Review: British Smaller Companies VCT 2

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

British Smaller Companies VCT 2 (BSC2), one of the UK's longest-running venture capital trusts, has opened a non-prospectus top-up offer to raise up to €5m (approximately £4.4m). 

The last top-up offer for existing shareholders reached capacity within a week and we expect a similar level of interest for the current one. 

Existing shareholders and their spouses/civil partners will have priority until the close of business on Friday 2 February 2018, when the offer (if not fully subscribed) will be made available to the general public.


  • One of the longest established and best-regarded VCTs
  • Small top-up offer expected to sell out quickly
  • 55.5p per share paid in dividends since 2000 – dividends are variable and not guaranteed
  • Effective annual yield of 7.6% over the past five years* – past performance is not a guide to the future
  • One of the top-performing VCTs over 10 years
  • Established and well diversified portfolio, ranging from traditional to innovative companies
  • 63% of the portfolio valued at above cost (as at 30 September 2017)
  • Minimum investment £3,000
  • Priority period for existing shareholders until 2 February 2018

* Based on the average dividend over 5 years, expressed as a percentage of NAV.

The manager

BSC2 is managed by YFM Equity Partners, an independent private equity business owned by its senior management and investment team. 

YFM manages over £220 million through the British Smaller Companies VCTs and private equity funds. It has over 30 years' experience helping small companies throughout the UK regions grow niche businesses, launch new initiatives, make transformative acquisitions and upgrade technologies and systems. 

Unlike most VCT managers, YFM has a strong national presence through its offices in Leeds, London, Manchester, Birmingham and Sheffield. This gives it access to regional deals and enables it to invest in a less competitive market. YFM and YFM Equity Partners have a total staff of 28, of which 15 are engaged in finding, investing in and advising on investments to the British Smaller Companies VCTs and other clients.

Investment strategy and current portfolio

BSC2 aims to provide shareholders with an attractive long-term tax-free dividend – variable and not guaranteed. 

The investment strategy is to create a diversified portfolio of companies, ranging from those that operate in traditional industries through to those that offer opportunities in the development and application of innovation.

The investments are spread across different sectors, with Software, IT & Telecommunications, and Business Services currently representing the majority of the portfolio (33% and 29% respectively). Nearly half of the portfolio is in loans or preference shares, which could help support dividend payments. 

The portfolio has a net asset value of £58.6m as at 30 September 2017, and currently includes investments in 35 unquoted and 6 quoted companies. These are predominantly management buy-out deals, with most investee companies being established and often profitable. New VCT rules, however, no longer allow this type of deal. So, as is the case with other long-established VCTs, the portfolio split will gradually shift towards growth deals. 

Example of management buy out deals are the current two largest holdings: ACC Aviation and Intelligent Office UK, whilst one of the latest investments, Friska, is an example of growth deal. 

ACC Aviation

British Smaller Companies portfolio company ACC Aviation

ACC Aviation is a niche aircraft leasing and airline services business. Founded in 2002, it serves clients across the globe in all aspects of aircraft charter, leasing, interiors and aviation support services. It can charter any size of aircraft, from small VIP jets and helicopters to large commercial airliners. It has a wide range of clients from sports teams to the Ministry of Defence, tour operators, and global airlines. 

YFM Equity Partners initially backed the management team to buy out the retiring founder and expand both locally and internationally. 

Since then, ACC opened a new office in Dubai and added 25% headcount to the existing European business.

BSC2 invested £1.4 million in November 2014. The unaudited investment valuation at 30 September 2017 is £3.7 million – an unrealised multiple of 2.64x. 

Intelligent Office UK

British Smaller Companies portfolio company Intelligent Office UK

Intelligent Office UK was founded in 2001 by taking over a printing company in Edinburgh. At the time, the company had 12 staff and was struggling to survive. Today Intelligent Office is the UK’s leading provider of support services to the legal sector. It helps law firms save time and money by taking charge of administrative and secretarial services, freeing up partners' and fee-earners' time. 

It has more than 900 employees based in 49 locations across the UK. Its clients are mainly top 150 UK legal firms.

YFM Equity Partners invested £10 million (of which £2 million through BSC2) in May 2014, to help Intelligent Office UK expand and develop existing long-term contracts. 

Since then, Intelligent Office UK opened a second onshore shared services centre in Glasgow, grew its client base and extended its service offering with existing clients. The unaudited investment valuation at 30 September 2017 is £3 million – an unrealised multiple of 1.5x. 


British Smaller Companies portfolio company – Friska

Friska — which means healthy in Swedish — is a chain of healthy fast-food restaurant offering fresh food to eat in, take away or for office catering for breakfasts and lunches, winner of an Observer award for Best Ethical Restaurant. 

Founded in Bristol in 2009, Friska serves breakfast, lunch and coffee around its idea of 'Feel Good Food': globally inspired, locally and responsibly sourced food. Its target market is young professionals, so its store locations tend to be in central business districts.

YFM Equity Partners invested £3 million (of which £1.2 million through BSC2) in July 2017, to help Friska expand its retail estate. At the time of the investment, Friska had eight outlets in Bristol and Birmingham with an airside site at London’s Luton airport and expected to turn over £4.6 million. 

Folowing YFM's investment, Friska has opened an outlet at Manchester Science Park, in the 70,000 sq ft Bright Building, and plans to follow that with outlets in the city’s central business district.

Performance and dividends

BSC2 has a good track record of realisations and dividends although please note past performance is not a guide to the future and dividends are not guaranteed. 

In the period from 2004 to 2016 YFM’s overall unquoted portfolio achieved 28 realisations with an average gross return of 2.6x and 20.8% gross IRR.

Target return 

The VCT aims to pay dividends twice a year following the publication of its interim and final results. It targets consistent and maintainable dividends over time whilst at the same time preserving the capital value. 

In the five years to 31 December 2016 shareholders have received dividends of 4.5p a year. The average dividends are equivalent to an effective annual yield of 7.6%, expressed as percentage of NAV. Please note dividends are not guaranteed and past performance is not a guide to the future. Indeed, the Board anticipates the maintainable level of dividends will fall from the yield achieved historically.


Please remember your capital is at risk. VCTs are high-risk investments and are not suitable for everyone: they are long term and illiquid. Investors should not invest money they cannot afford to lose. 

Tax rules can change and tax benefits depend on individual circumstances.


The charge to invest in British Smaller Companies VCT 2 through Wealth Club is 2.375% (normally 4.5%). This is lower than investing directly. 

The annual advisory fee payable to YFM Private Equity is 2.5% of the Net Assets up to £16.0 million, 1.25% of Net Assets in excess of £16 million and up to £26.667 million and 2% of Net Assets in excess of £26.667 million. 

YFM also receives an annual accounting and secretarial fee, index linked, which is currently £63,000. Annual running costs are capped at 2.9% of NAV.

A performance fee is also payable when the aggregate of cumulative dividends paid as at the last Business day in December each year and the average of the middle market price per Share on the five Business Days prior to thatday, exceeds 120 pence per Ordinary Share. 

Please see the provider documents, including the Key Information Document, for full details.

How to apply

To apply, existing shareholders should download the Wealth Club application forms and send directly with payment to Link Asset Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, with a copy to Wealth Club (a scan or photo by email is fine), so we can ensure the discount is applied for you.

Our view

In our opinion, this is a strong offer from an experienced and very successful management team. British Smaller Companies VCTs have historically been hugely popular amongst investors, with previous offers reaching capacity in record time. Considering the low fundraising targets, we expect the current offer to sell out quickly.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 11.01.2018

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