Clearwater launches £20m VCT
Birmingham-based Clearwater Corporate Finance has launched a £20m venture capital trust (VCT) aimed at sector deals with smaller buyout and growth capital investments. The trust is a joint venture alongside fund manager Foresight Group.
The firms said the move was in response to a significant fall in bank lending, coupled with private equity firms targeting the larger end of the market. Clearwater told Insider it would also allow entrepreneurs to take advantage of the 400 per cent rise in Entrepreneurs’ Relief.
“There is a lack of funding to support small businesses and small transactions,” said Mike Reeves, a managing partner with Clearwater. “While Clearwater’s average deal value has gone up each year, we’ve never wanted to lose sight of businesses at the smaller end of the market because there are some good opportunities there.
“One way of enabling us to continue working with those businesses is to help to offer them funding. The VCT is targeting a £20m fund raise, but by its nature will only be able to invest about £1m per year, although you will be able to co-invest alongside that. It will ensure that more money is put into the economy and into those kinds of transactions.
“I don’t think private equity has been as active on origination as it could have been so I think our VCT will offer a better access to deal flow and businesses for investment.”
The Foresight Group is based in Kent, and specialises in unquoted investments.
The Foresight Clearwater VCT will focus on UK buyout and growth capital opportunities requiring total funding of less than £10m.
Ernie Richardson, chairman of the VCT and venture partner at MTI, said demand for capital in this market looks set to be boosted by the rise in the limit on Entrepreneurs’ Relief from £1m to £5m – which came into effect in 2010.
“Sellers of a business can qualify for a reduced capital gains tax rate of 10 per cent in certain circumstances, a benefit that is now available in relation to an additional £4m in each individual’s lifetime,” he said.
“The increase in the amount of gains that can benefit from this relief may encourage business owners to sell all or part of their ownership, creating investment opportunities for Foresight Clearwater VCT while supply of capital from other sources is constrained.”
He added that the two firms believe that closer direct contact with a wider market of investment targets will provide a “competitive advantage” over other potential sources of funding.
The news comes as Clearwater has reported a 47 per cent rise in deal activity in 2010 compared with the previous year. The total value of deals the firm advised on rose to £556m in 2010, compared with £378m in 2009.
This increased the firm’s average deal value to £24m compared with £22m in the previous year. The most active sector for the firm in terms of volume was support services, accounting for 40 per cent of deals.
