreneurial British companies to access the funds they need in order to flourish and grow, creating new jobs and strengthening economic growth at the grass roots. Securing the UK’s future as a hotbed of innovation and enterprise.
VCTs remain one of the best ways that private investors can get exposure to the UK’s privately owned high-growth companies, and also offer generous tax reliefs to offset the associated higher risks. This makes them a valuable alternative for wealthier investors impacted by pension restrictions and ISA allowances.”
So why are VCTs so popular?
- Firstly, they have performed well. In the 10 years to December 2022, the 10 largest generalist VCT managers have on average nearly doubled investor money (in terms of NAV total return), outperforming the FTSE All Share index.
- Secondly, investors are increasingly realising that growth and innovation are not likely to come from the large corporates you find on the main stock market, but rather from young, ambitious, and entrepreneurial start-ups. Not all will succeed but there’s now much more support compared to, say, 10 years ago – from incubators and accelerators to public and private funding – so they should have a better chance.
- Thirdly, the tax relief on VCTs is hugely attractive, especially as taxes have gone up and traditional tax-efficient investments such as pensions have been heavily restricted. Over a decade ago, a high earner could invest up to £255,000 per tax year in a pension and get a significant percentage of that back in tax relief. Those days are gone. Now the annual pension allowance is £40,000 – reduced to a mere £4,000 for some. Meanwhile, the pension lifetime allowance – the total amount most people can put into a pension over a lifetime – stands at £1,073,100 and will stay frozen at that level for years to come.”
VCTs we like:
- British Smaller Company – Now over 40 years old and operating throughout the UK, the two British Smaller Companies VCTs share the same strategy of investing in companies that provide business services, with a bias towards data, tech-enabled services and new media sectors. The VCT gives investors exposure to c.35 companies. In our view the two VCTs are managed by an experienced and well-resourced team.
- Octopus Titan – Investors in Titan gain exposure to a well diversified portfolio of more than 100 companies, spread across five core sectors. The investment strategy, to back high-growth early-stage businesses, is well reflected within the underlying portfolio. The scale of Octopus Ventures – it deploys over £200 million per year – could make it the destination of choice for entrepreneurs seeking funding. This may enhance the quality of deal flow, a potential competitive advantage for the VCT. This is a well resourced VCT with a well rehearsed investment strategy and a long-term track record of identifying and backing some of the UK’s brightest entrepreneurs and fastest-growing private technology companies.
- Pembroke VCT – this is a VCT that’s coming of age. Launched in 2013, it has now started to achieve exits: fresh pasta delivery service Pasta Evangelists, then organic plant-powered drinks brand Plenish and most recently women’s fashion retailer ME+EM. These have helped the VCT pay 12p in special dividends. The portfolio still looks very promising, with a good number of fast-growing companies.
Examples of companies receiving VCT investment
- Orbex – Octopus Titan VCT. Orbex is a UK-based private, low-cost rocket company, serving the needs of the small satellite industry. It has developed one of the world’s most advanced, low carbon, high performance micro-launch rockets, with the aim of launching the first vertical rocket from UK soil and creating the first European commercial launch vehicle business. The company is also the first to use bio-Liquid Petroleum Gas (bioLPG) as a fuel source which is greener, cheaper and less toxic.
- Endomag – Molten Ventures VCT. Endomag’s mission is to improve the standard of cancer care by helping women with breast cancer avoid surgery when it isn’t needed, and experience better outcomes when it is. They have developed a minimally invasive, and radiation-free surgical guidance system, which can locate early-stage and impalpable tumours, and help determine if the cancer has spread. The system has been used by more than 100,000 patients across the globe with 85 hospitals in the UK using the technology.
- Peckwater Brands – Pembroke VCT. Online takeaways were one of the big winners during the pandemic. Globally the market is estimated to be worth $151 billion, and by some estimates delivery could account for 21% of the global restaurant market by 2025. Despite the growth, delivery groups like Deliveroo and Uber Eats have so far struggled to turn a profit. Peckwater Brands is targeting a different part of the delivery chain as it provides kitchen operators with fully serviced food concepts that include branding, platform listings, suppliers, recipes, packaging, staff training, and technology. Each franchise brand covers popular takeaway options from burgers to fried chicken.