More opportunities for VCT investment

16 November 2023

A lack of funding poses the biggest challenge to start-ups, offering more opportunities for VCT investment, a new report from the Venture Capital Trust Association has shown.

More than a third (36%) of the 119 firms surveyed by the trade association cited insufficient capital as the most significant barrier to growth. Although the UK remains within the top five global markets for venture capital investment, research from Dealroom and HSBC Innovation Banking found that $4.9 billion was invested in UK start-ups in the third quarter of 2023, a sharp decline of more than 60% from the market peak in the first three months of 2022.

However, VCTs – evergreen funds that provide capital to growing companies – are bucking the trend. The latest figures from the Venture Capital Trust Association show that VCT investment grew in 2022 to £664 million from £613 million the previous year.

Talent was also identified as an ongoing challenge for many companies, with 17% of respondents identifying a lack of tech talent as their biggest barrier to growth. A much lower number cited macro issues such as inflation (14%) and regulatory uncertainty (11%) as issues.

Despite this, the research found entrepreneurs remain positive towards the UK, with 73% identifying the UK as an attractive place to grow a company.

Will Fraser-Allen, chair of the VCTA, said the vital role of VCTs in the investment ecosystem has “never been clearer”.

He said: “We are delighted to see that, despite the tough economic and investment climate, fast-growing scale-ups continue to back the UK as a place to grow and there is substantial demand for the capital and talent required to drive further expansion.

“VCTs provide critical investment in dynamic growth companies and we look forward to continuing this with the support of both the entrepreneurial community and government policy which has continued to take positive steps towards extending the VCT scheme.”

Richard Stone, chief executive of the Association of Investment Companies, added: “VCTs successfully help companies overcome these obstacles by providing essential scale-up capital and support which helps founders realise their aspirations. This is particularly important during economic downturns, when funding is even harder to come by and VCTs may be the only source of capital.

“The optimism of these ambitious companies about the UK’s position as a tech hub and a good place to do business bodes well for the future.”

Main image: rodeo-project-management-software-ONe-snuCaqQ-unsplash

Professional Paraplanner