Raising money
How does a VCT decide how much money to raise from investors?
In order to raise cash to invest in new and follow-on opportunities, a VCT launches an ‘open offer’ or fundraise, the size of which is governed by the investment opportunities the VCT believes it has.
Once the funds have been raised, a VCT must adhere to strict rules that set out how long it takes to invest the money, as well as the age and type of businesses it may invest in.
We aim only to raise an amount that we believe we can deploy over the following 12 months, which is well within the rules. As a result of this approach, our investors are not paying us a management fee to hold cash.
The aim of a VCT is to support the growth of its portfolio companies and to help maximise their potential for the benefit of the shareholders in the VCT.
We believe it is important not to deploy too much cash into a growth business at an early stage. Instead, we use a stepping-stone investment approach, preferring to invest £1mn to £2mn into a company at a time, allowing the management team to grow the business before investing more as they scale.
When VCTs were introduced in 1995, they were designed to encourage investment into new UK businesses. Since then, they have not only provided essential capital – unforthcoming from other sources – to UK enterprise, but also provided a way for investors to access some of the most exciting and innovative companies in the UK.
In addition to the benefits they bring to individual early-stage businesses, VCTs have also helped support economic growth through tax receipts and increased employment.
By way of example, Pembroke’s current portfolio of companies has 1,800 staff; more than double from the point of our first investment. This is in addition to Five Guys, which itself has grown headcount by more than 7,000 since Pembroke first invested in 2013.
We believe that the VCT market will continue to grow and will remain a vital means by which the investing public can support our growing UK entrepreneurial culture.
Simon Porter is investment director at Pembroke VCT
