However, as early-stage, smaller companies are more likely to fail than well-established ones, while taking longer to scale, a widely diversified VCT portfolio can reduce such risks by giving investors access to a range of high-growth businesses across various sectors.
Portfolio diversification helps investors hedge against economic uncertainty, mitigating risk and minimising the impact of failed investments within a portfolio.
Well-resourced, experienced VCT managers are more likely to be able to build a diverse portfolio of investments, having the team and expertise to rigorously source, research, and evaluate new investment opportunities.
A robust investment strategy will also allow a VCT to target businesses that offer the best potential for growth.
For example, some VCTs focus on companies which have strong defensive characteristics and benefit from a recurring, contractual revenue base.
Such businesses will typically be more resilient throughout changing market conditions, and offer the potential for greater investor returns as they scale and achieve profitability.
Championing the best of Britain
Investing in VCTs also enables retail investors to participate in the growth of emerging British businesses, and to support wider economic prosperity.
By funding these high-growth businesses, particularly those in rapidly evolving sectors such as tech, renewable energy, and healthcare, VCTs support innovation and entrepreneurship while creating job opportunities regionally.
VCTs have supported the growth of a number of UK household names.
Following the Global Financial Crisis, VCTs played a vital role in fuelling UK economic recovery and fostered the emergence of a new wave of innovative businesses, providing an alternative source of capital to ambitious, young companies at a time when traditional banks had closed their doors.
Disruptive startups such as Gousto and Zoopla received VCT backing.
With the UK falling into recession at the end of 2023, the economic climate favours the high-growth startups that VCTs typically target.
VCTs are here for the foreseeable future, and already feature in many investors’ financial planning, so now is a prime time to invest in VCTs.
Established, highly diversified VCTs can help people benefit from a tax-efficient investment, while enabling young, British companies to grow and scale.
Ewan MacKinnon is partner at Maven Capital Partners
