Unlike some generalist VCTs, this will not invest in start up or seed stage companies as the directors feel the risks are too high and the expected time to exit is too long. Instead, they believe the ideal time to invest is when companies have proven their business models and are looking for capital to expand.
The directors believe there will be plenty of investment opportunities as a lack of money available to smaller companies in the last four years has delayed plans for expansion and caused valuation levels of these businesses to fall. The governments response to this in the form of temporary enhancements to income tax relief on VCTs is also expected to create a demand for VCTs among investors.
Eclipse 2 will invest around 80 per cent in companies the investment team believes have good growth prospects and have demonstrated a sustainable competitive advantage over rival firms in the same sector. Around 20 per cent will remain in cash.
The portfolio will contain between 20 and 30 qualifying holdings which will range in size between 200,000 and 1m, depending on a companys stage of development and anticipated need for future funding. No more than 20 per cent will go into any one sector and up to 10 per cent may be invested in a single company.
When selecting companies the investment team will spend time with the management teams, customers and suppliers. They will also ask other professionals in the industry to provide independent comment and assessment.
In the run up to the end of the tax year, many VCTs are likely to be clamouring for new money on the back of the income tax enhancements so the environment is likely to be competitive. As this VCT does not invest in start-ups or those at the seed stage, it may appeal to investors who are looking for a VCT at the lower risk end of the spectrum.