VCT managers comment on economic benefits, ESG and levelling up
The current tax year is likely to set a new fundraising record for venture capital trusts (VCTs), which have been supporting cutting-edge UK businesses for more than 25 years.
But how will VCTs help young British businesses as we emerge from the pandemic? What are the likely benefits for the economy following this increase in VCT investment? Are VCTs helping the UK to level up and where do ESG considerations fit in?
To discuss these issues, a media webinar was held today by the Association of Investment Companies (AIC) featuring Malcolm Ferguson, Partner at Octopus Ventures which manages Octopus Titan VCT, Chris Hutchinson, Lead Manager for Unicorn AIM VCT and Bevan Duncan, Managing Director, Strategic Equity at Gresham House and Manager of the Baronsmead VCTs.
Their comments were collated alongside views from John Glencross, Co-Founder of Calculus Capital which manages Calculus VCT, Ian McLennan, Partner and Head of Venture at Triple Point which manages the Triple Point VCTs, and Ewan MacKinnon, Partner at Maven Capital Partners which manages the Maven Income & Growth VCTs.
Ewan MacKinnon, Partner at Maven Capital Partners which manages the Maven Income & Growth VCTs, said: “There has likely never been a better time to invest in VCTs, and we are certainly seeing significant investor appetite, including a large element of repeat investment from longstanding shareholders. VCT portfolios comprise early-stage businesses, often in emerging or high-growth sectors that tend to do well against the backdrop of economic recovery and growth that we should return to once the Omicron wave subsides. Indeed, history teaches us that companies born of crises such as Covid and the 2008 financial crash can be among the best businesses to back. VCTs give investors the opportunity to invest in innovative, fast-growing UK SMEs. As we emerge from the crisis of the past two years, these early-stage companies will help build back the economy.”
Bevan Duncan, Managing Director, Strategic Equity at Gresham House and Manager of the Baronsmead VCTs, said: “Retail investors continue to want access to the returns generated from investing in a portfolio of high-growth, earlier-stage privately owned companies, and VCTs are one of a handful of available options for exposure to these types of assets.
“Long-term investment performance across the VCT industry has been robust. In addition, the majority of VCTs have dividend policies with yields that are often attractive to retail investors, particularly in a low interest rate environment. The increased demand for growth capital from earlier-stage UK companies, plus a number of high-profile investment outcomes from VCT-backed companies, has raised the profile of the managers in the VCT industry.”
Jack Rose, Head of Retail Sales at Triple Point which manages the Triple Point VCTs, said: “I think there are a combination of factors driving this strong demand, as opposed to one standout reason. There is clearly pent-up demand for VCTs from investors who, given the uncertainty of the last 18 months, have sat on the side but are now perhaps feeling a little more confident about investing their capital. Options have, over the last five to ten years, become more restricted for investors looking for alternative later-life income strategies – whether that’s buy-to-let, pensions or just straightforward changes to dividend taxation.
“The combination of income tax relief and tax-free income that VCTs provide is very appealing, especially given the low interest rate environment of recent years and the hunt for alternative sources of yield for many investors. Another contributing factor, especially for investors who are investing via financial advisers, was the changes to EIS a couple of years ago and we have seen a clear reduction in appetite from that market.
“The last piece of the jigsaw is the VCT market itself which is now over 25 years old and has matured and developed considerably over that time. You now have a core group of managers who have demonstrated strong and clear track records of delivering investors returns through multiple market cycles. They can offer investors access to mature portfolios as well as the opportunity to access new and exciting companies that will grow and develop over time.”
Economic benefits of VCTs
Chris Hutchinson, Lead Manager for Unicorn AIM VCT, said: “The Unicorn AIM VCT has been providing capital to young companies for over 20 years now and we have countless examples of businesses we have funded at an early stage. Many of these companies are now hugely successful and employ very significant numbers of people.
“A prime example of this is a business called Abcam, which we backed when it listed on AIM with an initial market capitalisation of £57 million back in November 2005 and employed 78 staff. At the time of its IPO, Abcam generated sales of about £12 million and raised £9 million to invest in its future growth opportunities. Today, Abcam has become a highly successful global business, generating approximately £300 million in sales and employing 1,500 people in countries around the world. Antibodies supplied by Abcam have also been used by research scientists directly engaged in tackling the COVID-19 pandemic.”
Bevan Duncan, Managing Director, Strategic Equity at Gresham House and Manager of the Baronsmead VCTs, said: “One of the key economic benefits of VCTs is job creation. Within Baronsmead’s unquoted portfolio alone we have seen a 41% rise in terms of jobs created and filled between December 2020 (1,273) and December 2021 (1,749). In 2021, the Baronsmead VCTs invested £41 million into both new and existing companies, one of the highest years of deployment over the VCTs’ history. In addition to creating new jobs, this capital is being used to develop new technologies, launch new products and expand internationally.”
Malcolm Ferguson, Partner at Octopus Ventures which manages Octopus Titan VCT, said: “As we emerge into a post-pandemic world, there is a real opportunity to invest in early-stage businesses to help turbocharge our economic recovery. These businesses have the potential to create thousands of jobs and become some of the UK’s most productive companies. Across our Titan VCT portfolio, over 880 jobs were created in 2020 alone.”
John Glencross, Co-Founder of Calculus Capital which manages Calculus VCT, said: “VCTs make an important contribution to the UK economy by supporting innovation and entrepreneurship. A good example from the Calculus VCT portfolio, which we recently exited, is a company called Mologic, a world leader in rapid diagnostics, aiming to deliver substantial global health benefits. Mologic grew from 35 employees when Calculus first invested in 2015 to 95 employees, and spun-out Global Access Diagnostics (GAD), the world’s first social enterprise diagnostics manufacturing facility that has become one of two UK facilities the government selected to scale for its COVID response. GAD is now employing over 300 people and revenue grew from £1.4 million in 2015 to £4.9 million in 2020.
“Mologic was sold to Global Access Health, a not-for-profit company financed by the Soros Economic Development Fund in a transaction which demonstrates that the venture capital industry has a part to play in developing companies that can ultimately deliver significant benefits in the not-for-profit world. As a major sale from the VC sector to the not-for-profit sector it is ground-breaking, and this transaction is the first of its kind.”
What are the ESG benefits of VCTs?
Malcolm Ferguson, Partner at Octopus Ventures which manages Octopus Titan VCT, said: “Our mission is to back world changing entrepreneurs, who are pioneering, innovating and improving products and services to create better outcomes for our people and our planet. Companies in the portfolio like Quit Genius, the world's leading digital clinic with private, personalised addiction treatment that is helping to conquer addiction in the workplace, have the potential to become global success stories while tackling a social issue. Across our portfolio of approximately 90 tech-enabled companies we have many businesses that are looking at how we can create a better future for our people and protect our planet. Tech adoption is accelerating swiftly, especially in areas like healthcare, and with that comes significant opportunities for entrepreneurs to reach new markets and build scalable businesses with global ambition.”
Ewan MacKinnon, Partner at Maven Capital Partners which manages the Maven Income & Growth VCTs, said: “ESG considerations are an increasingly important factor for Maven in making and managing VCT investments, and in the way that we interact with portfolio companies to ensure that they behave responsibly towards the environment and society. This includes engaging closely with each investee company on its policies on the environment, community engagement, and responsible product marketing. This approach helps us deliver long-term, responsible and sustainable growth.
“Our ESG approach includes the drive towards net-zero. For example, Maven investee Guru Systems has developed carbon-saving monitoring technology for energy companies, house builders, developers, and housing associations that are looking to reduce their carbon footprint and meet their regulatory obligations whilst also delivering a cost-effective service to customers. Guru’s technology serves heat networks, which generate and supply heat centrally and are among the most cost-effective ways of reducing carbon emissions from heating, so are a fundamental part of the UK’s decarbonisation strategy.”
John Glencross, Co-Founder of Calculus Capital which manages Calculus VCT, said: “Calculus has always championed greater female representation. We are proud that all our independent non-executive board members for the Calculus VCT, Jan Ward, Janine Nicholls and Claire Olsen, are female. Calculus has many women in leadership roles across our VCT portfolio companies. An example is Professor Lindy Durrant, founder and CEO of Scancell. She is an internationally recognised immunologist in the field of tumour therapy. She has worked for over 25 years in translational research, developing products for clinical trials including monoclonal antibodies and cancer vaccines. She has a personal chair in Cancer Immunotherapy in the Department of Clinical Oncology at the University of Nottingham. Lindy and her Scancell team are currently working on a potential mutation-resistant COVID-19 vaccine.”
Jack Rose, Head of Retail Sales at Triple Point which manages the Triple Point VCTs, said: “We have a number of companies in our Venture Fund VCT which are founded and led by women, including Ticketto, the ticketing platform, and Bkwai, which is using developments in the Internet of Things to improve monitoring of construction and infrastructure projects. Overall, around a quarter of the portfolio is led by women or by men from ethnic minorities.”
Levelling up with VCTs
Chris Hutchinson, Lead Manager for Unicorn AIM VCT, said: “Unicorn considers investment in companies based across the length and breadth of the UK and several of our investee companies are based outside London and the South East.
“These include Surface Transforms, a manufacturer of carbon ceramic braking systems based in the North West; Avacta, a clinical stage oncology and diagnostics company based in Yorkshire; and Anpario, a producer of natural animal feed products based in the East Midlands. Companies based outside London are more likely to recruit good quality local staff, including high quality graduates with degrees in sciences, engineering and medical fields. Supporting high quality employment opportunities outside London and the South East is a key government target as part of its levelling-up initiatives. VCT-funded companies are well placed to help achieve this target.”
Bevan Duncan, Managing Director, Strategic Equity at Gresham House and Manager of the Baronsmead VCTs, said: “Within the Baronsmead unquoted portfolio, ten out of twenty-nine companies have their headquarters outside London and the South East (34% of the portfolio), and since March 2020, four out of the ten deals completed have been based outside London and the South East. Outside London, Gresham House has offices in Oxford and Scotland and is actively assessing opening further offices across the UK to support deal origination.”
Ewan MacKinnon, Partner at Maven Capital Partners which manages the Maven Income & Growth VCTs, said: “A truly UK-wide presence is one of Maven’s core strengths, allowing us to identify and support high-potential businesses across the regional markets as well as in London and the South East. Maven’s VCTs have made more than 20 private company investments since the beginning of the pandemic, many of which have benefitted businesses based in the regions, from Edinburgh-based cyber security business Quorum Cyber and Dundee-based tech platform The Snappy Group, through to Manchester-based MirrorWeb which enables organisations to capture, archive, and monitor web-based content for digital oversight and regulatory compliance, as well as businesses in the South West, Midlands and Newcastle.”
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Notes to editors
- The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 360 members and the industry has total assets of approximately £277 billion.
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