Seeking the armchair entrepreneur; VENTURE CAPITAL TRUSTS

Starting one's own business is more often dreamed of than achieved. But would-be entrepreneurs who cannot tear themselves away from the corporate pay cheque will soon have a vicarious way of indulging their fantasies.

Venture Capital Trusts, a new form of investment trust designed to fill the funding gap for smaller companies, are due for launch in late summer once Stock Exchange rules have been amended. On Tuesday Kenneth Clarke, the Chancellor, will be extolling their virtues in a keynote address to the Association of Investment Trust Companies, pointing to generous tax breaks for those willing to take the risk of investing in small, unquoted businesses.

VCTs offer the same income and capital gains tax reliefs as personal equity plans, but in larger amounts. The investment ceiling per person is £100,000 a year, against £9,000. They also give upfront income tax relief at 20 per cent, provided shares in the VCT are held for five years, and rollover relief from capital gains tax, if the gain is invested in a VCT. Private investors are keen to participate. A recent survey by the Association of Investment Trust Companies showed 83 per cent of sophisticated private investors had heard of VCTs and 50 per cent of those were likely to invest.

However, fund managers remain cool. So far only Murray Johnstone and Rothschild Asset Management have said they will launch VCTs and Rothschild's plans are on the back burner.

The largest provider of venture capital in Europe, 3i, looks set to announce its participation very soon. Its wide network of regional offices gives it unrivalled access to small companies and makes it a natural VCT manager.

Picking the right manager with good quality deals will be the key to VCTs, according to Hamish Buchan, investment trust expert at NatWest Securities. "VCTs are not about looking at a portfolio of stocks. Anyone going in has to do their homework on the managers and their contact base," he said.

The £1m maximum that VCTs are permitted to invest in each unquoted company makes the size of the deal too small for many venture capital managers.

Murray Johnstone, with offices in Glasgow, Manchester, Birmingham and London, believes its regional infrastructure gives it good access to deals and the right cost base to make money for itself and its investors.

Iain Tulloch, investment director, said: "VCTs should make a good return in their own right. The tax relief is just the icing on the cake." He believes a well managed VCT will outperform the FT All Share index over five years and the reward profile could be "extremely high" if the managers get it right.

Murray Johnstone is aiming to raise £30m and expects to pitch its minimum subscription at £5,000 per person. The VCT will invest in approximately 40 companies, giving a reasonable spread of risk, Mr Tulloch said. He hopes that business angels will use their Enterprise Investment Scheme tax reliefs to co-invest with Murray Johnstone.

VCTs are for consenting adults only, Mr Buchan said. They will invest in small companies (maximum gross assets £10m), which are inherently more risky than large.

Although the Government has decreed that VCTs must be stock-market listed and so technically tradeable, second-generation owners will not receive the 20 per cent upfront income tax relief or the rollover relief. They will be eligible for relief from income and capital gains tax generated by the VCT shares. They may also be able to take advantage of share prices at very large discounts to net asset value. "There will be no liquidity because nobody will sell. We will not be interested in making markets. VCTs are likely to go to discounts of up to 50 per cent to net asset values," Mr Buchan said.

The nervous investor may prefer a more tried and tested route into unquoted investment. There are 20 existing venture and development capital investment trusts on the stock market, the largest being 3i and Electra. The shares of these trusts trade in a liquid market at varying value.

Electra is presently trading on a discount to NAV of 13 per cent, but Candover is on an 8 per cent premium.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
sportSo, how closely were you paying attention during 2014?
Arts and Entertainment
Dennis speaks to his French teacher
tvThe Boy in the Dress, TV review
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
Arts and Entertainment
Amy Adams and Christoph Waltz in Tim Burton's Big Eyes
film reviewThis is Tim Burton’s most intimate and subtle film for a decade
Life and Style
Mark's crab tarts are just the right size
food + drinkMark Hix cooks up some snacks that pack a punch
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
Arts and Entertainment
Madonna is not in Twitter's good books after describing her album leak as 'artistic rape and terrorism'
music14 more 'Rebel Heart' tracks leaked including Pharrell Williams collaboration
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Selby Jennings: Quantitative Research | Equity | New York

    Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

    Selby Jennings: SVP Model Validation

    Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    Day In a Page

    A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

    Christmas without hope

    Gaza fears grow that conflict with Israel will soon reignite
    After 150 years, you can finally visit the grisliest museum in the country

    The 'Black Museum'

    After 150 years, you can finally visit Britain's grisliest museum
    No ho-ho-hos with Nick Frost's badass Santa

    No ho-ho-hos with Nick Frost's badass Santa

    Doctor Who Christmas Special TV review
    Chilly Christmas: Swimmers take festive dip for charity

    Chilly Christmas

    Swimmers dive into freezing British waters for charity
    Veterans' hostel 'overwhelmed by kindness' for festive dinner

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all