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New report reveals VCTs’ focus on high-growth, innovative businesses since 2017 rule changes

VCTs have invested in over 181 innovative businesses with high potential for growth since November 2017, according to a new report from the Association of Investment Companies (AIC). Butterfly effect: The transformational potential of VCT investment, surveys investment by venture capital trusts (VCTs) since November 2017 when new rules were introduced directing the tax-advantaged vehicles towards higher-risk investments.

VCTs are able to invest in businesses with up to 250 employees: however, these businesses employ an average of 38 people each and nearly half of them (45 per cent) have fewer than 25 employees.
 
These dynamic small businesses generated GBP395 million of sales in 2019 of which GBP126 million were exports. However, no company in the survey reported sales of more than GBP5 million for the last financial year.
 
Knowledge-intensive companies2 made up 28 per cent of the 181 businesses in the survey, and 37 per cent of VCT investment was directed outside London and the South-East. The report contains 25 case studies of companies that have received investment since the 2017 rule changes.
 
The AIC today also published the amount of money raised by VCTs for the 2019/20 tax year. The sector has raised GBP619 million for investment in small businesses. Whilst this is lower than in 2018/19 reflecting the uncertainty and disruption caused by Covid-19 it demonstrates continued strong demand for VCTs. A table of historic VCT fundraising is included below.
 
Ian Sayers, Chief Executive of the Association of Investment Companies (AIC), says: “Whilst this report was prepared before COVID-19 reached the UK, it demonstrates how VCTs are supporting many of the UK’s most innovative smaller companies with high potential for growth in sectors as diverse as healthcare, retail and green technology. VCTs offer an effective way of bridging the finance gap for young companies and the UK stands to reap significant benefits by continuing to nurture an environment where small businesses can grow and thrive.
 
“The GBP619 million raised by VCTs over 2019/20 demonstrates that demand for VCTs remains high, despite the uncertainty caused by coronavirus. VCTs celebrate their 25th anniversary this year and the businesses they back have the potential to deliver important economic and social benefits, from exports and increased tax take to innovative technology and jobs.”

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