Continuing the VCT Success Story
By Jerry Price, Chief Distribution Officer
It’s been another year of continued market volatility, economic uncertainty and political upheavals. In this environment, clients can be forgiven for shying away from investing or taking a cautious approach.
So, it was a surprise to find one success story emerging in the tax year 2018/19 – that £731 million was invested in venture capital trusts (VCTs). It’s a sizeable amount, and the second highest amount of investment in VCTs since they launched nearly 25 years ago.
Amid our concerns about how the UK will fare after a Brexit outcome, this is a boost for small, growing companies that need funding. In turn companies that succeed can help to strengthen the future UK economy.
So far, so good: more VCT investments which is great for UK business. This includes adviser firms, as the interest in VCTs is something they can capitalise on. And with a minimum investment amount of £3,000 they’re accessible to a wide range of investors.
Offsetting the risks
But how best to address clients’ reservations? VCT tax benefits, including up to 30% Income Tax relief (minimum holding period five years); gains exempt from Capital Gains Tax; and no Income Tax on dividends, will generally get clients’ attention. But there’s no getting round the fact that VCTs are higher risk.
Clients know tax benefits are offered to offset the risks of early stage investing. They will want to know how that risk is being managed. Sharing information on a VCT’s team, focus and process can bring assurance.
Blackfinch has added the Blackfinch Spring VCT to our tax-efficient solutions. It invests in technology-enabled companies across industries. As the name suggests, we have taken a fresh approach, looking to cover all bases for investors with a differentiated VCT.
An expert team
The Blackfinch Ventures team is a key part of that. While any VCT team brings expertise, this team are not just experts in early stage investing, they’re entrepreneurs and technology specialists and will be providing investment advice services to the VCT.
Take Ventures Director Dr Reuben Wilcock, an award-winning entrepreneur with a background in academia, tech start-ups and start-up acceleration. He has founded four start-ups, along with the Future Worlds Accelerator where he mentored scores of new companies.
Similarly, our Ventures Manager Dr Nic Pillow co-founded his own start-up, is a veteran of other high-growth firms, and led an international team at Nokia. Alongside Reuben, this background in establishing teams in fast-growing tech businesses is a key differentiator.
Growth stage investing
Another important aspect is the VCT’s investment focus: targeting companies at a growth stage in their development. It invests in firms that have already raised funding, gained traction and are seeking to accelerate the scale-up process, so bringing a higher chance of success.
Companies will have defined what they have to offer, created a viable product, and tapped into market demand. Teams will also understand how to grow the business and promote the offering.
The Blackfinch team are focused on high-quality deal flow, sourcing such firms using its networks, research platforms and stringent criteria. And as the team sources investments for the Blackfinch Ventures EIS Portfolios, this creates an opportunity for follow-on co-investment in the highest-performing EIS companies.
Robust vetting process
To establish that firms meet the VCT’s criteria for high-growth potential, existing revenue and customers, and a strong management team, Blackfinch Ventures undertakes a detailed vetting process. This is something else that sets the Spring VCT apart.
At deal flow stage a dedicated pipeline team advises on selection from hundreds of companies. Then, rather than just inviting companies to pitch, firms go through a filtering stage where founders are put through their paces. Our team also meets daily to discuss companies. A great deal of information is assembled, meaning we know exactly what questions to ask when founders come in to pitch.
Due diligence and legal stages
Firms will next need to make it through extensive due diligence and legal stages. Due diligence involves everything from assessments of VCT-qualifying status to a deep dive into technology.
Our legal process is similarly robust. Documents include requests for founders to revest their shares and stay with the firm. Investor consents are also asserted, providing a veto over decisions that could devalue shareholdings.
The role of Ultra-NEDs
The team’s close involvement with firms continues post investment as board observers. It also appoints value-added Non-Executive Directors (NEDs), termed ‘UltraNeds’ to company boards. They will typically be an experienced founder, industry leader or sector expert.
We know that UltraNEDs increase the chance of companies making solid business decisions. In fact, founders themselves cite them as a key differentiator.
Investing for success
An insight into our approach can help your clients see that the Blackfinch team has its focus firmly on investor objectives. We aim for the VCT to start paying dividends of 5% p.a. from 2024 onwards, along with special dividends through earlier exits and those that exceed projected performance
We’re working towards success for investee firms and their investors. That includes us, as we co-invest with clients. We want the Blackfinch Spring VCT to help continue the VCT success story for companies, clients and the UK.
Download the Blackfinch Spring VCT Brochure here.
CAPITAL AT RISK
IMPORTANT INFORMATION: THIS INFORMATION IS ISSUED BY BLACKFINCH INVESTMENTS LIMITED (BLACKFINCH), WHICH IS AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY (FCA NUMBER 153860). REGISTERED ADDRESS: 1350-1360 MONTPELLIER COURT, GLOUCESTER BUSINESS PARK, GLOUCESTER, GL3 4AH. REGISTERED IN ENGLAND AND WALES COMPANY NUMBER 02705948. THIS ARTICLE IS FOR INTERMEDIARY INFORMATION ONLY AND DOES NOT FORM ANY OFFER OR INVITATION TO INVEST. ALL INFORMATION CORRECT AT NOVEMBER 2019.