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Investor Overview

Venture Capital Explained

One of the UK's most popular asset classes, venture capital allows investors to contribute to some of the world's most innovative startups and scaleups whilst targeting considerable money-on-money returns.

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GCV portfolio company

What is Venture Capital? 

Venture capital (VC) is the form of private equity concerned with investments into smaller, early stage companies. Involving investments into startups and scaleups at early stages of maturity, venture capital has the ability to generate considerable capital growth, but does involve some notable risks. 

Below we provide an insight into the venture capital landscape for investors, exploring the varying stages of VC investors can access, the risks and rewards associated with the space and the typical investor profile venture capital can be suited to, before examining the most common routes investor can access it.

Please Note:
The value of investments and any income from them can fall and you may get back less than you invested. Please note that this article has been prepared as a general guide only and does not constitute tax or legal advice.

1. Introducing Venture Capital

An Increasingly Popular Asset Class


Venture capital (VC), the form of private equity involving investment into early stage companies, arose officially in the US in the 1970s when a shift in public policy fuelled it as a legitimate alternative form of small business finance to debt. Since then, VC has expanded exponentially.

Today it is one of the most popular asset classes globally, and attracted a record $671 billion across 38,644 deals in 2021 (almost double the $347 billion the year prior).

Global Venture Capital Activity

VC Chart-1

Essentially an exchange of an investor capital in return for an equity stake in an early stage company, venture capital is particularly popular among experienced investors for its ability to generate considerable investment growth, diversify portfolios effectively and access a number of generous tax wrappers. Due to this early stage nature, the asset class also carries a number of notable risks.

Whilst a variety of routes exist for UK investors to mitigate the risks and maximise the potential returns associated with venture capital, thorough research into the asset class itself can be a crucial first step to consider before accessing any opportunity.

2. What are the Main Stages of VC?

Varying Levels of Maturity


Venture capital deals with investments into early stage companies, though a varying array of companies can exist within this criteria. Ranging in size, level of maturity and investment scheme applicability, these opportunities are often divided into three categories. 

Pre-Seed Investments
This relates to the earliest stage of a company's development, whereby founders may still be developing their business plan. During this stage, founders may enlist the support of a venture builder to incubate startup development and secure investment. This tends to be the riskiest stage of venture capital investment, though has the potential to offer the most considerable investment growth.

Seed Investments
During this stage the startup will be planning to launch its product or service. With no sales revenue likely being generated, seed stage businesses are likely to have a heavy reliance on venture capital. At this stage opportunities may be eligible for schemes such as the Seed Enterprise Investment Scheme (SEIS), which offers investors a range of additional tax incentives (including up to 50% income tax relief).


Early Stage investments
Once a business has launched, in order to accelerate growth and fuel day-to-day operations, venture capital can play a key role. Throughout this stage the startup/scaleup may host several funding rounds to achieve this, usually denoted as 'Series A', 'Series B' and so on. During this stage investments may be eligible for more established schemes such as the Enterprise Investment Scheme (EIS).
 

VC has a history of helping to build world-leading companies. Currently, eight of the ten biggest firms in the world by market capitalisation were built with the help of VC, including Apple, Microsoft and Amazon. 

- Forbes

3. What are the Benefits of Investing in VC?

Considerable Returns, Tax Advantages


Exploring the advantages associated with venture capital can help investors to understand how the asset class is able contribute to their portfolio. Where opportunities can differ considerably from case-to-case, a number of core benefits are typically associated with VC.

Considerable Returns

Due to venture capital investments being made into companies at an early stage of maturity, this allows opportunities the potential to deliver considerable investment growth when compared with more mature private equity and listed equity options. Individual VC investments generally target between 5x-20x money-on-money returns, though some opportunities can target considerably higher.


Risk-Mitigating Tax Reliefs
In the UK, investors can make use of schemes such as the EIS and SEIS when investing in early stage companies to benefit from an additional range of tax incentives. Ranging from 30% income tax relief to capital gains tax exemption and inheritance tax exemption, these reliefs combine to help investors minimise the risk and maximise the potential returns associated with early stage investments.

The below table illustrates three potential outcomes of a £50,000 EIS-eligible investment for an additional rate taxpayer, in which the hypothetical company fails, breaks even and triples in value. 

 

Company triples in value

Company breaks even

Company fails

EIS investment

£50,000

£50,000

£50,000

Income tax relief

- £15,000

- £15,000

- £15,000

Net investment

£35,000

£35,000

£35,000

Proceeds on disposal

£150,000

£50,000

£0

Income tax loss relief

-

-

- £15,750

CGT payable

-

Nil

Nil

Net profit/loss including income tax relief

+ £165,000

+ £15,000

- £19,250

 


Portfolio Diversification
With early stage companies existing across a broad range of sectors and geographies, and each opportunity possessing its own level of target growth and exit plan, naturally, venture capital lends itself as a powerful portfolio diversifier for investors looking to achieve a  calculated spread of risk across all of the above.


Alternative Investment Benefits
Categorised as an alternative investment (not falling under the traditional investment umbrella of listed equities, bonds and cash), venture capital is associated with the range of advantages typically linked to alternative assets. These include reduced correlation to market fluctuations and lower volatility to external fiscal events such as rapid inflation.


Positive Impact
Venture capital can provide individuals with the opportunity to invest in some of the world's most impact-driven startups and scaleups. Whether it is by backing the next energy-efficient housebuilder, medical manufacturer or SME lending platform, investors can balance generous target returns with positive environmental, social and governmental (ESG) impact within their portfolio.

4. What are the Risks of Investing in VC?

Balancing Risks and returns


Whilst posing a number of attractive investor benefits, venture capital is classified as a high-risk/high-return investment method. Subsequently, investors should weigh up the potential disadvantages associated with the asset class before investing.

Risk to Capital
VC investments are typically made into small, early stage, unquoted businesses, and whilst this can provide them with considerable growth potential, it can also make them more prone to failure. To minimise the chance of capital losses, investors can conduct thorough due diligence into providers, ensure their portfolio is adequately diversified and make use of tax efficient investment schemes


Lower Liquidity
Unlike traditional, listed equities that are able to be traded instantly on the stock market, venture capital is less liquid. This is partly due to VC schemes (such as the EIS, SEIS and VCTs) requiring minimum holding periods before tax relief can be claimed, but is ultimately due to early stage companies generally taking several years before they are able to reach an attractive exit event.

VC chart-01

 



Less Transparency
Where the performance of public companies tends to be evaluated and publicised by industry analysts, this is not always the case with earlier stage companies. In turn, accessing venture capital opportunities through investment platforms that distribute regular investor updates on portfolio companies can be an effective route of ensuring maximum transparency into investment performance.

5. Who can Invest in VC?

A Range of Investor Profiles


Where venture capital was once reserved strictly for institutional investors, today VC is one of the most popular asset classes among investors globally. Though various investor types can now access VC in some capacity, the asset class can be particularly attractive to three groups in particular. 

Experienced Private Investors
With venture capital classified as a high-risk/high-return investment strategy, an adequate level of prior investment experience can be highly beneficial when selecting the most appropriate opportunity. Not only is an experienced investor is more likely to ensure the benefits of any relevant VC schemes are utilised, but that their portfolio is adequately diversified to maximise the impact of their investments.


High-Net-Worth Private Investors
With most high-net-worth investors (HNWI) accruing substantial annual tax liabilities, venture capital schemes such as the SEIS - that offer advantages including 50% income tax relief - can prove especially valuable. The comparably high money-on-money returns private equity often targets can also prove attractive for individuals with a higher level of disposable income (reflected in the figure below).


Institutional Investors
Institutional investors tend to allocate a significantly greater proportion of their portfolios to VC than retail investors, with the average institutional investor allocating 25% of their portfolio to private equity (VC's parent asset class). This is largely due to VC's ability to deliver superior long term returns - with institutional investors generally possessing a longer term vision and a higher tolerance for liquidity.

Private Equity Allocation Across Investor Type

Investor chart-01

 

6. How can I Invest in VC?

Three Varying Pathways


Venture capital opportunities can be accessed by investors via several routes, but most commonly fall under one of three categories.

Direct Investment

Direct venture capital investments occur when investors invest in an early stage company without the involvement of any intermediary. Whilst this offers the investor full autonomy over selection, it can carry higher risks due to a lack of participation from any other professional institution. For this reason, this route is most often followed by especially experienced with a strong background in a given sector.


Co-investment Platforms
Co-investment platforms compile a range of opportunities for investors to select from at their will, with reputable platforms researching, vetting and advertising companies to ensure they hit a strict eligibility criteria. Still offering full investor autonomy, co-investment platforms can mitigate some of the risk associated with investing in venture capital due to the input of a professional organisation.

Three different investment pathways including direct investment, co-investment platforms and funds


Funds
Venture capital funds (commonly recognised in the form of venture capital trusts [VCTs]) pool investor capital to invest in a portfolio of companies. These companies are determined by a fund manager, who will usually charge additional fund fees. Though offering more effortless diversification, funds usually target less considerable growth than individual opportunities and allow less investor autonomy.

Venture Capital Guide

A Guide to Investing in Startups

In this guide, we offer a professional insight into the venture capital space and routes investors can make use of to access early stage investments, exploring:

  • An insight into the history and current state of the startup investment landscape
  • Why venture capital has proven to be ione of the UK's best-performing asset classes
  • Routes investors can follow to minimise the risk and maximise the returns of their startup investments
  • A first hand insight into the startup investment process using a portfolio company case study
Invest in Start Ups Guide-1

Portfolio Diversification.
Superior Returns.

Become a GCV Invest Member

Venture capital investment opportunities with the potential to deliver superior returns.

GCV Invest is a private investor network and sophisticated co-investment platform, formed with the goal of connecting experienced investors with high-growth, impact driven alternatives investment opportunities, the majority of which reside under the asset class of venture capital.

Join our Private Investor Network.

GCV CEO, Norm Peterson, speaking at an investment conference

Our Latest Opportunities

Venture Capital Investment Opportunities

Discover GCV's latest growth-focused, impact-driven venture capital investment opportunities, enhanced with tax efficient investment wrappers such as the EIS and SEIS where possible.

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Right Arrow
GCV
Round 3
Growth
Open For Investment

Growth Capital Ventures

Sector: Fintech
Target Sought: £ 1,000,000
Round: Round 3
Minimum Investment: £ 5,000
Investment Type: Equity
Tax Schemes: EIS
Learn More about Growth Capital Ventures
Finexos
Round 4
Pre A
Open For Investment

Finexos

Sector: Fintech & Banking
Target Sought: £ 500,000
Funds Raised: £ 690,481
Round: Round 4
Investment Type: Equity
Learn More about Finexos
n-gage.io
Round 2
Seed
Open For Investment

n-gage.io

Sector: SaaS
Target Sought: £ 500,000
Funds Raised: £ 633,963
Round: Round 2
Investment Type: Equity
Tax Schemes: EIS
Learn More about n-gage.io
Finexos
Round 5
Growth
Open For Investment

Finexos

Sector: Fintech & Banking
Target Sought: £ 1,309,999
Round: Round 5
Investment Type: Equity
Tax Schemes: EIS
Learn More about Finexos
Hive HR
Round 1
Completed

Hive.Hr

Sector: HR Tech
Target Sought: £ 150,000
Funds Raised: £ 303,000
Round: Round 1
Investment Type: Equity
Tax Schemes: EIS, SEIS
Learn More about Hive.Hr
Intelligence Fusion
Round 1
Completed

Intelligence Fusion

Sector: SaaS
Target Sought: £ 400,000
Funds Raised: £ 556,800
Round: Round 1
Investment Type: Equity
Tax Schemes: EIS, SEIS
Learn More about Intelligence Fusion
Hive HR
Round 2
Completed

Hive.Hr

Sector: HR Tech
Target Sought: £ 300,000
Funds Raised: £ 1,150,000
Round: Round 2
Investment Type: Equity
Tax Schemes: EIS
Learn More about Hive.Hr
QikServe
Round 1
Completed

QikServe

Sector: Fintech
Target Sought: £ 2,500,000
Funds Raised: £ 2,624,694
Round: Round 1
Investment Type: Equity
Tax Schemes: EIS
Learn More about QikServe
n-gage.io
Round 1
Completed

n-gage.io

Sector: SaaS
Target Sought: £ 150,000
Funds Raised: £ 170,000
Round: Round 1
Investment Type: Equity
Tax Schemes: EIS, SEIS
Learn More about n-gage.io
Finance Nation
Round 1
Completed

Business Finance Market (trading as Finance Nation)

Sector: Fintech & Banking
Target Sought: £ 150,000
Funds Raised: £ 225,000
Round: Round 1
Investment Type: Equity
Tax Schemes: EIS, SEIS
Learn More about Business Finance Market (trading as Finance Nation)
GCV
Round 1
Completed

Growth Capital Ventures

Sector: Fintech
Target Sought: £ 500,000
Funds Raised: £ 561,000
Round: Round 1
Investment Type: Equity
Tax Schemes: EIS, SEIS
Learn More about Growth Capital Ventures
GCV
Round 2
Completed

Growth Capital Ventures

Sector: Fintech
Target Sought: £ 1,000,000
Funds Raised: £ 1,290,410
Round: Round 2
Investment Type: Equity
Tax Schemes: EIS, SEIS
Learn More about Growth Capital Ventures
Cathedral Gates
Completed

Cathedral Gates

Sector: Property
Target Sought: £ 400,000
Funds Raised: £ 2,000,000
Investment Type: Equity & Debt
Learn More about Cathedral Gates
Middleton Waters
Completed

Middleton Waters

Sector: Property
Target Sought: £ 2,200,000
Funds Raised: £ 7,000,000
Investment Type: Equity & Debt
Learn More about Middleton Waters
The Langtons
Completed

The Langtons

Sector: Property
Target Sought: £ 700,000
Funds Raised: £ 3,000,000
Investment Type: Equity & Debt
Learn More about The Langtons
Thorpe Paddocks
Completed

Thorpe Paddocks

Sector: Property
Target Sought: £ 1,000,000
Funds Raised: £ 6,000,000
Investment Type: Equity & Debt
Learn More about Thorpe Paddocks
CoreHaus
Completed

CoreHaus

Sector: Advanced Manufacturing
Target Sought: £ 2,000,000
Funds Raised: £ 1,000,000
Investment Type: Equity
Learn More about CoreHaus
Atom Bank
Round 1
Seed
Completed

Atom Bank

Sector: Fintech & Banking
Target Sought: £ 1,000,000
Funds Raised: £ 1,100,000
Round: Round 1
Investment Type: Equity
Learn More about Atom Bank
Finance Nation
Round 2
Super Seed
Completed

Business Finance Market (trading as Finance Nation)

Sector: Fintech & Banking
Target Sought: £ 1,000,000
Funds Raised: £ 800,000
Round: Round 2
Investment Type: Equity
Tax Schemes: EIS
Learn More about Business Finance Market (trading as Finance Nation)
Finexos
Round 3
Growth
Completed

Finexos

Sector: Fintech & Banking
Target Sought: £ 500,000
Funds Raised: £ 695,456
Round: Round 3
Minimum Investment: £ 500
Investment Type: Equity
Tax Schemes: EIS
Learn More about Finexos
Finance Nation
Round 3
Series A
Completed

Business Finance Market (trading as Finance Nation)

Sector: Fintech & Banking
Target Sought: £ 250,000
Funds Raised: £ 278,855
Round: Round 3
Minimum Investment: £ 1,000
Investment Type: Equity
Tax Schemes: EIS
Learn More about Business Finance Market (trading as Finance Nation)
CoreHaus
Growth
Completed

CoreHaus

Sector: Advanced Manufacturing
Target Sought: £ 2,000,000
Minimum Investment: £ 5,000
Investment Type: Equity
Tax Schemes: EIS
Learn More about CoreHaus

FAQs

Find out more about investing with GCV

Should you have any further questions regarding the venture capital investment opportunities we offer at GCV, and how to invest with us, you can contact our Investor Relations Team at any point - but we have provided a selection of frequently asked questions below.

  • The central investment hub and co-investment platform for the GCV private investor network, GCV Invest brings together a cohort of online and offline, private and institutional investors who all share one common mission - to access growth-focused, impact-driven alternative investment opportunities.

  • At GCV we only advertise a select number of venture capital opportunities on our co-investment platform every year. Though, as with any early stage opportunity, returns cannot be guaranteed, our experienced investment team employs rigorous due diligence and partnership processes to ensure portfolio companies are well-poised to deliver considerable growth as well as positive impact. 

  • Targeting base-rate investor returns of 10x money-on-money (not guaranteed) at GCV we source VC opportunities that reside in a variety of sectors but that all share two defining features - high target growth and an impact-driven mission.

  • GCV Invest was launched to help experienced investors build a more diversified growth-focused investment portfolio.

    The GCV Invest co-investment platform has been built for clients that meet the following criteria:

    Is a Family Office, Institutional Investor, HNWI or Sophisticated Investor, seeking to invest alongside like-minded individuals and connect with the alternative investment ecosystem. Is looking to deploy over £10k in alternative investment opportunities per annum.

  • You can sign up to the GCV Invest co-investment platform directly here, but if you have any further queries, or would like to register your interest first person with our Director of Investor Relations, Dan Smith, you can contact him via this email - dan.smth@growthcapitalventures.co.uk

  • We charge no upfront fees for being part of our investor network, having access to our opportunities or investing into our opportunities.

    For investors, fees are only charged at the point of a liquidity event occurring (such as a trade sale or IPO). At this point, 7.5% of the investment gain is charged before funds are provided back to you as an investor.

    Whilst dividend payments should not be expected from early stage investing, if and when they are paid, 7.5% of the dividend amount is charged to investors.

Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.

Driving Growth.
Creating Value.
Delivering Impact.

Backed by

Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.