The chancellor has made it clear that now is the time to invest. For the UK to shake off its sleepy productivity and lacklustre growth, we need to empower high-potential businesses to drive innovation and expansion. However, too many founders, particularly those outside London, find themselves locked out from funding.
I believe that with simple tweaks to the policy framework underpinning venture capital trusts, we could ensure that our £6bn industry can provide the rocket fuel required to build the next generation of UK success stories.
Research by the Venture Capital Trust Association (VCTA) has shown that start-up firms outside of the capital often need longer to scale. And yet, the current age limits placed on companies to be eligible for VCT funding mean entrepreneurs in the regions are struggling to access vital growth capital.
Adapting these limits would crucially open the door to funding for many of the UK’s most innovative start-up firms, for whom that funding can be so crucial.
Similarly, the limits placed on the amount of state aid funding that a business can raise annually and over the course of its lifetime are in need of an update. These limits were last set in 2016 and have since not moved in line with inflation. If these rules are not updated, the investment power of the scheme, and its ability to continue fostering innovation in the UK, risks becoming half of what it was.
VCTs are not static vehicles. They are a living part of the UK’s entrepreneurial ecosystem and one that must evolve if we are to keep unlocking their full potential.
This is a message the VCTA has been echoing at roundtable discussions in recent weeks; at one, hosted by HM Treasury, I joined industry peers and policymakers to discuss ways to improve the UK’s investment landscape, as well as an roundtable looking at the opportunities and challenges facing Alternative Investment Market VCTs that was hosted by the VCTA.
These roundtables have been essential in surfacing the funding challenges businesses face and in building the case for reform. What struck us most was just how clear the support from the UK government is for both VCT and Enterprise Investment Schemes.
The government has been clear that it is not standing still on this agenda. There is a real sense that policymakers have their thinking hats on, actively listening to those of us at the coal face of financial services to understand how we can make bold, simple improvements that strengthen the entrepreneurial ecosystem.
This openness is vital, because the impact and importance of VCTs stretches far beyond the numbers. They are about impact, about helping brilliant entrepreneurs turn their ideas into thriving businesses that create jobs, drive innovation, and boost the UK’s competitiveness on a global stage.
For example, Quantexa — a data and analytics firm valued at $2.6bn in its most recent round of funding — was able to tap into funding from the Albion VCTs in its earliest stages of growth. Serving a global roster of financial institutions from its UK headquarters, it is a reminder of what can be achieved when early-stage funding meets scale-up ambition.
Likewise, VCT funding is powering the next chapter of emerging success stories across industries that are essential to the UK’s economic prosperity and resilience.
The ProVen VCTs, managed by Beringea, backed VRAI, a dual-use technology company based in Newcastle whose data platform is enabling the British Army to train personnel far more safely and accurately within simulated environments such as virtual reality.
These are precisely the kinds of companies that could fall through the cracks if we do not modernise the scheme. As with any industry, we must ensure the framework reflects the circumstances and needs of today’s entrepreneurs.
Of course, none of this means we should lose sight of what makes VCTs so attractive in the first place. The combination of upfront tax relief, the potential for long-term growth, and a portfolio of high-potential UK companies is a compelling proposition, especially in an investment environment where people are looking for diversification and meaningful impact not just financial returns.
But we also must be honest. The VCT model is only as strong as the ecosystem around it. That is why the government’s willingness to engage is so encouraging. The Treasury’s roundtable was an encouraging sign that policymakers are serious about working with us to get this right.
As we look ahead, there are plenty of reasons for optimism. The £895mn raised by VCTs in the most recent tax year shows that, despite macroeconomic headwinds, there is an enduring belief in the power of VCTs to deliver both financial returns and broader societal benefits.
To maintain that momentum, we must keep pushing for bold, pragmatic changes that ensure VCTs can meet the needs of modern businesses and investors alike. That means continuing our conversations with government, evolving the rules where necessary, and above all, ensuring that VCTs remain a driving force in the UK’s innovation economy for years to come.
Chris Lewis is chair of the Venture Capital Trust Association (VCTA)