Variable Capital Company (VCC): A Flexible Investment Structure for Venture Capital and Private Equity Funds

Venture Capital Funds are an important tool for investors looking to invest in promising startups and early-stage businesses. One common vehicle for Venture Capital Funds is the Variable Capital Company (VCC). In this article, we will discuss the situations in which a VCC may be the appropriate fund vehicle and when it is not.

What is a VCC?

A VCC is a fund vehicle that was introduced in Singapore in 2020. It is a flexible and tax-efficient investment structure that allows for the pooling of capital from multiple investors. The key feature of a VCC is its variable capital structure, which allows investors to subscribe and redeem their shares without affecting the legal capital of the company. This means that investors can easily enter and exit the fund, and the fund manager can adjust the fund size accordingly.

When to use a VCC:

1. For Venture Capital Funds: VCCs are particularly suitable for Venture Capital Funds due to their flexible and tax-efficient nature. Venture Capital Funds typically invest in startups and early-stage businesses, which can be high-risk but have the potential for high returns. The variable capital structure of a VCC allows for flexibility in managing the fund’s size, which can be useful when investing in early-stage companies where the investment amount may be uncertain.
2. For Private Equity Funds: VCCs can also be suitable for Private Equity Funds that invest in companies that are not listed on a stock exchange. Private Equity Funds typically have a longer investment horizon than Venture Capital Funds, which makes the flexibility of a VCC beneficial in managing the fund’s size over the long term.
3. For Fund Managers: VCCs are particularly attractive to fund managers because they offer a streamlined and cost-effective way to set up a fund. The VCC structure also provides flexibility in the distribution of profits, allowing fund managers to manage distributions to investors more efficiently.

When not to use a VCC:

1. For Publicly Traded Companies: VCCs are not suitable for publicly traded companies because they are not listed on a stock exchange. Publicly traded companies require a different type of fund vehicle that meets the regulatory requirements of the stock exchange.
2. For Funds with Fixed Capital Structures: If a fund has a fixed capital structure, a VCC may not be the appropriate vehicle. VCCs are designed to have a variable capital structure, which allows for flexibility in managing the fund’s size. If a fund has a fixed capital structure, it may be more appropriate to use a different type of fund vehicle.

Takeaway:

VCCs are a flexible and tax-efficient investment structure that is particularly suitable for Venture Capital and Private Equity Funds. The variable capital structure of a VCC allows for flexibility in managing the fund’s size, which can be beneficial when investing in early-stage companies where the investment amount may be uncertain. However, VCCs may not be appropriate for publicly traded companies or funds with fixed capital structures. It is important to carefully consider the specific needs of a fund before choosing a fund vehicle, and to seek professional advice if necessary.