While the drop from the £705m recorded in 2022 was notable, it was less than the wider venture capital industry experienced. UK and Ireland venture capital investments fell by nearly half (46%) in 2023 to £16.5bn from £30.3bn, according to figures from Pitchbook.

Most of the VCT investments made in 2023, £454m, went into 251 private companies, with a further £52m going into 24 AIM companies. In 2022 VCTs invested £658m in 341 private companies and £48m in 22 AIM companies.

Between 2021 and 2023, VCTs invested a total of £1.89bn in private companies and AIM companies.

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Richard Stone (pictured), chief executive of the AIC, said: “Last year VCTs’ investment in private companies slowed due to challenging investment conditions. It took time for businesses to adapt to higher interest rates and sluggish economic growth which impacted valuations and deal times. However, VCT investment activity held up better than the broader venture capital industry.

“VCTs have many advantages for investors, including attractive tax benefits and good long-term performance, and their investee companies create jobs and social benefits for local communities across the UK,” Stone continued.

“These advantages help to shore up capital raising in difficult economic conditions and give VCT managers confidence to continue investing in tough times, when other venture capital investors are pulling back.”

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Ewan MacKinnon, a partner at Maven Capital Partners, added: “The first half of 2023 was certainly sluggish in terms of quality new opportunities, in line with the trend across the market, due to uncertainty arising from the Budget turmoil in late 2022.

“However, in the second half of 2023 and early 2024 we’ve seen an encouraging increase in activity and opportunities as economic conditions have improved and deal flow has now largely recovered across our UK regional teams.”

The Future Generations VCT was launched in 2022 and aims to back businesses that have ‘the power to transform the world for the better’.

The VCT is managed by Simon King, who has over 10 years’ experience in the industry and is a partner in Octopus Ventures.

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It offers investors the opportunity to access a portfolio of early-stage companies which are aligned with three core investment themes. Namely, building a sustainable planet, empowering people and revitalising healthcare. The team invests the top 10-15 opportunities it identifies each year.

Octopus donates 10% of the annual management charge to Octopus Giving, its charitable foundation.

Since inception, the VCT has already raised more than £45m and invested in 25 companies across all three themes.

King said: “We live in a changing world. But we believe that a new world is possible – one where the most successful companies are a force for good. The entrepreneurs we back are reimagining how whole industries behave.

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“We’re backing teams who are eliminating carbon footprints, creating cancer vaccines, building the next phase of the internet and charting a greener approach to space travel, to name just a few.

“By 2030 it is the aim of Octopus to have invested £10bn into the industries that are bringing about a positive change in the world and we firmly believe that the Future Generations VCT will be at the forefront of this mission,” he added.

The firm is a VCT and EIS specialist which targets early-stage investment in UK technology businesses, focusing on scalable companies across marketplaces, platforms and software (SaaS).

The launch follows the announcement by the government of the extension of the VCT regime to at least 2035.

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The Fuel team is led by MyVoucherCodes founder Mark Pearson. His track record includes early exits from tech giant Adobe and US equity management platform Carta.

Wealth Club’s Nicholas Hyett commented: “Fuel Ventures is well known in venture capital circles for its rocketship emojis and irreverent memes.

“The focus on marketplaces, platforms and of course SaaS means its investments tend to be low in capital intensity with the potential for explosive growth and high margins.

“The manager will hope its new VCT can support the successful EIS and SEIS funds by providing funding to businesses at a later stage, while also opening up the manager’s portfolio to investors who are put off by the higher risk nature of EIS or SEIS investing.”

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Using the latest numbers released by HMRC, Wealth Club identified a notable uptick in VCT popularity.

In terms of the total value of VCT investments, the figure was up by even more, rising by 61% to £1.04bn versus the previous year.

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The average amount invested by an individual was about £40,000. Investors putting in between £150,000 and £200,000 accounted for just 6.7% of all VCT investors, but 32.2% of the total money raised.

This means there were many smaller investors putting in modest sums to make the average that low.

A full breakdown of the numbers is below:

Nicholas Hyett, investment manager at Wealth Club, commented: “The trend is great news for UK start-ups, driving a 61% increase in tax relief qualifying VCT investments and significantly increasing the funding available to UK entrepreneurs through the scheme.

“The scheme could be even better though. There are signs the £200,000 a year limit on VCT investments, unchanged for nearly 20 years, is capping the funding available to small businesses.

“The largest VCT investors, those investing £150,000 to £200,000 a year, account for just 6.7% of investors, but 32.2% of funds raised,” he continued. “Almost all are hitting the £200,000 a year maximum – and would potentially invest more if the scheme allowed, unlocking significant further funding for small UK businesses.

“With economic growth and support for smaller companies a key priority for both political parties, the £200,000 limit is overdue a review.”

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“What is really interesting is that clients who use VCTs for the first time are continuing to use them and it becomes part of their annual planning. So, whilst they are making the pension contribution whilst they’re doing their ISA, they’re also thinking about their VCT as part of that.”

A trend French has noticed – and predicts will be a key area this coming year – is a focus on the diversification of VCTs.

“There has been anecdotal feedback for looking at different areas of the market. There is a wide variety of VCTs out there and for people that are interested in that particular space, there are teams that focus on very different areas that can suit a client’s particular needs,” French said.

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In this interview, French also explains why investors should be interested in VCTs, why it offers a valuable planning opportunity for IFAs, and the challenges and opportunities that accompany the investment approach. You can view the whole video by clicking on the picture above, while the timecodes for each question are set out below:

0:16 – How are VCTs supporting smaller companies to find the next so-called unicorns?

2:51 – Why should investors consider VCTs? What can they offer in terms of financial planning and exposure to different companies?

6:01 – How does Triple Point work with advisers and what tools/support do they provide?

7:23 – What trends do you expect to see in the VCT market in 2024? Where are the challenges and opportunities?