Experts say the Venture Capital Trust market is set to level out in 2024, but warn it will still be challenging to raise funds.
Andrew Wolfson, founder and CEO of Pembroke VCT, expects there to be more pressure on valuations in 2024.
He said: “2024 is going to be hard work. The companies that are going to achieve fundamentally will achieve, but fundraising is still going to be difficult.
“It is not a disaster though, having a downturn can provide opportunities.
“One of the things I think is more under pressure this year is valuations.
“For the last five years they have written cheques at daft valuations. When they come back down to earth there is going to be a fair amount of pain for early stage businesses that were valued as unicorns based on thin air.”
The Pembroke VCT was set up in 2013 and now has a portfolio of 44 companies worth more than £214mn.
In general, Wolfson said there was a significant uptick in money coming into VCTs in March, before the end of the tax year, despite fundraising starting in September.
He said: “For a young, early stage VCT it is an anxious time, simply not knowing and only have four or five weeks of fundraising to go.
“Advisers and individuals tend to push everything to the end, but there is no point and no benefit to waiting.
“The ones that fill up are the ones that everyone is waiting to come out of, then there is a trickle down effect.”
Delay to capital raising
Bill Nixon, managing partner at Maven and fund manager of the firm's four VCTs, agreed things would not be plain sailing in 2024, but expected the market to pick up at the end of 2024.
He said in early 2023 there were low levels of activity with companies choosing to delay raising capital due to depressed valuations.
Nixon expected to see a slower rate of fundraising in 2024, compared with previous years, and thought it could be a later fundraising season this year.
He added: “What we saw in the second half of 2023 was the breaking of that logjam with valuations and activity levels starting to recover.
“At Maven our VCTs had a very strong second six months of the year and in fact completed three transactions alone in December.
“So, the market is normalising, we're starting to see more activity and more confidence on the back of declining interest rates with activity levels going back to where they were.”
Threats to VCTs
Though he warned that the largest threat to this uptick was geopolitical risks and for advisers and investors he recommended looking beyond London.
Nixon said: "The market for capital remains very competitive and it's important, I think, to invest with managers who are non London-centric where deals are competitive, and pricing is still frothy."
