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Arc shapes up with VCT

Enterprise investment scheme specialist Arc Fund Management is looking to raise up to 10m to increase the investment opportunities within the Arc growth company venture capital trust.

The VCT was launched last year and has recently made its first investment -50,000 in Talisker Pharma. This is an early stage pharmaceutical company specialising in drugs and treatments relating to the central nervous system.

The rest of the money from the original offer is held in cash on deposit. It is intended that 80 per cent of the portfolio will be invested in unquoted companies, with 20 per cent remaining in cash for liquidity purposes.
The management team is experienced in unquoted companies it currently runs five EIS funds and expects the deal flow from these to be useful in finding suitable investments for the VCT.

The management team will look for cash generative businesses, asset backed businesses and a limited number of start ups. These will mainly be companies not traded on Aim or Ofex but which are likely to seek a listing in the future. However, Aim companies and those listed on Ofex may be included.
In Arcs view, many VCTs are focusing on Aim while ignoring attractively valued companies outside this market. Companies that make it into this VCT will need to have the potential to achieve high growth within the next two to four years and may be seeking Aim admission.

Some of the factors influencing Arcs decision to invest are 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. Companies that represent a challenge such as those emerging from administration, will be considered. These companies may provide superior returns because of their low entry price.

Arc may call on independent expert analysis when selecting companies and the portfolio will be constantly reviewed. Investments will be made through repayable loans or preference shares alongside equity holdings with the intention of reducing risk.

This VCT may distinguish itself from others by actively looking outside the Aim and Ofex markets, and by lowering risks through the use of loans and preference shares rather than pure equity investments in unquoted companies. However, VCTs investing in junior market may still have lower risks overall.

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