SJP - VCT Guide

45 44 RESEARCH AND DUE DILIGENCE RESEARCH AND DUE DILIGENCE Case studies Disclaimer The following case studies are designed to demonstrate a number of different scenarios that might apply to certain prospective investors. Nothing here should be viewed as advice. Partners should consider, among other things the St. James’s Place Advice Framework, the impact of charges (including any initial fees as well as annual charges) and the quantum of tax relief that might be available to a particular prospective investor. Any suitability decisions should be based on a comprehensive review of a client’s objectives, needs, capacity for loss, investment experience and attitude towards risk. Further help and advice Regularly updated content on VCTs is available via Techlink on the Services menu of the intranet: www.sjpvct.techlinkcpd.co.uk Educational content is also available from Intelligent Partnership, which produces a CPD accredited VCT report. The reports are available at: www.intelligent-partnership.com/research- format/publications Nevertheless, if the company is doing well, even without participation in follow on rounds, the smaller percentage of the company held by the shareholder should have a larger value than before the investment round. This is because the price of shares in new funding rounds is likely to rise as the company becomes more successful and this valuation is applied to the business as a whole. In terms of investees, as a general rule, the riskier the underlying investments are, the greater the level of diversification should be. However, some research suggests that beyond a certain point diversification can go too far and that the additional costs incurred do not bring any additional diversification benefits. Partners need to be confident that the VCT is not overly-diversified. VCT funding stage £10K Concept & seed stage Start-ups Early-stage Later-stage £50K £100K £500K £1m £2m £5m £10m £100m Amount Invested IDEA GENERATION IDEA EVALUATION PRODUCT DEVELOPMENT/ LAUNCHING EXPANSION & MARKETING PROFIT GENERATION Seed • Grants • Business Angels • Venture Capital • Banks Series A • Publicly backed Venture Capital • Private Venture Capital • Banks Series B • Private Equity • Private Venture Capital • Banks