The venture capital trust (VCT) industry is approaching a landmark year. 2025 will mark the 30th anniversary of the launch of the VCT scheme – a revolutionary tax-efficient ecosystem of visionary entrepreneurs, investors’ capital and expert VCT managers that has helped thousands of early-stage businesses bring their products to market and created hundreds of thousands of jobs.
This Friday (29 November) it will be 30 years since the 1994 Budget, in which Chancellor of the Exchequer Ken Clarke introduced the VCT scheme1. To mark the occasion, the Association of Investment Companies (AIC) has launched a report, ‘Giving great companies a flying start’, which highlights the crucial role that VCTs play in nurturing high-growth companies, providing finance, business expertise and ongoing support to help entrepreneurs bring their vision to life. The report also shows how VCTs contribute to UK economic growth.
Tax breaks encourage investment
VCTs back high-risk businesses that have a significant risk of failing. So, in order to incentivise investment, the scheme allows investors to offset up to 30% of their investment in new VCT shares against their income tax bill. In other words, a £10,000 investment can save an investor £3,000 in income tax, as well as offering tax-free income and capital growth.
The incentives have been invaluable in attracting investment. Last tax year, VCTs raised £882 million, according to AIC figures. This is the third highest year of fundraising on record, following the record £1.13 billion in 2021/22 and £1.08 billion in 2022/23. A vast increase from the £160 million raised when VCTs were launched in 1995/96.
VCT scheme safeguarded
There had been concerns that these tax incentives would cease next year, but the government recently confirmed that they would be extended for at least another ten years – until 2035 – securing vital growth capital for today’s innovators.
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said: “VCTs are a British success story and they have helped create several household name companies, generating thousands of jobs and boosting economic growth. VCTs have made major contributions across industries, from tech to healthcare, retail to manufacturing. Our report showcases some of the most exciting young companies in the UK. They are pushing the boundaries of their industries with some brilliant ideas, often attracting customers from all over the world. It’s inspiring to see the unique British ideas that the schemes are backing.”
Chris Lewis, Chair of the Venture Capital Trust Association (VCTA), said: “Since then-Chancellor Ken Clarke unveiled VCTs in front of Parliament in November 1994, the scheme has evolved into an indispensable component of the UK’s investment landscape, providing support for the nation’s most innovative businesses in sectors including technology, healthcare, consumer and manufacturing.
“VCTs have become crucial not only in supporting UK entrepreneurs, but also in driving the creation of high-quality jobs and innovative technologies in the wider economy. The case studies and statistics featured in this report are evidence of this, and we look forward to supporting the continued growth and development of the VCT scheme in the coming years.”
UK innovators with global potential
One innovative VCT-backed company is Quantexa, a pioneer in AI and so-called “decision intelligence solutions”. In the space of just nine years, it has gone from startup to both unicorn and centaur2 status, with a valuation of £1.8 billion and more than £100 million a year in recurring revenues. It is continuing to innovate to provide new services to businesses including Microsoft, HSBC, Accenture, ING and Vodafone. Quantexa is backed by the Albion VCTs.
Another is Unbiased, founded by Karen Barrett, who was crowned Great British Entrepreneur of the Year 2024 at the Great British Entrepreneur Awards on 18 November 2024.
Founded when Barrett (pictured) couldn’t find suitable financial advice after the birth of her first child, Unbiased now matches clients with advisers in under 60 seconds and delivers $20 billion in assets under management to its customers each year. It is backed by the British Smaller Companies VCTs.
While funding for startups from traditional sources such as banks is notoriously difficult, VCTs have the expertise to spot visionary ideas from entrepreneurs young and old, even if the product has no track record. Tended is a case in point.
Founded by 30-year-old Leo Scott when he was just 22 years old, the company received backing through the Enterprise Investment Scheme in 2017 helped by Blackfinch Ventures, and is now part of the portfolio of Blackfinch Spring VCT.
Tended produces high-precision, wearable location devices to help alert workers if they wander into a dangerous area. If a railway maintenance worker strays on to a live railway track, for example, the device will set off an alarm warning them to stop. It was named as one of Time magazine’s best inventions in 2023. The company is now targeting a £100 million exit.
If you are interested in any VCT case studies from the report, please contact the AIC communications team.
Facts and figures from the report
Since launch in 1995, VCTs have raised £12.5 billion to invest in thousands of small companies, leading to the creation of household name businesses worth hundreds of millions – sometimes billions – of pounds. Some famous success stories include Zoopla, Secret Escapes, Virgin Wines and Unbiased.
In the past six years alone, despite the pandemic disrupting economic activity, VCTs invested £2.9 billion into 783 small businesses. These businesses are job creators: the AIC’s research shows that VCT-backed SMEs employ more people than the average UK SME.
The average VCT-backed UK SME employs 68 people, while the average UK SME employs just 11 workers3. As of January 2024, VCT-backed companies were employing 92,000 people in the UK.
