Smaller investors turn to VCTs after Octopus and Crowdcube tie-up

Venture capital trusts (VCTs) are shaking off their image of just being investments for the rich and old, as smaller investors pile in after a tie-up between Crowdcube and Octopus Investments.

In March, crowdfunding platform Crowdcube started letting consumers invest in Octopus VCTs for as little as £500, rather than £3,000 to £5,000 for most standard VCTs.

Now Crowdcube data shows 740 investors have invested over £1.5million in VCTs since the barrier to entry was lowered.

Crowdcube said nearly 90 per cent of investments are now £3,000 or lower.

A new start: VCTs give investors exposure to early stage companies and offer juicy tax breaks, but they have often been the preserve of the wealthy

More than a third (34 per cent) of the new investors are aged between 31 and 40, challenging the notion that VCTs are for retirees.

VCTs have long been considered a vehicle for wealthy, experienced investors who want to access early stage private companies.

These investment vehicles raise money from investors to invest in young, usually privately owned, companies, or those listed on the junior Aim market.

We spoke to some investors to find out how they have been able to invest in VCTs  and why they want to.

The investors This is Money spoke to unanimously agreed that the high minimum investment was a big barrier to them investing in VCTs. 

They wanted access to this type of investment for the diversification benefits that comes with VCTs.  

Software developer Arturas Chmelenko, 39, is one of the investors now investing in Octopus VCTs through Crowdcube.

He says: ‘Before I invested in VCTs I used to invest in crowdfunding.

‘I had been interested in investing in VCTs before Crowdcube’s initiative, but the minimum investment, which is usually between £3,000 and £5,000, was just too much.

‘Before I invested in VCTs I also invested in other early stage companies through Crowdcube, including Kitepower – a company which generates electricity by flying kites – and Pikl Home and Property Insurance.

‘I wanted to invest in VCTs because of the diversity of early stage companies you have access to through this type of investment vehicle. I know they can be risky but I was attracted to the diversification benefits they offer.

‘I invested £500 pounds in Octopus VCTs as that was the minimum investment through Crowdcube.’

Arturas Chmelenko, 39, thought the minimum VCT investment, which is usually between £3,000 and £5,000, was just too much.

Private banker Oliver Besant, 34, who lives and works in London, is another investor who is new to investing in VCTs through Crowdcube.

Besant said: ‘I like VCTs because if you want to get access to unlisted companies, it’s quite a well-diversified way of doing that.

‘There are of course also generous tax breaks for doing it, which I was aware of.

‘It’s easy for high-net worth individuals to get allocations to VCTs, but for someone like myself who doesn’t have a spare £200,000 each year, the minimum investment amount has meant it is difficult to make a sensible allocation to VCTs in your portfolio.

Oliver Besant, 34, wanted to invest in VCTs because they offer well-diversified access to unlisted companies

‘The high minimum investment was definitely a barrier for me to getting in. I was able to invest a bit more than Crowdcube’s £500 minimum, putting in about £2,000 into Octopus VCTs.

‘I was open to investing in any VCTs but I knew that I knew that Octopus Investments and the Octopus VCTs have a good reputationwhich was another selling point for me when it came to investing.’

Matt Cooper, co-chief executive of Crowdcube, said: ‘We embarked on this mission because we recognised a significant portion of UK investors who have been underserved in the VCT market for far too long.’

Jess Franks, head of investment products at Octopus Investments, said: ‘VCTs have worked for nearly three decades to help build the vibrant early-stage ecosystem that exists for entrepreneurs in the UK today.

‘It has been great to see Crowdcube opening up this opportunity to a new group of investors, widening the supporter base for UK smaller companies. 

‘We look forward to seeing other retail investors, with the appropriate risk appetite, taking advantage of our partnership and investing into this exciting asset class.’