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AIC warns of dangers of neglecting VCTs

The Association of Investment Companies says the Rowlands Growth Capital Review fails to consider venture capital trusts’ role in supporting the UK’s small business sector. 

It says the report correctly identifies that smaller companies face difficulties in securing growth capital, but believes the proposal for a new fund to bridge the funding gap is fraught with difficulties which have already been resolved for the VCT scheme.

Ian Sayers (pictured), acting director general, AIC, says: “The review team were asked to examine new mechanisms to support small and medium enterprises and it is easy to see the political attractions of novel policy initiatives. The danger is that novelty is favoured at the expense of existing mechanisms, such as VCTs, which have inbuilt advantages when it comes to quickly channelling funds to support smaller UK businesses.”

He says that unlike the “newfund” proposed in the Rowlands Report, VCTs are an established network with a track record of meeting companies’ funding needs. He adds that it would take years to establish an alternative with the same reach and expertise.

“VCTs are a unique private/public partnership which draw upon private investors’ savings to create funds targeted on entrepreneurial, innovative companies. Without VCTs pooling these funds, these resources would lie completely untapped,” says Sayers.   

“Finally, VCTs operate in a competitive market involving individual funds vying with each other to attract capital and secure the best investments. This weeds out lame-duck propositions, helps identify the companies most likely to provide future growth and employment and ensures that public funds are utilised as effectively as possible.  It is not clear how the proposed ‘newfund’ will benefit from the same competitive disciplines.”

Sayers says support for enterprise should be a top priority from all parties and forgetting how VCTs could be used to sustain a thriving small business sector would be an error.

“There is room for VCTs alongside other mechanisms and it will be important to resist the temptation to prioritise novelty over experience where long term support for the UK’s economic growth is concerned.”

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