MANAGING PARTNER OF BERINGEA AND CHAIRMAN OF THE VCT ASSOCIATION
Investors across the UK are seeking to help entrepreneurs navigate the turmoil and turbulence of COVID-19. In some instances, we can offer guidance and insights drawn from our experience of the financial crisis, or perhaps the Dotcom bubble.
However, this advice can only provide so much support to an entrepreneur that has seen revenues dry up overnight. There are many businesses that simply require urgent financial support to sustain themselves through this unprecedented period.
I am currently Chairman of the Venture Capital Trust Association (VCTA), which represents ten of the largest Venture Capital Trusts (VCTs) in the UK. VCTs invest in high-growth small businesses that meet a set of criteria set by Government legislation. In turn, private investors in VCTs benefit from a tax relief designed to foster investment into innovative, scaling businesses.
The members of the VCTA constitute more than 75 per cent of the VCT industry, managing £3.3 billion, support over 600 high-growth companies with more than 80,000 employees. These businesses generate over £16bn of sales, of which a quarter are exports, building hugely important drivers of the economy across emerging industries, such as fintech and AI, through to established markets, such as retail, healthcare and manufacturing.
However, VCTs are restricted from investing in businesses that do not fit the Government criteria for a qualifying business. For example, there are limits on the amount of VCT funding that a business can receive over its lifetime, and companies with more than 250 employees or gross assets of more than £15m do not qualify.
In an ordinary world, these regulations have a clear purpose to support innovative, early-stage companies that strengthen the UK economy and its advanced industries. However, these restrictions are jeopardising the future of perfectly good businesses in the current environment.
Many of these companies urgently require funding to support them through this crisis. The VCTA has, therefore, made a proposal to the Government to relax the rules around VCT investments to enable these companies to secure funding, navigate this economic upheaval, and return to stability and growth when we emerge from the crisis.
We have, therefore, proposed that we amend the following rules until 2021:
We believe that these simple and temporary relaxations of the VCT rules will be able to channel vital funding to start-ups and scale-ups throughout the UK. The members of the VCTA currently have more than £500m immediately available for investment, and we hope that we can soon put this money to vital use for British businesses.
We are having a valuable dialogue with Government to review these proposals, and we hope that we can together develop a solution that ensures VCTs can help to secure the future of the entrepreneurial engines of the UK economy.