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Arc issues C shares

Arc Fund Management is looking to raise up to £7.5m in C shares to increase the investment opportunities within the Arc growth company venture capital trust.

This VCT was launched in 2005 and has invested in thirteen companies so far. Four have been admitted to Aim; one has been fully realised at a profit and one has been sold.

The company says increasing its funds under management will enable the VCT to reduce risk by providing investors with a broader portfolio. Its costs would be spread over a larger asset base, which would benefit existing investors.

Mindful of the dilution that raising new money could have on existing shareholders, the directors decided on a C share offer that will initially remain separate, then convert to ordinary shares in 2010.

Arc mainly invests in unquoted companies that are likely to seek a listing in the relatively near future. Gains are realised through a sale, listing or other suitable exit route.

The directors believe these companies have significant growth potential because valuations are more attractive than companies that are looking to float or are already listed. Historically, the VCT has invested in companies traded on the Aim market, companies that are bigger than the recently changed VCT rules will allow and asset-backed companies.

Most of the investments will be in unquoted companies, but the VCT can invest in companies on Aim and Plus, formerly Ofex. Initial investments are expected to be in the £100,000- £500,000 range but no single company will represent more than 10 per cent of portfolio.

When selecting companies, the investment manager evaluates the business through due diligence which includes spending time with the management. The decision whether to invest lies with the directors and depends on factors such as whether the companies have experienced management teams, simple business models, good products and services, strong sales potential, expanding profit margins, predictable earnings and realistic exit opportunities. Once the investment is made, the progress of the companies is monitored.

Investing in an established VCT is one of the advantages of a C share issue but the difference between this and a top-up is that new investors will not have access to the existing portfolio until the conversion date. If the offer does not raise as much as intended, this will impact on the diversification of the portfolio, which is one of the main attractions of generalist VCTs.


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