Navigating the new VCT rules

Tom Thorp, Director, Foresight Group

View the Foresight Group VCTs

Growth Capital and Venture Capital investing lie at the heart of Foresight Group’s offering to investors, since Foresight was launched back in 1984 with a £20 million venture fund raised from Robert Fleming and Co. which was duly returned to investors at more than 4x their original investment some 10 years later. Over the intervening thirty years, we have worked hard to invest and divest to deliver strong returns to our VCT shareholders. Today, Foresight’s Private Equity Team has a portfolio of 36 companies (ranging in size from £30m turnover all the way down to £1 million turnover) across a diverse industry mix in the UK (industrials/manufacturing through to software as a service and digital technologies) which have been a combination of growth capital and management buyouts. Since 2010, 40% of our investments has been on the basis of growth capital.

However, the VCT landscape has recently changed for SMEs and their advisers with the changes in VCT legislation, which, in particular, promote growth capital only investments of up to £5 million, prevent investment in MBOs and in businesses over seven years old. We have therefore repositioned our investment mandate with shareholders and the advisory community to ensure that we continue to access a high quality pipeline of growth capital deals throughout the UK for our VCTs. We feel confident that there are excellent opportunities in the UK to deploy our VCT funds into growth capital opportunities, so look forward to assessing these growing businesses over the coming months.

One impact of these changes that is affecting all VCT managers is the likelihood of being unable to further support existing VCT portfolio companies if they are over 7 years old. We consider this to be an unhelpful change for the investment landscape, which we are working hard to resolve to ensure that the ambitious management teams that we have across our portfolio companies can continue to grow their underlying businesses, and ultimately deliver strong exits and good returns to VCT shareholders.

VCT investment in SMEs is not just about money but also about the support and best practice that a VCT manager can bring to a portfolio company over the life of the investment. At the point of investment, Foresight will typically appoint an industry experienced, non-executive Chairman or Director to augment the existing management board to help set strategy and guide the team in decision making and growth opportunities. Additional involvement could include using advisory boards to bring very experienced individuals to a company without incurring the substantial cost of full time employees.

Meanwhile, we are seeing a wide variety of growth capital deals across the tech and more traditional industry sectors, and will continue to work hard to deploy existing VCT funds and new funds raised in what is our growth capital heartland.