By Fiona Henderson The objectives for unquoted companies have changed over the past 18 months lea...
By Fiona Henderson
The objectives for unquoted companies have changed over the past 18 months leading to changes in the way potential investors assess the group, according to Richard Hargreaves, managing director at Classic Fund Management.
He said: "Last year, we would have been very positive on a company which said it wanted to become quoted by the end of the year. Now, however we would be very sceptical."
"Our attitude to companies we invest in has changed in that we prefer those that are not too ambitious or have plans that will cost too much money. We would invest £1m in a company that may need another £1m a year later but not in one that knows they will need a further £10m a year on.
"It is sometimes worth these companies trying to become listed on Aim as it is a market that has VCT managers looking to invest.
"However, there is still the danger of very low share prices.
"It is definitely not viable any more for a company to become listed on another index as there is simply less demand from investors to buy into small companies in the present environment."
He said the market as a whole needs to regain investor confidence after the seeing a period of calm.
He added: "It is very difficult to predict when this will arrive and for now it is advisable to be more realistic about the progress a company is likely to make."
Ben Yearsley, investment manager at Hargreaves Lansdown said he does not believe VCT managers have necessarily changed what they are looking for, be it a company looking to float now or one waiting for a more positive market sentiment.
While he noted it its harder for companies to float today, especially technology companies, the lower prices offered has brought some sense to the market.
Investors should not be looking at companies just because they are planning to float in say a year's time, Yearsley said.
"Venture capital trusts should always be seen as long-term investments and will rarely make returns over a period of one year anyway."
The negative sentiment on technology has had some positive impact on businesses venture capitalists are looking at, Hargreaves agreed. "It makes it more difficult for smaller companies to raise money. This means that investors who do want to buy into technology can get in at very attractive valuations."
The negative sentiment towards technology means that even if a company could manage to get an offer under way the share prices would be extremely low, he said.
While he noted that the technology cycle is one that everybody has seen before in other sectors, this time it has been more extreme.
Despite this, Hargreaves believes technology remains an attractive area provided the companies are small.
He added: "There is the possibility of tremendously high returns if you are financing an unquoted company rather than depending on market prices."
Classic Fund Management runs the Downing Classic VCT, Downing Classic VCT 2, Downing Classic VCT 3, iNET VCT and co-manage the Pennine Downing Classic VCT.
Hargreaves said: "Over 40% of all these VCTs will be invested in technology oriented stocks and the iNET VCT is technology specific."
Achievements, charity work and other happy snippets
Laughable excuses for persisting
Spent 56 years at Schroders
Warns on profits