Managers of venture capital trusts (VCTs) have called on political parties to do more to help unlock the potential of small, high-growth businesses.
While both the Conservatives and Labour have been promoting a pro-growth agenda in the run up to the general election, and the Liberal Democrats have vowed to support small businesses and start-ups, VCT managers have said there is “still work to be done” and called for greater support and reform of the VCT sector.
Richard Stone, chief executive of the Association of Investment Companies, said: “The VCT scheme has demonstrably boosted growth, created jobs and provided investment opportunities for investors, but there is still work to be done. To ensure that the scheme can continue to flourish and boost growth in regions around the country, we need certainty for long-term investors and businesses looking to scale so they can invest with confidence.”
A leading priority for the sector is to ratify the decision to extend the so-called sunset clause, which extends VCT tax reliefs until at least 2035.
Chris Lewis, chair of the Venture Capital Trust Association (VCTA), said: “We look forward to the next government securing the remaining EU approval of the extension to the sunset clause. The industry needs urgent clarity and confirmation on this.”
Managers also called for a change to the current age limits for companies to qualify for EIS and VCT schemes, arguing that it disproportionately affects regional companies. Currently, VCTs are expected to invest in companies that are less than seven years old from the date of their first commercial sale.
However, research from the VCTA found that the average age of a business considering funding in Greater London is just over five years, increasing to seven years across the rest of the UK. This means that many businesses outside London are already too late for the VCT scheme by the time they are considering funding.
To address the imbalance, the VCTA has called upon the government to raise the age limit from seven to 10 years for VCT funding and from 10 to 13 years for knowledge intensive businesses.
The VCT sector would also like to see the next government increase investment limits. The annual and lifetime limits have remained unchanged since 2015, despite high inflation.
The VCTA has urged the government to consider raising the annual limit to £6.5 million and £15.5 million for knowledge intensive companies, and increasing the lifetime limit to £16 million, with a commitment to reviewing these levels every three years.
Trevor Hope, CIO at Gresham House Ventures, said: “The UK is lagging behind other markets, such as the US, in providing innovative companies with the capital required during their intensive scale-up phase. Abolishing the VCT sunset clause and evolving the investment restrictions around the age and size of the companies that VCTs can invest in would significantly enhance their effectiveness.”
VCT managers agree that the sector plays an important role in scaling companies that have a direct impact on job creation and believe it has the potential to boost the UK economy and the NHS going forward.
Mark Brownridge, strategic relations director at Blackfinch Group, commented: “Through our VCT and EIS funds, we have invested in numerous innovative startups across various sectors, including technology, healthcare and sustainable materials. These investments have not only supported the growth of these businesses but have also created jobs and contributed to economic development.”
Hope said: “We believe the future of national health care includes the NHS outsourcing areas of innovation and expertise where private companies can provide an efficient and specialised service with greater value for money outcomes.
“At Gresham House Ventures we are investing in companies that are driving digital innovation in the healthcare sectors. This includes our investment in Mable Therapy, a digital healthcare platform that offers speech and language therapy to children. Its work has greatly enhanced the efficiency of therapeutic outcomes and is helping to clear the significant backlog in cases that the NHS is unable to resolve through traditional pathways.”
