As the UK seeks to reignite economic growth, venture capital trusts play an important role in supporting government strategy to fuel further innovation in science and technology.
For advisers, while VCTs are often top of mind for tax relief, the investment vehicle’s value also lies in its ability to provide clients with access to early-stage and scaling companies.
As the government looks to unlock opportunities in high-growth potential sectors such as deep tech, healthcare, and cleantech, and for investors looking to gain exposure to these themes at an early stage, VCTs can act as a bridge, helping investors and the economy realise the growth potential.
Access to innovation
With IPO volumes remaining muted, businesses are staying private for longer, meaning investors looking to access some incredible companies often miss out on their earlier stage growth.
Those looking for alternative ways to access the next generation of companies must then consider backing individual start-ups directly, but that of course is not straightforward and requires time, connections, capital and confidence.
VCTs provide another way, because they offer access to a diversified portfolio of high-growth companies that are otherwise difficult to invest in directly.
With risk spread across multiple companies, they provide opportunity for growth while seeking to mitigate the volatility often associated with early-stage investments. This, combined with the tax benefits, makes VCTs an attractive option for those looking to tap into promising sectors.
For advisers whose clients may be interested, VCTs can be accessible from as little as £5,000 minimum investment, however it is worth noting that accessing the available tax relief requires an investment duration of at least five years – a time horizon that allows for the growth of underlying companies.
Long-term potential and impact
Companies found in VCT portfolios typically operate in sectors with significant long-term growth potential, such as deep tech, healthcare, and cleantech. These industries are central to future innovation and have the capacity to deliver substantial returns over time.
While short-term market fluctuations are common, particularly in sectors like tech, the long-term outlook remains promising as these businesses mature. Success for high-growth companies in these sectors can lead to highly profitable exits.
Beyond individual gains, VCTs support broader economic development.
Recent data from the British Private Equity & Venture Capital Association (BVCA) underscores the significant impact of VCTs, which have invested £3.6bn in innovative businesses since 2016 and support 106,000 jobs, managing approximately £6.5bn in assets, driving growth across key sectors.
By providing essential capital to ambitious start-ups, VCTs help drive the next wave of UK innovation, from cutting-edge healthcare solutions to renewable energy advancements.
After reaching unexpected highs post-pandemic, VCT fundraising has slowed amid market uncertainty. Despite this, investment remains strong, with key sectors stabilising and showing signs of recovery. Successful exits and company growth suggest a cautious return of investor confidence.
