The parliamentary Treasury Committee has released its comprehensive report on Venture Capital, highlighting the positive impact of venture capital tax reliefs, including the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs) on UK small businesses. The report also addresses key areas for improvement within the venture capital sector to foster greater inclusivity, regional investment, and long-term growth.
Key Takeaways from the Report:
- Support for UK Small Businesses: Venture capital tax reliefs, such as EIS, SEIS, and VCTs, have played a vital role in providing substantial financial support to start-ups and growing businesses. The schemes have proven to be instrumental in driving innovation and fostering entrepreneurship across various sectors.
- Extending Sunset Clauses: The Treasury Committee recommends extending the sunset clauses beyond the current deadline of April 2025. Doing so would provide certainty and stability for founders and investors, enabling them to plan for the future with confidence.
- Promoting diversity: The report emphasizes that the lack of diversity within the venture capital market is unacceptable. The industry continues to be dominated by white men, hindering opportunities for underrepresented groups. The slow progress in improving diversity is a pressing concern that must be addressed.
- Mandatory Transparency on Diversity: The report urges for greater transparency and reporting on diversity statistics within venture capital firms. Mandatory reporting on diversity should be a requirement for EIS, SEIS, and VCT eligibility, fostering a more inclusive and representative sector.
- Balancing Regional Investment: The concentration of venture capital investment in London has limited opportunities for high-growth businesses in other regions and nations across the UK. The report calls for measures to promote investment in businesses outside prime investment areas, thereby fostering economic growth across the nation.
- Reassessing Company Age Limits: The current 7 and 10-year company age limits for EIS and VCTs can disadvantage businesses located outside the main investment hubs. The committee suggests reevaluating these limits to ensure that promising companies across the UK have access to vital funding support.
- Removing Funding Limits: The funding limits imposed on tax-beneficial venture capital funding through EIS and VCTs can restrict the level of support available to scaling-up businesses. The report recommends reassessing these limits to allow for greater financial backing and growth opportunities.
- Unlocking Domestic Capital: UK pension funds represent an untapped source of domestic capital for venture capital investment. The committee proposes the consolidation of pension fund assets to encourage increased investment in high-potential businesses, fostering a thriving entrepreneurial ecosystem.
Nicholas Hyett, Investment Manager at Wealth Club, responded to the report, stating, “The Treasury Committee’s Venture Capital report is a ringing endorsement of the UK’s current tax-efficient venture capital schemes. Evidence from across the industry and government shows widespread support for these schemes, which have now received cross-party, political endorsement.”
The report also acknowledges the need for improvement in diversity within the venture capital sector. While progress has been made in recent years, there is still room for further advancements to foster a more inclusive and representative industry.
Hyett highlighted the significance of the planned extensions to the age at which companies can raise capital under the schemes and the increased funding amounts. These changes have the potential to address a critical challenge faced by young UK businesses – transitioning from successful startups to global players. By providing additional funding opportunities, domestic companies may be better equipped to scale globally without having to turn to overseas acquirers.
On the issue of sunset clauses, Hyett expressed the desire for more definitive action, stating, “On the sunset clause, we would have liked the committee to take advantage of the UK’s position outside the EU to recommend it was scrapped altogether. VCTs and EIS have proven their value over nearly thirty years, and the regular uncertainty caused by repeat sunset clauses is unhelpful.”
The report’s recommendations offer a comprehensive assessment of the current venture capital landscape and aim to foster an environment that supports growth, diversity, and long-term success in the UK’s entrepreneurial ecosystem.