The total amount of money raised through venture capital trusts (VCTs) this tax year is approaching £240m, 20 per cent higher than last year, as the investment industry celebrates the vehicle’s 30th birthday.
The VCT was unveiled in the 1994 Budget, where Chancellor Ken Clarke launched the scheme, and have since raised £12.5bn, funnelling money to now-famous names including Zoopla and Virgin Wines.
In the past six years alone, VCTs invested £2.9bn in 783 small businesses, according to data from the Association of Investment Companies.
“Since then-Chancellor Ken Clarke unveiled VCTs in front of Parliament in November 1994, the scheme has evolved into an indispensable component of the UK’s investment landscape, providing support for the nation’s most innovative businesses in sectors including technology, healthcare, consumer and manufacturing,” said Chris Lewis, chair of the Venture Capital Trust Association.
VCTs are meant to back rapidly growing small businesses, providing finance, business expertise and ongoing support to entrepreneurs.
The average VCT-backed UK small and medium-sized enterprise (SME) employs 68 people, while the average UK SME employs just 11 workers. As of January 2024, companies backed by the investment vehicle employ 92,000 people in the UK.
Over a quarter of VCT investee companies saw revenue grow by 50 per cent or more in the last year, versus just 1.4 per cent of the main market, according to research from Wealth Club.
Meanwhile, 43.2 per cent of VCT investee companies grew revenue by 25 per cent or more, versus just seven per cent of the main market, while just 12.6 per cent of investee company revenues declined, versus 45.9 per cent on the main market.
Investors have increasingly flocked towards VCTs following a host of tax changes in the Budget, including a hike to capital gains tax from 20 per cent to 24 per cent.
Profit from VCTs are exempt from capital gains tax when they are sold and investors can claim 30 per cent income tax relief on the investments.
As a result, investment platforms have also begun looking more at the VCT space, with wealth giant Hargreaves Lansdown and competitor Sidekick both launching new VCT products in the last month.
“With some taxes already rising in the UK, and more hikes likely to come, we anticipate more investors turning towards products such as Venture Capital Trusts,” said Matt Ford, CEO and co-founder of Sidekick.