Risks of Venture capital

A limited secondary market for shares – this may make them hard to sell. To partially address this issue, some VCT managers offer a Buy Back facility, normally at a discount to the net asset value. Type of company the VCT invests in – VCTs are designed to provide capital for small companies and each VCT will invest in a number of companies. There is a risk that these companies may not perform as hoped and in some circumstances may fail completely.

• Where the 30% non-qualifying investments are invested – typically, VCTs have invested the 30% non-qualifying investments in money market securities/gilts/cash deposits etc. Some, however, invest part of this in more risky investment vehicles which may raise the overall risk profile of the fund still further.
• Withdrawal of tax breaks – if certain criteria are not met, for example, if the investment is not held for five years or if the VCT does not invest 70% of its funds in qualifying investments, the initial tax breaks can be withdrawn.
• Charges – the levels of charges for VCTs may be greater than for other investments, and you may also be charged performance fees.
• Security of capital – as with any asset-backed investment, the value of a VCT depends on the performance of the underlying assets, so you may get back less than you originally invested, even taking into account the tax breaks.