Investing in Venture Capital Trusts


In our last post on Money Bulldog, we spoke about a few different ways to invest in small businesses that pretty much anyone can get involved with, especially individual investors. While writing that post, I was going to add one more investment type to the list called a Venture Capital Trust*.

In the end we didn’t include Venture Capital Trusts because they are considered to be a more specialist type of investment, more complex and higher risk. With this in mind, we thought we’d chat a little more about this type of investment today. So, what exactly are Venture Capital Trusts, why might you want to invest in one, and who should invest in a VCT? Let’s answer these questions for you.

What Is a Venture Capital Trust?

One way to invest in fledgling companies is through a Venture Capital Trust or (VCT). VCTs are companies whose shares trade on the London stock market in the same way that other big name firms do. These companies then try to make money by investing in other small companies who are looking for investment to grow. As this is quite a high risk investment, it is important that you do your research if you are thinking of investing in VCTs and you can start by reading this free guide to VCTs* from a leading UK investment firm.

Why Invest in a Venture Capital Trust?

While Venture Capital Trusts are considered to be a more high risk investment, there are generous tax benefits on offer from the UK government to VCT investors to encourage this type of investment. This is because it is an important vehicle for funding small business growth. These tax benefits make it more attractive for investors to invest in a VCT.

Who Should Invest in a Venture Capital Trust?

Now that we have a good idea of what Venture Capital Trusts are, we now need to think about who should invest in them. The first thing to reiterate is that, because small and startup companies can be more prone to failure than established companies are, VCTs are considered to be a more high risk investment. So, if you would rather keep your money super safe and are happy to accept potentially lower returns as a result, then a Venture Capital Trust might not be the right investment for you. If you are happy to accept more risk, however, and you feel that the potential for higher returns is more important to you than the safety of your initial capital investment, then a VCT might well be worth your consideration.

Before you go and jump in with an investment, though, there is another point we want to mention. As a Venture Capital Trust is a higher risk investment, it can often mean that there are less people involved in the market, with less people looking to buy and sell shares*. Because of this, VCTs are not as liquid as other investment types. If having quick access to your capital is important to you then a VCT might not be right for you.

More Information on VCTs

Here we’ve taken a quick and simple look at Venture Capital Trusts to help you to understand what they are, why people invest in them and what type of investor they are suited to. If you would like more information then be sure to read the earlier mentioned free guide to Venture Capital Trusts*.

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