The VCT will invest in between 15 and 25 unquoted companies. The management team is experienced in unquoted companies it currently runs four 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 which 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 companie 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 selcting 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, exiting from VCTs can be a problem and to date, none of Arcs EIS investments has been realised or admitted to the Aim market, so it is difficult to assess Arcs track record on this.