In this second video series for PA Adviser, Diana French, retail strategy director at Triple Point, guides MA Financial reporter, Holly Downes, through the Venture Capital Trust (VCT) investment journey and shares Triple Point‘s Venture VCT strategy in it’s sixth year of fundraising.
The trick to a successful VCT investment with “meaningful returns” is to invest in VCTs at a “very early stage” and “look under the bonnet and see what’s underneath”, Diana said.
To find out more, you can view the whole video by clicking on the picture above, while the transcript can be found below:
HD: Hello, I am Holly Downes, reporter for MA Financial. Welcome to the second episode of our series VCTs with Triple Point. Today, I’m joined by Diana French, retail strategy director at Triple Point. Thank you for being here today.
DF: Thank you so much.
HD: So, in the first episode on VCTs, we looked at the concept of VCTs, how they can be used and the trends that investors can expect going forward. Today, I want to dig into a bit more about how they work from a financial advisors perspective. So, if I invested in a VCT for my client, what exactly does their capital go?
DF: When an individual invests into VCT, they get shares in the VCT or the venture capital trust itself, and then it’s VCT that goes on to make the investments into the underlying companies. Dependent on what the mandate is of the VCT, this will determine what the underlying assets look like. But typically there tends to be some common themes in terms of the types of companies that they invest in.
One of these is that the companies will typically be less than seven years old when they receive the first bit of state added money. Another is that they tend to have less than 250 employees and those companies will have less than 50 million in terms of gross assets before they receive any funding.
These rules are relaxed slightly, for example, if a company is deemed to be knowledge intensive, meaning that the company is carrying out some sort of research and development or innovation.
HD: And what does the capital contribute towards?
DF: Any investment that a VCT makes into an underlying company will be earmarked for growth of some sort. So that could be that the company is looking to expand their offices into new markets and new territories. It could be that they want to launch an office in New York or Paris. It could be that they want to expand into new product lines, or it could be that they need that money to grow that distribution.
Typically with these VCTs, what we’ll see is that they will make an initial investment into a company. Then, as that company grows and achieves milestones, they’ll make more investments into that business. So, with any VCT that’s raising at the moment, they tend to have some money that will go into funding new companies and some of that will be used as follow on investments because remember, these high growth, small businesses are growing and they tend to be growing pretty quickly, which means they’re quite cash hungry for the growth funds.
HD: And what kind of sectors would they be supporting?
DF: VCTs often get split into three different categories. The first is generalists, which means that the VCT is not sector specific and will invest in a number of different sectors. Then, specialist specialties mean that they vest into one sector, for example, biotech is quite popular. And then you’ve got AIM VCTs which means those shares are listed on the AIM market.
However, I always say looking under the bonnet and see what’s underneath. One of the beauties of VCTs is that before you invest, you can see what the underlying companies are and what they’re already invested into.
In our Triple Point Venture VCT, which is now in its sixth year of fundraising, although there are a few common themes, there is actually quite a lot of diversification. So in terms of the common things, we tend to invest very early stage. The reason for that is that we think that’s where meaningful returns begin. We tend to invest into the B2B sector, so business to business, rather than B2C, business to consumer, because the data shows that’s where more exits happen in the B2B space.
Our VCT is currently invested into 47 different companies. One of common threads that underpins it is that they’ve all got a technology focus. But, actually when I think about sectors, there’s over 20 different sectors in the VCT, such as, healthcare, fintech and construction.
To give you an example of some of these companies, Credit Kudos is one of the companies that we exited a few years ago. What Credit Kudos does is utilise open banking which was sold to Apple a few years ago. Another company that we’re really excited about at the moment is a company called Modo Energy. The company takes energy data from various different sources and uses that energy to feed back into companies such as those that might have a large fleet of electric vehicles. So as you can see, just those two examples there, they’re quite different companies.
HD: Well, thank you for your time today, Diana, and thank you for watching.
