In the ongoing push to offer smaller investors greater access to assets typically reserved for the wealthy, Seedrs has announced it will be offering Venture Capital Trusts (VCTs).
VCTs are closed-end fund-like vehicles that invest in private firms. VCTs trade on the London Stock Exchange. VCTs were introduced by a conservative government in 1995 in a move to encourage investment in younger firms and entrepreneurs, thus supporting the economy. HM Revenue & Customs track statistics regarding VCTs.
For investors, you may claim an immediate tax relief of 30% – up to £200,000 each year. There is also tax relief on dividends. When you sell your shares, you are exempt from capital gains tax.
“If you invest in a Venture Capital Trust, you will not have to pay any Capital Gains Tax on any profits when you sell your shares. This applies for both newly issued or previously owned (second owner) shares.”
The most recent data shows that around 83% of VCT investors claimed tax relief for an investment of £50,000 or less, with the largest number being in the £5,000 to £10,000 group with 17% of the total and the £25,000 to £50,000 group with 16% of the total.
This is somewhat similar to other programs currently offered by the UK government, EIS, and SEIS – aiming to support entrepreneurs and the real economy. Investment crowdfunding platforms have long leveraged both SEIS and EIS programs. In 2022, VCTs raised £1.122 billion for 52 managed funds.
While most VCTs hold a higher ticket, with Seedrs, investors will be able to access these funds with a minimum investment of £500.
The first VCT will be ProVen, managed by Beringea, which is currently labeled as “coming soon.”
According to their mission statement on Seedrs:
“We invest in innovation and growth. From iconic brands such as Monica Vinader, DASH Water and Lucky Saint through to technological pioneers such as Chargemaster, Zoovu and Gorilla, we back the entrepreneurs shaping the future of the UK economy. We are now launching on Seedrs to provide you with the opportunity to back our growing portfolio of more than 50 scaling companies. And, for investing in a VCT, you can receive several attractive tax benefits.”
In an interview with This Is Money, Karen McCormick, ProVen’s Chief Investment Officer, explained that “Seedrs will act as an execution-only broker,” with an initial fee 0f 5.5%. This includes a 3% promoter’s fee and a 2.5% initial commission fee for Seedrs (which will initially be waived).
McCormack said they want younger investors – currently, the average age is over 50.
The report shares that ProVen VCTs have a good track record of returns with ProVen VCT and ProVen Growth & Income generating a NAV total return of 54.1% and 35.9% respectively, including dividends. Not too bad.
Seedrs is not the first crowdfunding platform to offer VCTs, as Crowdcube currently offers shares in partnership with Octopus. Announced in March 2023, the VCT offer holds the same £500 minimum investment.
The VCT, along with the SEIS and EIS schemes, are programs that encourage investment in early-stage firms – the sector of the economy that generates innovation and growth – along with new jobs. At the same time, these programs mitigate risk for investors, so it is a big win for both sides. This policy taken by the UK government is something the US government should replicate and VCTs provide immediate diversification – again – a way to mitigate risk for investors.
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