FTA: Some have said difficult economic circumstances can actually help early stage companies, do you think we will see this reflected in the market this year?
NB: Difficult times can present opportunities for new businesses: it’s well known that Microsoft was founded at the tail end of a recession.
They are tougher for existing early-stage businesses, but again, it depends very much on the nature of the economic slowdown and the kind of businesses we are talking about, as there is such diversity in VCT portfolios, from cutting-edge biotech to budding consumer brands.
From the investor perspective, recessions can be a good time to invest, as capital is scarcer and valuations are more attractive.
VC funds that are raised during tough times tend to generate much better returns than funds deployed near a market peak.
FTA: Do you predict a last minute rush to VCTs in March despite their lacklustre performance last year?
NB: There is nearly always a last-minute rush to VCTs as the end of the tax year approaches.
It is possible that last year’s negative returns will put some off, but I think most advisers are realistic: they know that VCTs have always been presented as high-risk investments and a 13-year run of positive annual returns from the average VCT was just too good to last.
Some will also take the view that it is better to invest after a down year, especially with a five-year time horizon.
FTA: What do you predict in terms of fundraising activity this year?
NB: We are still seeing robust demand for VCTs. I’m not sure whether it will be another record year – we’ll have to wait and see – but it is likely to be a strong fundraising year by historical standards.
FTA: Why might advisers consider VCTs and EIS this year?
NB: For clients who have maxed out Isas and pensions, VCTs and EIS offer appealing tax reliefs.
Both are well-established schemes, having been around since the mid-1990s, and continue to enjoy government backing.
They also offer the opportunity to back UK entrepreneurs and help to grow interesting businesses that are making a difference to their communities, creating jobs and prosperity all over the country.
The VCT scheme has a good track record of paying attractive tax-free dividends and delivering good investment returns over time excluding the tax relief, for example, the average VCT has returned 111 per cent over the past 10 years.
carmen.reichman@ft.com
