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10 March 2010

AIC research demonstrates continued commitment to VCTs is the best way to support UK's enterprise economy

AIC research into impact of VCTs on UK's enterprise economy

• Companies post VCT investment experienced a 47% employment increase
• Average amount invested by VCTs in any single company was £2.5m
• 87% of VCT investee companies had a VCT representative on the board
• Cost to public purse eclipsed by tax receipts from VCT backed companies

Download the AIC’s research: Supporting enterprise and growth: the role of Venture Capital Trusts

The Association of Investment Companies (AIC) has recently surveyed 15 fund managers employed by 61 Venture Capital Trusts (VCTs), worth £1.4bn of assets, (representing 62% of the VCT sector’s total assets) on the impact of VCT investment.  The research demonstrates that continued support for VCTs should be part of any future government’s plans to support innovation and growth in the UK’s small business community.

Between April 2004 and April 2009 the 61 VCTs surveyed by the AIC invested £973m in 384 unquoted UK companies. The AIC research demonstrates how VCTs support enhanced economic growth and employment in smaller companies. 

Key findings include:

•  The amounts invested by VCTs in small companies fall within the well documented equity gap (identified for example, by the Rowlands Growth Capital Review) of £2m to £10m.  The average amount invested by VCTs in any single company was £2.5million. Recent market developments are expected to increase the VCT sector’s focus on stand-alone investment and acting as a substitute for lending where banks have withdrawn from the small business sector.
  
• The main sector benefitting from VCT investment is the leisure and hospitality industry – just under 20% of capital invested, followed by the business services sector – 13% of the total. The third largest sector (12% or £120m), were  industrial businesses including manufacturing, engineering and electronics companies, a subject of recent political interest. Other sectors identified as political priorities included the environmental sector (6% or £62m) and healthcare including biotech (nearly 9% or £94m).
  
• VCT investment supports job creation. The survey received employment data from 303 investee companies which experienced a 47% increase in employment.  Their total workforce at the time an investment was made was 17,219 and their total workforce at the time of the survey/divestment date was 25,402. The increase in employment was not evenly distributed, with 46 of the investee companies seeing a decline in numbers employed (from 4,636 at time of investment to 3,076 at the time of the survey/divestment date).
  
• Many VCT-backed firms undertake R&D and are successfully developing export markets despite their firms’ small size. In this research 88 investee companies disclosed dedicated R&D spending totalling £55.4m, a significant level of activity in comparison to other smaller companies.  102 investee companies provided data on the level of their turnover derived from exports.  The total exports were £303m (from a total of turnover of £920.7m), averaging nearly £3m per company.
  
• 87% of VCT investee companies had a VCT representative join their board.   This additional management skill provides invaluable support for growing businesses.
  
• VCT investment is cost-effective. The survey data shows that the cost to the public purse is offset and eclipsed by the tax returns generated by VCT backed companies. 

Ian Sayers, Director General of the Association of Investment Companies said:
“This research demonstrates that VCT investment provides substantial benefits for UK small businesses and the economy.  We urge policymakers to reaffirm their commitment to VCTs which are the best way to support enterprise and future economic growth. 

“Companies across the country with the potential for growth have received capital and management input from VCTs which has boosted their performance and increased employment.  They operate in a way which, in the short to medium term, pays for itself and over a longer period creates capacity for higher tax revenues.

“New initiatives are unlikely to have the substance or staying power of the well established VCT network.  All too often new proposals to support small businesses have surface attractions but fail to answer satisfactorily key questions such as “where will the money come from?”, “how long will it take to put a new mechanism in place?”, “will Europe delay the scheme’s introduction?”, and “will it really work better than what we already have?”

Download the AIC’s research: Supporting enterprise and growth: the role of Venture Capital Trusts

Please contact the AIC to speak to VCT managers and companies that have received VCT funding.

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Notes to Editors
The Association of Investment Companies 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 346 members and the industry has total assets of approximately £85.5 billion.

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