Labour-sponsored Venture Capital Corporation - Common Characteristics

Common Characteristics

• Holding period
  • To retain the tax credit an investor has to hold on to the shares for a set time period, often eight years. If shares are sold before this time, the amount received in tax credits must be repaid to the government in what's termed tax credit clawback.

• Liquidity
  • Because of the nature of the holding period (often eight years), LSVCC shares usually can't be redeemed without paying penalty charges until the holding period is complete. Because of this decreased liquidity as compared with other investment instruments, LSVCCs are best for investors with longer time horizons who are able to hold their shares for the full holding period.

• Valuation
  • LSVCCs don't generally invest in publicly traded firms and that can make it more difficult to assess their value. With a stock that's publicly traded, the price that is quoted when the market closes is influenced by the opinions of investors, analysts and other market participants who have studied the company issuing the stock. Whereas LSVCC funds invest in private companies whose worth tends to be more difficult to assess and to determine.

• Risk
  • LSVCC fund companies are able to diversify their portfolio by investing in a relatively large number of firms thus decreasing overall risk. But this only holds to a certain degree. The companies have little track record and most are not publicly traded. Some will fail; others will stagnate. It’s the few that thrive that ideally provide the profit that makes up for the other losses.