The European Commission has enhanced its State Aid approval for the Venture Capital Trust scheme.
This will allow the UK Government to introduce various changes to the VCT rules, including:
• Increasing the size of companies which can receive VCT funds (from those with assets of £7 million to £15 million); and
• Allowing companies with a greater number of employees to receive funding (up from a headcount of 50 to 250); and
• Enabling companies to receive more money from VCTs and other similar schemes (up from £2 million to £5 million).
Ian Sayers, director general, Association of Investment Companies, said: "The State Aid rules set stringent conditions on the level of Government help which can be provided to SMEs.
“Today's approval makes VCTs one of the most generous incentive schemes in Europe. Convincing the Commission that VCTs should be able to invest in a wider range of business has been a demanding task. The Government's determination to see these negotiations through has been invaluable and delivered an excellent result.
"The new investment freedoms VCTs will gain will create exciting opportunities for both VCTs and the hundreds of small businesses they invest in. They will reinforce VCTs' ability to finance SMEs struggling to secure development capital and support the Government's growth agenda."
Last month the AIC published research demonstrating the impact of VCT investment. Key findings include:
• On average, companies receiving VCT investment deliver a 16% year on year increase in employee numbers post-investment
• For every £1 of upfront income tax relief investors received for investing in a VCT, £7 of new turnover is recorded by SMEs receiving VCT funding
• The average VCT investment in each investee company is £2.3m, which helps SMEs bridge the ‘finance gap' (i.e. secure the amount of funding which these businesses traditionally struggle to raise because of market failures in the supply of capital)
• VCT investee companies are twice as likely as other UK SMEs to export the goods and services they produce
• With access to traditional sources of financing for SMEs still restricted, demand for VCT funding from SMEs is strong, arguably stronger than before the financial crisis.
Will Fraser-Allen, deputy managing partner at Albion Ventures LLP, said: “The EU and HMT have created more certainty for investors and increased funding opportunities for a much wider group of companies.
“Venture Capital investment in small businesses from VCTs provides a much needed alternative to traditional sources of financing – which have all but dried up. VCT investing can therefore stimulate growth, employment and be an important catalyst for getting the UK economy back on track.”