How does VCT investing work?

Enterprise Capital Trusts (VCTs) put money into early-stage, high-growth companies throughout the UK, very similar to conventional enterprise capital funds. They’re publicly listed firms, which means they must adjust to strict rules, they usually present appreciable tax aid to eligible UK traders.

To study extra about VCTs, their historical past, advantages to traders and the kinds accessible, try our deep dive information right here.

So, how does VCT investing work for retail traders?

Step 1: Select your VCT

One of many principal advantages of investing in a VCT is that the fund investments are sourced, vetted and executed by a group of skilled traders. So, traders ought to you’ll want to completely overview the VCT’s funding group earlier than committing. One other profit is that once you put money into a VCT you’re instantly diversified throughout all of the investments within the VCT’s portfolio. So, traders also needs to overview the VCT’s present portfolio earlier than investing. 

All VCTs have the identical tax advantages, so UK traders will be capable to realise these advantages whatever the VCT they select, topic to eligibility. You’ll be able to study extra about the advantages of investing in a VCT in this text.

Step 2: Spend money on the chosen VCT

Buyers put money into a VCT by ‘making use of for shares’ throughout an ‘open provide subscription’. 

Buyers can apply for shares in a VCT by means of 3 routes:

1. By way of an execution-only dealer, like Seedrs,
2. By way of a monetary advisor, or
3. Immediately with the VCT

VCTs usually solely provide particular person funding above a sure threshold, (often £5k) and plenty of cost the next preliminary price for direct investments. If you happen to don’t already work with a monetary advisor, then an execution-only dealer might be one of the best route for you supplied you perceive the dangers concerned in investing in VCTs (additional info on which might be discovered right here).

If you happen to select to put money into a VCT on Seedrs, it’ll observe an analogous course of to fairness crowdfunding campaigns on the platform:

Potential traders could have entry to a marketing campaign web page that incorporates all the important thing details about the funding alternative and dangers. Investments might be processed through the marketing campaign web page, with the investor capable of pay with all our commonplace strategies: debit card, funding account steadiness, Pay by Financial institution and financial institution switch. Buyers should full their very own due diligence earlier than continuing with an funding.

After the marketing campaign closes, Seedrs will pool all of the invested funds and subscribe to shares within the VCT through a nominee. As soon as that is full, VCT tax certificates might be issued to all traders straight through electronic mail, not by means of their Seedrs portfolio. Tax certificates might be issued in the identical method, as soon as they’re authorized.

Step 3: Declare your tax aid

As soon as the shares and tax certificates have been issued, you’ll be able to declare the 30% revenue tax aid. This may both be as a part of your self-assessment tax return or claimed by submitting the related varieties to HMRC. You must preserve maintain of your shares for a interval of 5 years, in any other case, you change into ineligible for the tax aid, which might be claimed again by HMRC. 

You must be aware that tax reliefs are based mostly on present laws which can change, presumably retrospectively, and revenue tax aid is restricted to the quantity which reduces your revenue tax legal responsibility to nil.

Step 4: Preserve updated, assist the portfolio and obtain dividends

As soon as the transaction is full, the funds have been transferred to the VCT and the share certificates have been issued, you’re formally a VCT shareholder! This implies you immediately have a monetary curiosity in all the companies the fund is invested in. Please be aware that VCT traders are traders within the funds quite than the underlying companies. 

Within the case of the ProVen VCTs, this implies you’ll be not directly invested in Fortunate Saint, an award-winning low-alcohol beer model and DASH Water, one of many UK’s main seltzer-water manufacturers, together with many different thrilling UK startups.

As VCTs are public firms, they’re required to difficulty annual and half-yearly experiences, which might be shared within the ‘Updates’, or within the case of the ProVen VCTs, the ‘Key Paperwork’, part of the VCT’s web sites, which may simply be accessed in your Seedrs Portfolio. This reporting will present updates on present investments, any new investments made, in addition to the financials of the fund. As with every fairness crowdfunding marketing campaign, you may also have interaction in discussions with different traders within the ‘Dialogue Discussion board’ on the enterprise web page and ask inquiries to the VCT group who will reply after they can.

Shareholders within the ProVen VCTs can also be capable to play an energetic function in supporting the portfolio and the VCTs as a complete. As Karen McCormick, Chief Funding Officer at Beringea, notes:

“Beringea is energetic in participating with the shareholders within the ProVen VCTs to offer you common updates on information and exercise throughout the portfolio. Shareholders will obtain low cost codes for related portfolio firm services and products, and we discover lots of our shareholders change into nice model advocates!

Once in a while, we’ve additionally leveraged the area experience of significantly skilled shareholders to advise portfolio firms. And we’re very completely happy to obtain related deal stream from angel traders among the many shareholder base.”

One other key advantage of investing in VCTs is the potential to obtain common, tax-free dividend funds. While the scale of those varies and isn’t assured, the ProVen VCTs goal an annual dividend of 5% of the full fund worth and have met this goal for the previous 5 years. Any dividends might be paid straight into your Seedrs Funding Account steadiness, from the place they are often reinvested into different alternatives, or withdrawn to your private accounts.

What VCTs can be found now?

As Seedrs’ first VCT provide, we’re working with Beringea, which manages ProVen VCT (PVN VCT) and ProVen Development and Earnings VCT (PGI VCT), two of the UK’s largest and longest-standing trusts. 

Because the launch of PVN VCT in 2000 and PGI VCT in 2001, the ProVen VCTs have been behind most of the UK’s entrepreneurial success tales. From the Vinader sisters and their eponymous jewelry model, Monica Vinader, which was offered at a 13x* return to the ProVen VCTs in 2023, by means of to Chargemaster, one of many nation’s main electrical automobile charging networks that was acquired by BP in 2018, many profitable companies have been fuelled by the ProVen funding autos.

As generalist VCTs – which means that the funds again firms throughout rising applied sciences similar to fintech and local weather tech in addition to established industries similar to retail and healthcare – the ProVen VCTs have grown to greater than £330m beneath administration and a portfolio spanning 52 startups and scale-ups together with:

• DASH Water – one of many UK’s main seltzer manufacturers recognized for its modern use of wonky fruit and veg to flavour its drinks.
• Fortunate Saint – an award-winning main low-alcohol beer model. 
• MPB – a number one platform for purchasing and promoting pre-owned digicam gear, which raised £50m in its Sequence D in 2021.
• CreativeX – an AI-enabled platform utilized by the likes of Google, Meta, Amazon and Nestlé to analyse the efficiency of visible advertising and marketing, which raised $25m in its Sequence B in 2022.

* The ProVen VCTs offered a part of their holding in Monica Vinader in 2016. This determine pertains to the sale of the remaining holding in 2023. Together with the 2016 partial exit the blended return was 7.7x.