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The UK has several, very generous, venture capital investment schemes – designed to encourage investment from wealthy private investors into the UK’s fastest growing small companies.
The two largest schemes are Venture Capital Trusts (VCTs) and the Enterprise Investment Scheme (EIS). But what are the differences and what type of investor are they best suited too?
Nicholas Hyett, Investment Manager at Wealth Club, said, “The EIS and VCT investment schemes are designed by the government to encourage individuals to fund small UK businesses. Both offer 30% income tax relief upfront, and it can be tempting to see them as two sides of the same coin.
In reality though they serve very different needs and suit different investors – which mostly comes down to risk and the timeframe investors should expect to be invested.
VCTs can offer significant diversification on day one, whereas EIS involves purchasing shares in an individual EIS qualifying company, either directly or via a professional fund manager. The result is that EIS investments tend to be more concentrated, and therefore more risky.
VCTs aim to pay dividends, and the shares are usually saleable after five years. This makes them shorter-term investments than EIS companies, where investors are typically invested for 5-10 years and perhaps longer.
People investing in venture capital often start out in VCTs, before moving on to EIS as their experience and wealth grows. There’s a lot to like about both schemes, but it is very much a case of horses for courses.”
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