Private equity and venture capital
Private equity
Investing in management buy-outs of unlisted companies
Venture capital
Investments used to fund a new business venture (or ‘start-up’) in early stage expansion
Development capital
Investing in later stage expansions which may lead to a company being listed on the stock exchange
It is possible to invest directly in companies or buy-outs and, more commonly, invest through a fund.
The structure of private equity and venture capital investments can limit accessibility for charities, particularly those with Responsible Investment policies. For example, most venture capital investments are through a limited partnership or a Venture Capital Trust (VCT). The minimum investment for limited partnerships is often more than £1million and the tax breaks and incentives associated with VCTs do not all apply to charities.
There are also financial risks involved in investments in small and start-up companies which charity trustees should investigate.
Responsible Investment issues include
- the company’s core business activities
- whether the company is well-managed
- whether the company acts sustainably.
Some people believe that Venture capital (as distinct from buy-outs) is intrinsically a Responsible Investment as it
- directly encourages economic activity and growth
- creates employment and other social benefits
Venture capital may provide attractive investment options if your charity has an interest in the environment, regeneration, health or learning.
Positive screening
Responsible Investment in private equity and venture capital lends itself to a positive screening approach. There are a number of specialist funds which invest only in responsible companies in specific sectors.
Engagement
Private equity and venture capital investments tend to allow investors to be closer to the management of the company than with listed equities. This creates the opportunity for more detailed and developed engagement.
Snowball is a diversified, multi-asset investment vehicle that aims to make impact investing easier and more liquid for individuals and businesses. It aims to create positive outcomes for people and planet whilst generating sound financial returns.
Bridges Ventures invests in companies based in regeneration areas and/ or sustainable business sectors such as education, healthcare and the environment.
Impax Asset Management has launched private equity and venture capital funds within the environmental sector, particularly in alternative energy, waste management and water treatments.
Quadris Environmental Investments has provided opportunities to invest in forestry.
Thrive Renewables has allowed smaller investors to invest in the renewable energy sector.
Ventus is a specialist venture capital trust established to invest in a portfolio of companies that will develop, construct and operate small on-shore UK wind projects typically consisting of between one and six wind turbines.
WHEB Ventures Ltd manages a private equity fund for investment in early stage clean technology companies.
Disclaimer
The featured products have been selected as examples only. The inclusion of a particular fund does not imply an endorsement of it. Moreover, the use of an example does not imply a recommendation of it over any other example or further example used or of any product not listed.