British Smaller Companies VCT2 2025: modest Total Return, busy dealflow, and exits that matter
British Smaller Companies VCT2 plc has published its audited results for the year to 31 December 2025. In a choppy market, the VCT delivered a 2.4% return on opening net assets, nudged up Total Return by 1.30 pence per share, and kept the exit wheel turning with £15.7 million of realisations.
If you are new to VCTs: net asset value (NAV) is the per share value of the portfolio and cash; Total Return is NAV plus cumulative dividends, which shows the full long‑term outcome for investors.
Key numbers retail investors will care about
| Metric | 2025 |
|---|---|
| NAV per share | 54.40p (2024: 57.10p) |
| Increase in Total Return | +1.30p to 147.65p |
| Dividends paid | 4.00p per share |
| Portfolio fair value | £112.3 million |
| Portfolio return | £6.1 million, 5.8% over opening value |
| Realisations | £15.7 million proceeds, £2.2 million gain over opening carrying value |
| New and follow-on investments | £16.1 million across 17 companies |
| Cash and money markets | £63.8 million, 35.8% of net assets |
| Ongoing charges | 1.95% |
NAV down, Total Return up: what’s going on?
NAV per share fell to 54.40p, mainly because the Company paid out 4.00p in dividends during the year. After accounting for those dividends, Total Return edged up by 1.30p to 147.65p. In VCT land, Total Return is the better yardstick of progress because dividends are a core part of the strategy.
What drove performance inside the portfolio
More than half of the portfolio increased in value. Standout uplifts came from:
- Summize and Xapien, each up by £3.4 million. Summize also completed a $50 million Series B in January 2026, and the VCT added £2.0 million after year end.
- Unbiased up £2.1 million as it grows in the UK and gains traction in the US.
- Vypr up £1.5 million and AutomatePro up £1.0 million.
There were also notable markdowns:
- Matillion down £3.1 million on slower revenue growth, lower valuation multiples and FX headwinds.
- Outpost down £1.7 million amid industry challenges.
- Vuealta down £1.1 million before its sale in January 2026; Wooshii down £1.3 million as the trading business was sold.
The sector mix leans firmly into software and data, with Application Software at 35% and Data at 21% of the portfolio by value. The largest single holding, Matillion, is 9.3% of NAV, so its recovery or otherwise will matter for 2026.
Exits and cash returns: why this matters now
Despite a subdued M&A market, VCT2 banked £15.7 million of proceeds, generating £9.7 million over cost. These exits free up cash for dividends and follow‑on funding, and they set valuation reference points that can support future marks. Highlights include:
- ACC Aviation: £3.1 million initial proceeds plus £1.5 million deferred expected, a 5.9x return on the original £1.4 million cost.
- SharpCloud: £5.8 million initial proceeds plus £0.6 million deferred potential, 2.0x rising to 2.2x with deferred.
- Elucidat: £3.6 million initial plus £0.5 million deferred potential, 1.3x rising to 1.45x.
- Teraview: partial sale in 2025 and completion post year end, 8.2x overall on £0.4 million cost.
- Post year end: Vuealta realised at 1.5x; Sipsynergy at c.0.3x.
The blend of multiple‑baggers and tougher outcomes is typical of early‑stage portfolios, but the net effect on cash has been positive and gives the Company optionality.
New investments and follow‑ons: where fresh capital went
Four new investments totalling £6.0 million joined the portfolio:
- DynaRisk – cyber risk solutions
- S4labour – workforce management
- Stormharvester – AI analytics for wastewater utilities
- TeamFeePay – payment platform for grassroots football
Thirteen follow‑ons totalled £10.1 million, largely into faster‑growing names such as Vypr, Workbuzz, AutomatePro, Fuuse, DrDoctor, Plandek and Xapien. The strategy is clear: double‑down on winners to compound value.
Dividends, DRIS and costs
Dividends of 4.00p per share were paid in the year, taking cumulative dividends to 93.25p. £2.0 million was reinvested through the Dividend Re‑investment Scheme (DRIS). The ongoing charges figure was 1.95%, with an expenses cap at 2.9% that was not breached.
One cost point to note for 2026: under the updated management agreement effective from 1 January 2026, the fee on surplus cash rises to 1.25% (from 1.00% previously) and the fee on other assets is 2.0% of net assets. The Company estimates the ongoing charges for 2025 would have been c.2.17% under these new arrangements. A performance incentive fee of £623,000 is payable for 2025 after the Hurdle was exceeded.
Liquidity and fundraising: plenty of dry powder
Cash and money market funds stood at £63.8 million at the year end, 35.8% of net assets, earning c.3.7% run‑rate. The VCT allotted £29.2 million in 2025 from the 2024/25 fundraising. For the 2025/26 offer, gross applications of c.£31.9 million have been received, with £9.4 million allotted in January 2026 and the balance expected to be allotted between 1 and 2 April 2026. Strong liquidity supports dividends, follow‑on rounds and new opportunities without resorting to asset sales at poor prices.
Regulatory backdrop: higher company limits, lower investor relief
The November 2025 Budget lifted annual and lifetime state‑aided investment limits for companies, which should help portfolio support. From 6 April 2026, initial income tax relief for new VCT subscriptions reduces from 30% to 20%. The Board expects established VCTs with solid track records to continue to meet fundraising goals, but the change may cool demand at the margin.
What I like, and what to watch
Positives
- Exit momentum in a slow market, with meaningful gains over cost and cash back for redeployment.
- Clear value creation in several software and AI‑aligned holdings, notably Summize, Xapien and Unbiased.
- Healthy liquidity at £63.8 million, giving flexibility for dividends and follow‑ons.
- Costs remain competitive for the sector, and the expenses cap provides reassurance.
Watch‑outs
- NAV per share declined as dividends outpaced gains. Future NAV direction will hinge on a handful of larger positions, especially Matillion at 9.3% of NAV.
- Fee terms step up modestly in 2026, which could nudge the ongoing charges higher.
- Lower initial tax relief from April 2026 may soften future fundraising, though demand in this offer looked strong.
Bottom line for shareholders
Against a tricky macro and weak software multiples, VCT2 delivered a small step forward in Total Return, kept dividends flowing at 4.00p, and realised £15.7 million at attractive overall gains. The portfolio is increasingly tilted to AI‑enabled software and data businesses where revenue growth can drive uplifts, while ample cash supports the plan to back winners harder.
If you are holding for tax‑free income and long‑term compounding, this reads as steady progress with some clear bright spots, tempered by a few challenged names. 2026 will likely be defined by whether the strongest performers keep scaling and whether the larger holdings recover ground as tech sentiment stabilises.
