Review: Seneca Growth Capital VCT

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The tightening of the VCT rules in 2015 sent shockwaves through the VCT industry. But it also created opportunities for new entrants.

Take the team at Seneca Partners. They have never managed a VCT before, but currently manage more than £50 million of EIS growth capital. During the last six years they have participated in more than 70 investment rounds across 39 companies, often investing alongside the likes of Octopus, Northern, Mobeus and Baronsmead. In other words, Seneca has spent years making the kind of growth capital investment VCTs are required to make under the new rules. 

It is therefore little surprise that the team has now decided to put that experience to use and launch a new VCT offering, the Seneca Growth Capital VCT

Potential for dividends in the early years

Despite being new, it could potentially start paying dividends in the early years. 

This is possible because rather than launching from scratch, Seneca partnered with the existing Hygea vct plc (now renamed Seneca Growth Capital VCT plc) and launched a new – and separate – B share class. 

Crucially, this new share class will have access to distributable reserves on the company’s balance sheet. Seneca plans to use them to enable dividend payments for the first few years, until the investments held within the B shares mature and can be realised to help fund dividends. Please note dividends are variable and not guaranteed. 

Seneca VCT SuperCarersWhat kind of investments can be expected?

The VCT intends to broadly split its investments 50:50 between AIM-listed and unquoted companies. 

It should benefit from the same strong regional deal flow as the EIS funds and mirror their investment process and strategy. It will target young but proven businesses ready to expand. 

An example is SuperCarers, an online service that matches people in need of care with vetted, reliable, local carers. The business was originally backed by the founders of Innocent Drinks and the Chairman of Chelsea and Westminster Hospital. 

Seneca invested £1.25 million through its EIS funds in March 2018. The funding round was led by Mobeus VCTs.Please note: this example illustrates the types of future investments. The VCT does not invest in SuperCarers. 

A good EIS track record to date

During the 5 years to 31 March 2018, the Seneca Growth Capital EIS Fund and the Seneca EIS Portfolio Service have together delivered a combined average (unaudited) NAV growth rate of approximately 8.9% p.a. (an estimated 7.3% p.a. after fees andcharges). The figures include nine full and partial realisations and three write-offs. Past performance is not a guide to the future.

  Financial year ending 31 March
  2014 2015 2016 2017 2018 5-year average
Annual growth rate 3% 29% 0% 10% 3% 9%
Source:Seneca Partners. Figures to 31 March. NAV (Net Asset Value) calculations include quoted companies at year-end closing share prices, cash from realisations, private companies valued in line with the share price of their most recent fundraise (unless otherwise impaired) and represent gross performance before Seneca‘s stated fees. For illustrative purposes only, if all investments were to be realised at their prevailing values as at 31 March 2018 and the fees apportioned over the investment period, the combined average (unaudited) NAV growth rate for the period would be approximately 7.3%.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

Tax rules can change and benefits depend on circumstances.

VCTs can now only invest new money in growth capital deals. Management buyouts/replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks. 

What to consider next

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