Transforming small business

How VCTs create jobs, generate exports and enable growth.

  • 27,000 jobs created by current VCT investments
  • Each VCT-backed business employs an average of 109 people
  • £1.4 billion of exports generated by investee companies
  • Average SME turnover increase of £2.2 million per £1 million of VCT investment

In the recent consultation paper on patient capital, the Chancellor highlighted that a barrier holding back young, innovative companies was access to long-term investment. A review of Venture Capital Trust (VCT) investment from the Association of Investment Companies (AIC), ‘Transforming small business’, found that VCTs are important providers of scale-up funding and play a vital role in delivering transformational change for smaller UK businesses.

Investment

VCTs target the SME finance gap, providing funding to smaller companies which are not well-served by traditional investors. 57% of smaller companies supported by VCTs received total investment of between £2 million and £10 million. The average level of investment received by small businesses was £3.2 million.

Creating jobs and enabling growth 

Helping small companies with high potential to grow is the fundamental ambition of VCTs. The review found that in the current VCT portfolio every £1 million of investment has led to an average increase of £2.2 million in turnover. Where funds have had longer to work, growth has been even greater. The review revealed that the sectors achieving the greatest turnover growth were retail, business services and health. 

As VCT investment sustains business growth, this most importantly creates jobs. Businesses currently benefiting from VCT investment now employ 50,000 staff and have created 27,000 jobs across the UK since VCTs invested, an increase of 116%. Each VCT-backed business employs, on average,109 staff.

Generating exports

International growth is a goal of many ambitious smaller companies. Many VCT-backed businesses are striving to increase their international sales and those that are successful can achieve striking results. 41% of those companies surveyed receiving VCT investment reported exports worth £1.4 billion. This represented nearly half of their total turnover and the sectors achieving the highest amount of foreign revenue were digital, creative and information services, business services and information technology.  The top 5% of VCT-backed businesses achieved exports of £596m, just under a fifth of their total sales. 

Jump starting innovation

VCTs support innovative, ambitious companies which often have the potential to transform existing markets and create new ones. 36% of the companies surveyed that are held by VCTs reported research and development expenditure of £282 million in 2016. Companies that reported research and development expenditure received over half a billion pounds from VCTs since investment, with the health, information technology, digital, creative and information services sectors reported as spending the most on research and development. 

Ian Sayers, Chief Executive of the Association of Investment Companies, said: “VCTs are delivering transformational change to smaller UK companies. They are providing crucial investment and expertise to innovative UK companies in markets as diverse as healthcare, manufacturing, retail, information technology and even space technology. VCT-backed businesses deliver vital economic benefits, with jobs more than doubling after VCT investment.”

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Notes

  1. Launched in 1995, the VCT scheme provides investors with 30% upfront tax relief upon the purchase of new VCT shares with a minimum holding period of five years. 
  2. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs.  The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £169.9 billion.
  3. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.