An Inside View from a VCT

Venture Capital Trusts (VCT) play a vital role in supporting early-stage and growth companies across the UK. Every fund will operate differently, so understanding how a manager evaluates opportunities can help founders to determine which is the right fit. At Pembroke, we’ve refined our approach through more than a decade of experience investing in excess of 45 companies across the consumer, technology, and business services sectors. Here’s what we typically look for before deciding to invest.

People first

One factor that consistently stands out is the strength of the founding team. At Pembroke, we invest in people first, not just products or markets. Typically seeking out founders who are resilient, adaptable, and able to scale their vision. These are the characteristics that are often the greatest indicator of long-term potential.

While the product or service needs to be compelling, true performance is driven by the leadership team’s ability to respond to market shifts and grow a team. One notable example is health and wellness pioneer, LYMA. While its product is at the forefront of skincare innovation, it’s the leadership of Lucy Goff and her team that has fuelled the growth of the business. A founder’s ability to pivot and evolve when necessary is crucial to a business’ success. Lucy has consistently exemplified this quality.

The foundations of a VCT

Strong governance and business structure are essential. While VCTs will often offer valuable guidance to help shape a company’s operations, they typically expect a strong foundation to already be in place. This includes essential elements like a defined board, robust financial oversight, sound legal structures, and clear mechanisms for managing risk.

The presence of a CFO (or equivalent financial leadership) with strong financial and compliance capabilities is a good indicator that a business is committed to long-term, sustainable growth. Ultimately, well-established governance helps mitigate risk and provides a solid platform for scaling, both of which are crucial for attracting venture capital investment.

Human capital 

The best investment partnerships go far beyond a financial transaction. Investment teams can bring insight, connections and mentorship to the companies they back. Our team of 10 investment professionals combines expertise in venture capital, private equity, accountancy, and entrepreneurship. This diversity of experience enables us to offer a distinctive approach to long-term value creation. We forge strong, collaborative relationships with our portfolio companies, often taking Board positions to offer strategic oversight, while also ensuring that founders remain firmly in control of their vision.

Support may also extend to talent and recruitment. In-house talent and recruitment experts work closely with leadership to attract top-tier hires, support team development, and help build organisations that scale sustainably. Partnering with an investment firm that takes a hands-on approach can be especially valuable for growth-stage businesses; reducing hiring costs and ensuring the right leadership is in place to scale the company in alignment with the founder’s vision.

Transparency and trust

VCTs are regulated investment vehicles with a duty of care to shareholders. As such, we regularly share the performance of each company in the Pembroke VCT portfolio and adopt a thorough, disciplined method when it comes to valuations. We aim to be a trusted partner – one that operates with integrity, and whose interests are aligned with both founders and shareholders.

The long road: vision and exit planning

Not all founders will be thinking about their exit strategy from day one, but your investors will be. Even when investing early, a VCT will be considering its eventual exit. When assessing a business, the investment team looks for evidence of a credible path to profitability, a compelling growth plan and early indicators of what a successful exit could look like – whether through acquisition, secondary investment, or even IPO.

At Pembroke, our investment strategy is disciplined. We meet with hundreds of companies every year and aim to invest in 3–6 new businesses, while remaining supportive of existing portfolio companies through follow-on investments. This deliberate approach allows us to focus our energy and capital on helping each company in our portfolio reach its full potential.

We also align our success with that of our portfolio. Our performance fee is only earned when profitable exits are achieved, net of any unrealised losses. This reinforces our commitment to delivering sustainable, long-term results for both entrepreneurs and investors.

What we look for

While every opportunity is unique, Pembroke typically considers businesses with revenues between £1 million and £10 million – a stage that represents an inflection point where the right backing can support scale and profitability. We’re particularly drawn to visionary founders who have the ambition to disrupt sectors with a unique solution. While there is no linear formula for success, in our experience, the most compelling opportunities come from ambitious founders with the vision and people to deliver transformative outcomes.

First Wealth’s View on VCT

At First Wealth we see “VCTs as valuable from both a planning and investment perspective. They offer both investment potential and tax efficiency when used appropriately”. 

For clients who are comfortable with higher-risk investments and looking to diversify their portfolio, VCTs can play a meaningful role. They’re particularly relevant for individuals who already use their full pension and ISA allowances, or who face restrictions on pension contributions due to the tapered annual allowance. VCTs allow investments of up to £200,000 per year, with 30% income tax relief, tax-free dividends, and no capital gains tax on disposal. These features make them a compelling option for clients looking to manage their tax position more efficiently. 

But the benefits go beyond tax. VCTs invest in early-stage, high-growth UK businesses. This introduces the potential for enhanced returns but also provides access to a part of the market that’s typically out of reach in traditional portfolios. For many clients, especially those who’ve grown and exited businesses themselves, the opportunity to reinvest into the next generation of entrepreneurs is particularly appealing. It’s a way to align investment strategy with personal values, supporting innovation and entrepreneurship in the UK. 

Of course, these are higher-risk investments, and the illiquidity and volatility that come with early-stage businesses mean they won’t be suitable for everyone. But for the right client – with the right planning and guidance – VCTs can form a valuable part of a wider, long-term investment strategy. 

If you’d like to explore how this might apply to your situation, reach out to your First Wealth Advisor or reach out on 020 7467 2700 and hello@firstwealth.co.uk. 

A Venture Capital Trust (VCTs) carries significant risks, including potential capital loss and the possibility of not recovering initial investment. VCTs are long-term investments, and selling shares within five years can result in clawing back tax reliefs. Additionally, VCT shares may be difficult to sell and may trade at a discount to their underlying value.  

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.