The VCT market raised just £219 million in the 2007-2008 tax year, compared to £269 million in 2006-2007, and £790 million in 2005-2006. This figure is likely to have been impacted by deteriorating market conditions, and revisions in the 2007 budget - limiting the funds raised under the scheme by investee companies to £2m in any 12 month period, and restricting the number of employees to 50. Specialist VCTs dominated the market and accounted for nearly 50% of funds raised, followed by generalist VCTs, which accounted for nearly 40% of funds raised.

The majority of the VCT supply for the current tax year is focused on capital preservation; 'limited life' VCTs, which have strong defensive characteristics, currently account for more than 50% of total VCT supply. Nevertheless, volatile markets and tighter restrictions on bank lending are likely to push smaller businesses to find alternative sources of capital going forward, which may provide interesting opportunities for VCTs focused on capital growth. Historically, VCTs that launch during periods of downturn - such as the Baronsmead VCT and ProVen VCT series - tend to perform relatively well, as they are able to drive hard bargains with undercapitalised businesses.

The secondary market for VCTs still remains very illiquid. Several VCT managers have launched initiatives to encourage liquidity in the secondary market, including buyback schemes and VCT portfolios, however the effects have been minimal. Investors in secondary VCT shares have the opportunity to invest in a more mature portfolio of businesses and can benefit from tax-free dividends and disposals.

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