What is a 'Venture Capital Trust - VCT'

A venture capital trust (VCT) is a type of publicly listed closed-end fund found in the United Kingdom. A venture capital trust is designed as a way for individual investors to gain access to venture capital investments via the capital markets. Its mandate is to seek out potential venture capital investments in small unlisted firms to generate higher-than-average, risk-adjusted returns for its investors. Numerous venture capital trusts are listed on the London Stock Exchange.

BREAKING DOWN 'Venture Capital Trust - VCT'

Venture capital trusts are a popular vehicle for investors seeking to invest in a diversified portfolio of venture capital investments. These portfolios give investors access to private market investments. Fund managers are focused on investing venture capital for income and capital gains, which are returned to shareholders.

Venture capital trusts are primarily found in the U.K. where they were introduced in 1995 to support U.K. small business growth. They are comparable to business development companies in the U.S. The shares of U.K venture capital trusts are uniquely structured to offer tax efficiencies. Shares can be bought directly from the fund manager in a new offering or actively traded on the secondary market with numerous listings on the London Stock Exchange. These shares offer the potential for high returns through investment in high-growth private companies. They also offer tax advantages, often relieving investors of many of the tax implications surrounding dividends and capital gains, or offering lower taxation rates.

Venture capital trusts are limited by some regulations that govern the percentage of fund allocations. Regulations require that 70% of investments must be allocated to qualifying investments within three years. Additionally, 30% of funds can be allocated to government securities, gilts or blue-chip shares. The trusts are also limited to 15% in a single holding and they can invest no more than GBP15 million per investment.

Investing in VCTs

Hargreaves Lansdown is one of the most active broker-dealers supporting the distribution of venture capital trusts. The firm advertises and offers new trust shares from leading managers across the industry. The Octopus Titan VCT provides one example of a venture capital trust offering. Octopus manages over GBP400 million in the VCT. It invests in approximately 50 portfolio companies with high-growth characteristics. In 2017, the VCT reported a 4.7% total return with a 5.2% annual dividend yield. Leading portfolio investments include Evi Technologies which was sold to Amazon, Rangespan sold to Google, and SwiftKey sold to Microsoft.

RELATED TERMS
  1. Venture Capital

    Venture Capital is money provided by investors to startup firms ...
  2. Venture Capitalist

    A venture capitalist is an investor who provides capital to startup ...
  3. Equity Unit Investment Trust

    An equity unit investment trust is a publicly offered, pooled ...
  4. Venture Philanthropy

    Venture philanthropy is the application or redirection of principles ...
  5. Alimony Substitution Trust

    A trust agreement in which a divorced person agrees to pay spousal ...
  6. Trust Fund

    A trust fund is comprised of a variety of assets established ...
Related Articles
  1. Investing

    A Look Into Creating a Trust Fund With ETFs (VCIT, SDIV)

    Learn the basics of how a trust works and the two most common types. Discover how to use ETFs to fund a trust and the different strategies.
  2. Managing Wealth

    How to Set Up a Trust Fund in Canada

    You don't have to be rich to make use of a trust fund. Rules can be complex. Here's what you'll need to discuss with your lawyer.
  3. Personal Finance

    Top 9 venture capital interview questions

    Ace your venture capital interview by learning how to answer the most common questions that such interviewers ask.
  4. Retirement

    You’ve Created Your Living Trust, Now Fund It!

    You set up a trust with your estate planning attorney, but is it actually funded?
  5. Retirement

    Living Trusts vs. Simple Wills: A Comparison

    A look at wills versus living trusts and when to choose one over the other.
  6. Financial Advisor

    Passing an IRA to a Trust: The Good and Bad

    Creating a trust is a common estate planning tactic, but naming a beneficiary to an IRA to a trust may have unintended consequences.
  7. Tech

    The Risk And Rewards Of Investing In Startups (GOOG)

    Investing in startups is a very risky business but can reward investors greatly if and when they do pay off.
  8. Retirement

    Estate Planning for Beginners: Part Three

    A primary purpose of most trusts is to provide a timetable for the distributions of assets where an outright distribution may not be warranted.
RELATED FAQS
  1. What are the primary disadvantages of forming a joint venture?

    Learn the disadvantages to forming and maintaining a joint venture partnership, including factors business owners should ... Read Answer >>
  2. What is the difference between the equity method and the proportional consolidation ...

    Discover the differences between the equity method and the proportional consolidation method of joint venture accounting, ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center