Venture Capital Trusts (VCTs) invest in early-stage, high-growth businesses across the UK, much like traditional venture capital funds. They are publicly listed companies, meaning they have to comply with strict regulations, and they provide considerable tax relief to eligible UK investors.

To learn more about VCTs, their history, benefits to investors and the types available, check out our deep dive guide here.

So, how does VCT investing work for retail investors?

Step 1: Choose your VCT

One of the main benefits of investing in a VCT is that the fund investments are sourced, vetted and executed by a team of experienced investors. So, investors should be sure to thoroughly review the VCT’s investment team before committing. Another benefit is that when you invest in a VCT you’re immediately diversified across all the investments in the VCT’s portfolio. So, investors should also review the VCT’s existing portfolio before investing. 

All VCTs have the same tax benefits, so UK investors will be able to realise those benefits regardless of the VCT they choose, subject to eligibility. You can learn more about the benefits of investing in a VCT in this article.

Step 2: Invest in the chosen VCT

Investors invest in a VCT by ‘applying for shares’ during an ‘open offer subscription’. 

Investors can apply for shares in a VCT through 3 routes:

1. Through an execution-only broker, like Seedrs,
2. Through a financial advisor, or
3. Directly with the VCT

VCTs often only offer individual investment above a certain threshold, (usually £5k) and many charge a higher initial fee for direct investments. If you don’t already work with a financial advisor, then an execution-only broker is probably the best route for you provided you understand the risks involved in investing in VCTs (further information on which can be found here).

If you choose to invest in a VCT on Seedrs, it will follow a similar process to equity crowdfunding campaigns on the platform:

Prospective investors will have access to a campaign page that contains all the key information about the investment opportunity and risks. Investments will be processed via the campaign page, with the investor able to pay with all our standard methods: debit card, investment account balance, Pay by Bank and bank transfer. Investors must complete their own due diligence before proceeding with an investment.

After the campaign closes, Seedrs will pool all the invested funds and subscribe to shares in the VCT via a nominee. Once this is complete, VCT tax certificates will be issued to all investors directly via email, not through their Seedrs portfolio. Tax certificates will be issued in the same manner, once they are approved.

Step 3: Claim your tax relief

Once the shares and tax certificates have been issued, you can claim the 30% income tax relief. This can either be as part of your self-assessment tax return or claimed by submitting the relevant forms to HMRC. You should keep hold of your shares for a period of 5 years, otherwise, you become ineligible for the tax relief, which will be claimed back by HMRC. 

You should note that tax reliefs are based on current legislation which may change, possibly retrospectively, and income tax relief is restricted to the amount which reduces your income tax liability to nil.

Step 4: Keep up to date, support the portfolio and receive dividends

Once the transaction is complete, the funds have been transferred to the VCT and the share certificates have been issued, you are officially a VCT shareholder! This means you instantly have a financial interest in all the businesses the fund is invested in. Please note that VCT investors are investors in the funds rather than the underlying businesses. 

In the case of the ProVen VCTs, this means you would be indirectly invested in Lucky Saint, an award-winning low-alcohol beer brand and DASH Water, one of the UK’s leading seltzer-water brands, along with many other exciting UK startups.

As VCTs are public companies, they are required to issue annual and half-yearly reports, which will be shared in the ‘Updates’, or in the case of the ProVen VCTs, the ‘Key Documents’, section of the VCT’s websites, which can easily be accessed in your Seedrs Portfolio. This reporting will provide updates on existing investments, any new investments made, as well as the financials of the fund. As with any equity crowdfunding campaign, you can also engage in discussions with other investors in the ‘Discussion Forum’ on the business page and ask questions to the VCT team who will respond when they can.

Shareholders in the ProVen VCTs may also be able to play an active role in supporting the portfolio and the VCTs as a whole. As Karen McCormick, Chief Investment Officer at Beringea, notes:

“Beringea is active in engaging with the shareholders in the ProVen VCTs to provide you with regular updates on news and activity across the portfolio. Shareholders will receive discount codes for relevant portfolio company products and services, and we find many of our shareholders become great brand advocates!

From time to time, we’ve also leveraged the domain expertise of particularly experienced shareholders to advise portfolio companies. And we’re very happy to receive relevant deal flow from angel investors among the shareholder base.”

Another key benefit of investing in VCTs is the potential to receive regular, tax-free dividend payments. Whilst the size of these varies and is not guaranteed, the ProVen VCTs target an annual dividend of 5% of the total fund value and have met this target for the past five years. Any dividends will be paid directly into your Seedrs Investment Account balance, from where they can be reinvested into other opportunities, or withdrawn to your personal accounts.

What VCTs are available now?

As Seedrs’ first VCT offer, we’re working with Beringea, which manages ProVen VCT (PVN VCT) and ProVen Growth and Income VCT (PGI VCT), two of the UK’s largest and longest-standing trusts. 

Since the launch of PVN VCT in 2000 and PGI VCT in 2001, the ProVen VCTs have been behind many of the UK’s entrepreneurial success stories. From the Vinader sisters and their eponymous jewellery brand, Monica Vinader, which was sold at a 13x* return to the ProVen VCTs in 2023, through to Chargemaster, one of the country’s leading electric vehicle charging networks that was acquired by BP in 2018, many successful businesses have been fuelled by the ProVen investment vehicles.

As generalist VCTs – meaning that the funds back companies across emerging technologies such as fintech and climate tech as well as established industries such as retail and healthcare – the ProVen VCTs have grown to more than £330m under management and a portfolio spanning 52 startups and scale-ups including:

• DASH Water – one of the UK’s leading seltzer brands known for its innovative use of wonky fruit and veg to flavour its drinks.
• Lucky Saint – an award-winning leading low-alcohol beer brand. 
• MPB – a leading platform for buying and selling pre-owned camera equipment, which raised £50m in its Series D in 2021.
• CreativeX – an AI-enabled platform used by the likes of Google, Meta, Amazon and Nestlé to analyse the performance of visual marketing, which raised $25m in its Series B in 2022.

Register your interest in investing in the ProVen VCTs here.

* The ProVen VCTs sold part of their holding in Monica Vinader in 2016. This figure relates to the sale of the remaining holding in 2023. Including the 2016 partial exit the blended return was 7.7x.

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• Source: https://www.seedrs.com/insights/investing-features-insight/how-does-vct-investing-work?utm_source=rss&utm_medium=rss&utm_campaign=how-does-vct-investing-work