UK venture capital investors have called for rule changes to allow them to put more cash into struggling early stage businesses during the pandemic downturn.
Venture capital trusts are listed businesses that invest in start-ups but the owners of VCTs are currently banned under state aid rules from investing their own money in start-ups in their portfolio after a certain stage.
The Venture Capital Trust Association, a trade body, said its members could invest around £500m in small businesses if the restrictions were relaxed, saving thousands of jobs.
Stuart Veale, chairman of the VCTA and managing partner of fund manager Beringea said: “We have the money ready and waiting . . . There are 150 companies that need help with 18,000 employees.”
VCTs pool money from thousands of individuals to invest in a range of businesses. Buying VCT shares has tax advantages. Individuals investing in a VCT who hold the shares for at least five years can claim upfront income tax relief of 30 per cent and pay no capital gains tax when they sell the shares.
The tax breaks aim to encourage investment in young companies that are often lossmaking. Because of this, they also cannot access government support, such as subsidised loans, that has been made available to help business through the first stages of the economic fallout of the pandemic.
The VCTA has asked the government to temporarily change eligibility rules for VCT funding, which would require ministers to get an exemption from EU state aid rules.
At the moment, a company cannot qualify for VCT funding if it is more than seven years since it made its first sale, or in the case of companies designated as “knowledge intensive”, it is more than 10 years since annual revenue passed £200,000.
It cannot have more than 250 employees, gross assets of more than £15m, or have received more than £5m of funding in the past 12 months or £12m of VCT funding over its lifetime.
The VCTA has asked the Treasury to change those limits for a year, doubling the VCT funding limits and time restrictions, so it can inject money into portfolio companies.
However, Mr Veale said the government has so far refused to change the rules.
The Treasury confirmed it was discussing the proposal but said that its support package was already “one of the most generous in the world. We will continue to engage with stakeholders on our various new support schemes to ensure they are as effective as possible.”
The VCTA represents ten of the largest VCT managers in the UK, making up 75 per cent of the VCT industry and managing £3.3bn. Their portfolios include more than 600 businesses with more than 80,000 employees and £16bn of sales. Members include Octopus Group, Downing, Beringea, and YFM Private Equity.
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