Isis Equity Partners is aiming to raise up to £20m in C shares as a top-up to the baronsmead 2 venture capital trust.
Baronsmead 2 was established in 1998 and currently has around 60 holdings. Approximately 84 per cent of the current portfolio is invested in qualifying companies so the directors believe it is now time to expand the portfolio to around 80 holdings.
Part of the reason for the top-up is that the recent changes to the tax advantages of VCTs, where income tax relief has temporarily doubled to 40 per cent, has lead to increased demand for VCT shares. This, in turn, has led to various top-ups from existing VCTs and companies such as Keydata preparing to enter the market.
Baronsmead 2's generalist strategy means it will invest across a range of industrial sectors such as business services and the media and will include companies listed on the Alternative investment market. It will focus on established and profitable unquoted companies that are looking to expand or are the subject of a management buy-out or buy-in.
Isis has offered VCTs since the market was established in 1995, so it has built up a strong track record and is considered a major player in the market. Consequently, IFAs may feel more comfortable recommending an established VCT from an established name rather than a new VCT.
Due to this VCTs ability to co-invest with the other three baronsmead VCTs, the type of companies it invests in may be larger more established companies which are more likely to provide dividends to shareholders. Companies looking for investment may also put Isis at the top of their lists, enabling baronsmead 2 to be selective in its choice of holding.
However, the baronsmead VCT should still form only a small part of an overall portfolio as unquoted companies carry higher risks than quoted companies and it may be unwise to invest on the basis of tax incentives alone.