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

Venture capital trusts (VCTs) are shaking off their image of just investments for the rich and old as smaller investors pile up following a partnership between Crowdcube and Octopus Investments.

In March, crowdfunding platform Crowdcube began letting consumers invest in Octopus VCTs for just £500, instead of £3,000 to £5,000 for most standard VCTs.

Data from Crowdcube now shows that 740 investors have invested more than £1.5m in VCTs since the barrier to entry was lowered.

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

More than a third (34 percent) of new investors are between the ages of 31 and 40, challenging the idea that VCTs are for retirees.

VCTs have long been regarded as a vehicle for wealthy, experienced investors seeking early-stage access to private companies.

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

We spoke to some investors to find out how they’ve 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 major barrier for them to invest in VCTs.

They wanted access to this type of investment because of the diversification benefits of VCTs.

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

He says, “Before investing in VCTs, I was crowdfunding.

“I was 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 investing in VCTs, I also invested in other early stage companies through Crowdcube, including Kitepower – a company that 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 can access through this type of investment vehicle. I know they can be risky, but I was drawn to the diversification benefits they offer.

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

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

Besant said, “I like VCTs because if you want to access privately held companies, that’s a pretty diversified way to do it.

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

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

‘The high minimum investment was definitely an obstacle for me to enter. I was able to invest a little more than Crowdcube’s £500 minimum, putting about £2,000 into Octopus VCTs.

“I was open to investing in all VCTs, but I knew I knew Octopus Investments and the Octopus VCTs have a good reputation, which 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 recognized 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 build the vibrant early stage ecosystem that exists for entrepreneurs in the UK today.

“It was great to see Crowdcube open up this opportunity to a new group of investors, broadening the support base for smaller UK companies.

“We look forward to seeing other retail investors, with the right risk appetite, take advantage of our partnership and invest in this exciting asset class.”