London, 8th June 2022 – The Venture Capital Trust Association (VCTA) has submitted its response to the Treasury Select Committee inquiry into the UK’s Venture Capital industry, which addresses the effectiveness of tax incentives, the ability of firms to source financing to scale up, regulatory efficiency, and how the industry can be strengthened to support the UK economy post-Covid.
Will Fraser-Allen, Chair of the Public Policy Committee at the Venture Capital Trust Association (VCTA), said:
“Venture Capital Trusts are funds which play a vital role in the UK funding ecosystem, supporting businesses to move from early stage towards full commercialisation.
“The VCT scheme is working exceptionally well, with over 1,000 of the most ambitious companies across the UK currently benefitting from VCT funding. These firms span sectors as diverse as digital technology, medicine development, advanced manufacturing, and retail.
“Entrepreneurs are currently seeking support from VCT funds without knowing if they will be able to continue to receive funding beyond April 2025, due to existence of a Sunset Clause which would see the scheme expire. We believe that the government should send an early signal to the industry and entrepreneurs to reassure these high-growth, small businesses that VCTs will continue to be backed by the UK government with the scheme made permanent or the clause extended, so that it can continue beyond 2025.”
Delivering Growth as economy faces an uncertain future
With £6.3 billion currently invested in VCTs, the VCTA represents 90% of the VCT industry.
According to new data released by the VCTA, VCTs invested £668.6m in new and follow-on investments in UK-based small private businesses and Alternative Investment Market companies in 2021. Throughout the pandemic, £1.2 billion was invested in UK SMEs.
The VCTA’s submission highlights the extent to which VCT investments help businesses to grow fast, helping to tackle the scale up challenge. Over the past three years, unquoted VCT companies have increased sales by 62.5%. And since 2018, VCTA backed business have on average increased export sales by 275% to £1.1m in 2021.
Over the last financial year, VCTA-backed businesses delivered £12.5 billion in revenues, generating £3 billion in exports. Exits from successful VCTA backed businesses valued those businesses at £7.6 billion in 2021.
According to the VCTA, the role of VCTs in supporting successful entrepreneurs will become even more important as economic conditions become more challenging.
Will Fraser-Allen added:
“Equity capital has been crucial in enabling businesses to continue to grow and drive the creation of high-value jobs, and it will continue to be essential as the economy faces an uncertain future with the challenges of the invasion of Ukraine, the cost-of-living crisis and accompanying inflation. Despite these challenges, VCTs have, in 2021/22, successfully leveraged a further £811.8m with £347.9m of tax relief.”
£391m of VCT tax-relief delivers £1.16 billion of investment in high-growth businesses
According to the VCTA, of the £1,3 billion of funds raised in 2019/20 and 2020/21, £391.1m of tax relief was granted. Given the lag between raising capital and investing it, investment activity is best measured by the £1.2 billion invested in the following two years.
Therefore, the £391m of tax relief was followed by £1.2 billion of investment into high-growth businesses during the pandemic, supporting businesses when they found it difficult to source other forms of support.