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31% of VCT investments in companies growing at more than 50% a year

by wrich
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New research published by Wealth Club today shows that almost a third (31%) of Venture Capital Trust (VCT) investments are into privately owned companies that are growing revenues at more than 50% a year. This is compared to just 3.2% of the UK’s top 350 listed businesses. 

In addition, nearly half (43.1%) of VCTs’ investments are into companies that have grown revenues by more than 25%, year-on-year, which is considerably higher than the 5.9% of the largest 350 constituents of the UK main market that have also achieved this benchmark.

 A VCT is a fund that invests in a basket of young, privately owned fast-growing companies. Their purpose is to support early-stage businesses to grow and create employment opportunities whilst also aiming to make a good return for investors. This tax year to date £755.4 million has been invested into VCTs which is more than double the £360 million invested over the same period in the 2020-21 tax year. 

Jonathan Moyes Head of Investment Research at Wealth Club said:  “We believe VCTs are establishing themselves as the UK’s growth asset class. They are arguably one of the best ways investors can get exposure to the UK’s increasing number of privately owned high-growth companies. Despite the UK having a leading position in Europe for the creation of such companies, this area is woefully underrepresented in the UK main market, as measured by its 350 largest constituents by market capitalisation. For investors looking to back the UK’s growing crop of innovative early-stage companies, they would be hard pressed to find a better avenue than via a portfolio of VCTs. 

VCTs have raised record sums this year and whilst tax incentives are a key driver of this demand, the ability to back some of the UK’s brightest early-stage companies is clearly finding favour with investors. 

What’s more, the continued success of the VCT sector may in turn help to sow the seeds of future entrepreneurial success. We are seeing an increasing number of founders starting businesses who previously enjoyed success with other ventures, either as founders or senior employees. In addition the support available for companies via incubators and accelerators has never been greater. Taken together, it is clear to see why the UK is an attractive destination for investors. The more experienced the UK venture ecosystem, the more capital it attracts, the more capital it attracts, the more successes it generates, the more successes it generates, the more experienced entrepreneurs it creates. This is an exciting time for the UK and its venture capital ecosystem.” 

Highlights from the report 

  • 31% of VCT investments are in companies that have grown revenues by over 50%, compared with just 3.2% for the UK main market.
  • Nearly half (43.1%) of VCT investments are in companies that have grown revenues by more than 25% year-on-year. By comparison just 5.9% of the largest 350 constituents of the UK main market have achieved this.
  • The 11 VCT managers’ portfolios have significantly greater exposure to high-growth companies than the UK main market.

 Chart shows the revenue growth exposure of eleven top VCT portfolios as a percentage of their invested assets, compared with the revenue growth exposure of the largest 350 constituents of the UK main market, as a proportion of their total market cap. The table does not sum to 100% as it excludes asset backed investments and where there is no revenue growth data available.

Revenue growth exposure % showing Revenue decline % showing modest growth % showing high growth
Octopus Titan VCT 1.18% 14.97% 72.41%
Octopus Apollo VCT 7.98% 11.00% 61.87%
British Smaller Companies VCTs 21.25% 22.50% 53.75%
Proven VCTs 10.00% 37.00% 53.00%
Pembroke VCT 37.94% 5.64% 52.82%
Albion VCTs 3.58% 13.88% 43.86%
Mobeus VCTs 23.96% 40.32% 35.63%
Maven VCTs 21.43% 16.71% 33.42%
Northern VCTs 15.28% 39.67% 30.07%
Baronsmead VCTs 16.99% 34.41% 23.66%
Amati AIM VCT 29.91% 52.46% 11.62%
       
Largest 350 Main market 62.32% 31.77% 5.91%

A copy of the full research is available on request.

*VCT returns are measure on a NAV total return basis with dividends reinvested. The closest measure of the value of a VCT is usually its NAV (Net Asset Value), namely the value of the companies in which it invests but because these companies are not typically listed on a stock exchange, they don’t have an exact market value. The VCT’s board of directors will estimate a value using established valuation methods and principles. These valuations are usually produced twice a year. However, these can only be estimates. The true value of a company is the price someone is willing to pay when and if the VCT sells its shareholding. VCTs that invest in AIM-listed companies tend to be easier to value because the AIM market provides a more liquid market for the underlying shares. However, as a result, they tend to be more volatile: the share price can move around significantly.

**We have looked at 11 VCT managers, covering 27 VCTs and c. three quarters of the whole active VCT market by net asset value: the average VCT has generated a NAV total return 31.4% over the two years to 30 September 2021, compared with 6.7% for the FTSE All Share.[1] Over five years it was 57.2% versus 29.8%. 

Methodology:  

Gathering this data involved collecting revenue growth data for hundreds of public and private companies. There are some caveats which should be noted:

  • The 11 managers featured in this report manage 27 Venture Capital Trusts, and have assets under management of £4.5 billion, equivalent to c.75% of the total assets held within active VCTs.
  • Revenue growth data for Octopus Titan and Octopus Apollo is based on forecasts for 2021 revenue, provided in October 2021.
  • Albion VCTs, Mobeus VCTs, Baronsmead VCTs, Pembroke VCT, Maven VCTs, British Smaller Companies VCTs and the Northern VCTs supplied data for their portfolios based on the latest financial year end of their underlying investee companies, collected in October 2021. Proven VCT supplied its data based on the previous 12 months to August 2021.
  • All revenue data for public companies and Amati AIM VCT investee companies is supplied by Morningstar. Revenue growth data is based on the latest financial year end, compiled to 30 September 2021. 

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