VCTs provide ‘patient’ capital to UK businesses enabling them to more than double their turnover (an increase of GBP2.2 million per GBP1 million of VCT investment) and have also helped to created 27,000 jobs, according to the Association of Investment Companies (AIC).
A review by the AIC shows that 54 per cent of all current VCT investee businesses have been held by those VCTs for longer than five years, while 20 per cent of all businesses have been held for longer than 10 years. VCTs have also boosted exports and R&D in investee companies.
HM Treasury, which is currently conducting its own review – Financing Growth in Innovate Firms – looking at how the UK investment community can support growing innovative firms by providing increased access to long-term investment, wants patient capital to be available to businesses across the UK. The AIC’s review found that 46 per cent of VCT investment has been made to businesses located outside London and the South East.
Since rule changes in November 2015 that focus VCT investment more closely on young companies, over 100 investments with a value of GBP213 million have been made. For example, Livingbridge VCTs invested in online fashion retailer In The Style in May 2017 to help the business grow its management team and warehouse operations, and enter markets in America and Australia.
In addition, Calculus VCTs invested in Weedingtech, which designs and manufactures herbicide-free weed control systems, in December 2016. Weedingtech’s core product kills weeds and moss using close to boiling water encapsulated in environmentally friendly organic foam. It responds to environmental and health concerns raised by certain chemicals. Calculus VCTs invested to boost Weedingtech’s sales, manufacturing and product development capabilities.
Achieving growth is the fundamental ambition of VCTs and in the current VCT portfolio, every GBP1 million of investment has been accompanied by an average increase of GBP2.2 million in turnover. Over a longer period this growth has been greater, with businesses receiving investment more than five years ago achieving average turnover growth of GBP3.9 million per GBP1 million invested. Those who received funds over 10 years ago performed even more strongly, with an average turnover of GBP8 million per GBP1 million invested.
VCTs invest for the long term and providing follow-on finance is a key aspect of this approach. Many investee companies have been able to rely on continued financial support to move them to the next stage of their commercial development. The AIC’s review found that 60 per cent of companies* received more than one investment, whilst almost half (44 per cent) received more than two investments.
Ian Sayers (pictured), Chief Executive of the Association of Investment Companies, says: “VCTs have provided vital scale up capital for the UK’s smaller companies, the engine of the UK economy. Entrepreneurs also have benefited from the support of expert fund managers seeking out the commercial potential of new technology and entrepreneurs with the skills and ambition to make a difference.
“VCT investment boosts smaller companies across the UK. It targets younger companies with a majority of businesses receiving funds being less than a year old. The AIC’s review demonstrates VCTs are an essential way in which small businesses secure access to long-term finance.”