27 November 23

Understanding Venture Capital Trusts

What is a Venture Capital Trust (VCT)? 

VCTs have been part of the investment landscape since 1995. They were introduced by the government to encourage people to invest in unlisted early-stage companies that were previously not available to individual investors. Why? Because smaller companies are considered the “backbone” of the UK economy – creating jobs, economic growth and world-class innovation.  

 

The VCT structure 

A VCT is a public limited company (plc). This means its shares are listed on the London Stock Exchange. As with other publicly-traded companies, a VCT must:  

  • Hold an Annual General Meeting (AGM) where shareholders can vote on key decisions
  • Publish an Annual Report, produce independently audited accounts and maintain strict corporate governance requirements
  • Have an independent Board of Directors to supervise its activities and strategy

 

What types of VCTs are available? 

Broadly speaking, there are three distinct types of VCT: generalist, specialist and VCTs that invest in companies listed on the Alternative Investment Market (AIM). 

  1. Generalist VCTs: these invest in VCT-qualifying companies across a range of different industries and business sectors. The aim is to assemble a well-diversified portfolio of companies without being too heavily invested in one or two areas. 
  2. Specialist VCTs: these VCTs are more closely focused on finding and investing in companies operating in a specific sector or industry.
  3. AIM VCTs: some VCTs invest in VCT-qualifying companies listed on AIM, which is the ‘junior’ market of the London Stock Exchange. As AIM is a publicly traded market, shares in AIM companies are easier to buy and sell than shares in unlisted companies (although second-hand AIM VCT shares are no longer eligible to claim upfront income tax relief).
     

Evergreen vs limited life VCTs  

Most VCTs are ‘evergreen’ VCTs, which means that they don’t plan to wind up after a set period of time and aim to offer investors the potential for investment growth spanning several years. There are also some ‘limited life’ VCTs available, which intend to close shortly after the minimum five-year holding period for VCT shares has ended. When this happens, the VCT closes by selling its portfolio of assets and distributing the proceeds to the VCT shareholders. 

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