VCT managers still seeing strong investor appetite
Managers discuss fundraising, ESG and championing female founders.
Over the past five years, the assets managed by VCTs have increased from £4.1bn to £6.3bn. The sector saw record fundraising during the 2021/22 tax year, with £1.13bn invested.
VCTs have made over 1,000 investments into 530 small and medium-sized companies in the past five years1. But what is the investment outlook for VCTs now in the current tough market conditions of high inflation and slowing economic growth and how are they supporting ambitious UK companies through challenging times?
To discuss these issues and the outlook for VCTs, a media webinar was held today by the Association of Investment Companies (AIC) featuring Ewan MacKinnon, Investment Partner at Maven Capital Partners which manages the Maven VCTs, Richard Moore, Co-Head of Investments at Calculus Capital which manages Calculus VCT, and Stuart Veale, Manager of the ProVen VCTs.
Their comments were collated alongside views from James Livingston, Partner at Foresight Group, which manages the Foresight VCTs, and Will Fraser-Allen, Managing Partner at Albion Capital, which manages the Albion VCTs.
Demand for VCTs in 2023
James Livingston, Partner at Foresight Group, which manages the Foresight VCTs, said: “We believe 2023 will be a strong year for fundraising across the market. Most of the major investors have already launched fundraising rounds and we do not see a reason for VCT investor demand to materially drop in the coming year – there aren’t many alternatives offering a similar level of tax relief for investors.”
Ewan MacKinnon, Investment Partner at Maven Capital Partners which manages the Maven VCTs, said: “Comments from both investors and advisers indicate they are showing a degree more caution generally regarding investment, in view of the macroeconomic factors, and have in some cases delayed investment on the back of a fairly volatile late 2022 for UK politics. However, we are still seeing strong investor appetite.”
Will Fraser-Allen, Managing Partner at Albion Capital which manages the Albion VCTs, said: “We are expecting the overall fundraising market to be slightly smaller than last year but it is difficult to predict final numbers at this stage. VCT funding is even more important to portfolio companies in this increasingly difficult funding environment. The long-term nature of the VCT vehicle means it is well placed to provide continuing support through economic cycles.”
Ewan MacKinnon, Investment Partner at Maven Capital Partners which manages the Maven VCTs, said: “Earlier stage businesses, of the sort and size backed by VCTs, will typically be run by innovative and ambitious management teams looking to exploit new market opportunities. They do this through the development of new or enhanced products and services, often underpinned by ground-breaking new technologies and ideas which keep the UK at the forefront of global entrepreneurialism and innovation.
“For example, Glasgow-based BioAscent received £1.6m of funding from Maven VCTs in June 2018. The company, which provides integrated drug discovery and compound storage and management services to biotech companies, has significantly expanded its service offering since Maven’s investment, adding complementary chemistry and biology services. This has enabled the business to increase revenues more than five-fold and grow headcount from seven staff at the start of 2018 to over 88 staff now, most of which have been recruited from Scottish universities.”
Richard Moore, Co-Head of Investments at Calculus Capital which manages Calculus VCT, said: “A recent investment made by the Calculus VCT was into Manchester-based Arctic Shores. This company is helping employers build the diverse, successful workforce of tomorrow by enabling organisations to widen their talent pools, unearthing high-quality candidates often overlooked by CV screening and traditional tests. Organisations that rely on CVs and outdated selection criteria like degree qualifications are falling behind those that are taking a more progressive approach – not just in skills but also diversity.”
Backing female founders
Will Fraser-Allen, Managing Partner at Albion Capital which manages the Albion VCTs, said: “We are a signatory of the Investing in Women Code and are committed to supporting female entrepreneurs. To increase the amount of funding that goes to women founders we apply a diversity lens when sourcing deal opportunities. This includes taking part in female founder office hours, working with female angels, partnering with seed stage funds that focus on women and diverse teams.
“Today a number of VCT growth stage companies are led by female CEOs. To inspire a new generation of women founders we have recorded a series of interviews with women founders and CEOs across the Albion VCT portfolio.”
Investing outside London and the South East
James Livingston, Partner at Foresight Group, which manages the Foresight VCTs, said: “Over 75% of VCT investment, across the whole market, supports companies based in London and the South East. At Foresight, we’re different as we have a network of regional offices and 11 regional funds. This allows us to see lots of opportunities outside of London and the South East. In 2022, nearly 70% of the companies we reviewed were based outside London.
“Managing regional funds that can co-invest alongside our VCTs means we can support companies that other VCTs might not be able to. Our VCT portfolio includes some fantastic regional companies, such as Hospital Services Limited (Dublin), Mowgli Street Food (Liverpool), Roxy Ball Room (Leeds) and North West eHealth (Manchester). VCT growth capital investment enables these companies to create high-quality, local jobs. At the time of investment, Roxy Ball Room had 162 employees across 7 sites. This has now increased to 460 employees across 13 sites.”
Ewan MacKinnon, Investment Partner at Maven Capital Partners which manages the Maven VCTs, said: “Maven believes that private company investments in the UK regions can often be obtained at better entry pricing than in London and the South East, where competition can be greater. The Maven VCT boards believe that those managers which offer comprehensive coverage of the UK market, and are able to access a regular and varied flow of potential investment opportunities, are best placed to build large VCT portfolios and maximise sector diversification.
“A notable differentiator for Maven within the VCT market is its extensive office network offering geographic coverage of the UK corporate finance market – this local presence in key corporate finance territories ensures that Maven has embedded long-term advisory relationships across the main UK regions to help source a broad range of new VCT qualifying opportunities. This national office network also allows regionally based executives to provide close support to each private investee company throughout the life of the investment.”
- ENDS -
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Notes to editors
- From AIC report released 3 October 2022.
- The Association of Investment Companies (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 vision is for closed-ended investment companies to be considered by every investor. The AIC has 349 members and the industry has total assets of approximately £263 billion.
- For more information about the AIC and investment companies, visit the AIC’s website.
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