Don't invest unless you're prepared to lose all the money you
invest. This is a high-risk investment and you are unlikely to
be protected if something goes wrong. Take 2
mins to learn more.
Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
What are the key risks?
1. You could lose all the money you invest
• If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
2. You are unlikely to be protected if something goes wrong
• Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
3. You won’t get your money back quickly
• Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.
• The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
• If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.
4. Don’t put all your eggs in one basket
• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
• The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
• These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here.
Venture Capital Trusts
Help small companies grow, save income tax and receive tax-free dividends
A Venture Capital Trust (VCT) is a publicly listed investment company run by a fund manager. It aims to make money by investing in small, unquoted, entrepreneurial companies and helping them grow.
When you as a private investor buy shares in a VCT, you get exposure to a portfolio of small companies. The government is keen for experienced investors
to invest in this kind of company, because they create jobs and support
economic growth. However, investing in small businesses is risky. To help
compensate for this, the government offers generous tax benefits:
Up to 30% tax relief – save up to £60,000 on your income tax bill when you invest in newly issued VCT shares
Tax-free dividends – no need to declare VCT dividends on your tax return
Tax-free growth – no CGT on gains
Generous allowance – invest up to £200,000 per tax year
Remember, tax rules can change and tax benefits depend on circumstances.
See all current VCT offers below – you can read our reviews, download the documents and apply online. We also list VCT offers coming soon – you can register your interest for free VCT alerts as soon as offers go live.
Molten Ventures VCT (formerly Draper Esprit VCT) invests in early-stage digital technology businesses, often alongside FTSE listed Molten Ventures plc, favouring businesses in consumer technology, enterprise technology, deep tech & hardware, and digital health & wellness sectors.
Albion Capital is one of the longest established VCT managers. Together, the six VCTs give investors exposure to a diversified portfolio of c.70 companies, a combination of predominantly growth capital investments and a somewhat smaller legacy portfolio of income-generating, asset-based and renewable energy investments, as well as cash.
A new share class of Foresight Technology VCT, part of the collaboration between Foresight Group and WAE, seeking to invest in early-stage high-growth technology businesses. Click the link above to read our full review.
Established VCTs with a diverse portfolio of maturing companies alongside new investments. Beringea has a solid track record of investing in companies with growth potential and supporting them until a profitable exit can be achieved. Click the link above to read our full review.
Unicorn is a specialist smaller company fund manager. The manager looks for companies with strong cash flows and potential to pay and grow dividends over time. This is a large, well diversified VCT. Click the link above to read our full review.
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