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Commitment to VCTs best way to support UK’s enterprise economy

Continued support for venture capital trusts should be part of any future government’s plans to support innovation and growth in the UK’s small business community, a survey by the Association of Investment Companies has found.

The survey of 61 VCTs also found that the amounts invested by VCTs in small companies fall within the well documented equity gap of GBP2m to GBP10m. 

The average amount invested by VCTs in any single company was GBP2.5m. Recent market developments are expected to increase the VCT sector’s focus on standalone investment and acting as a substitute for lending where banks have withdrawn from the small business sector.

The main sector benefiting from VCT investment is the leisure and hospitality industry – just under 20 per cent of capital invested, followed by the business services sector – 13 per cent of the total.

The third largest sector (12 per cent or GBP120m) was industrial businesses including manufacturing, engineering and electronics companies – the subject of recent political interest.

Other sectors identified as political priorities included the environmental sector (six per cent or GBP62m) and healthcare including biotech (nearly nine per cent or GBP94m).

VCT investment supports job creation. The survey received employment data from 303 investee companies which experienced a 47 per cent increase in employment. Their total workforce at the time an investment was made was 17,219 and their total workforce at the time of the survey/divestment date was 25,402. The increase in employment was not evenly distributed, with 46 of the investee companies seeing a decline in numbers employed from 4,636 at time of investment to 3,076 at the time of the survey/divestment date.

Many VCT-backed firms undertake R&D and are successfully developing export markets despite their firms’ small size. In this research 88 investee companies disclosed dedicated R&D spending totalling GBP55.4m, a significant level of activity in comparison to other smaller companies. A total of 102 investee companies provided data on the level of their turnover derived from exports. The total exports were GBP303m (from a total of turnover of GBP920.7m), averaging nearly GBP3m per company.

A further 87 per cent of VCT investee companies had a VCT representative join their board.

Ian Sayers (pictured), director general of the Association of Investment Companies, says: “This research demonstrates that VCT investment provides substantial benefits for UK small businesses and the economy. We urge policymakers to reaffirm their commitment to VCTs which are the best way to support enterprise and future economic growth. 

“Companies across the country with the potential for growth have received capital and management input from VCTs which has boosted their performance and increased employment. They operate in a way which, in the short to medium term, pays for itself and over a longer period creates capacity for higher tax revenues.”

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