Capital invested by venture capital trusts increased by 8 per cent last year to £664m.
VCTs invested in 345 early-stage companies during 2022.
However, VCTs shovelling in new cash into early-stage companies wasn’t necessarily a sign of confidence – rather a measure to keep portfolio companies abreast of inflation at nearly 9 per cent.
How do you know it’s time to raise venture capital? – There’s a lot to consider when looking to raise venture capital. Chris Lascelles, investor at Triple Point Ventures, gives his low-down on how to get it right
VCT fund managers told the Financial Times they were investing to help some portfolio businesses deal with rising costs, especially when it comes to salary expectations in software.
The knock-on effect of all this inflation is to reduce the amount startups can spend on themselves, while VCTs will have less capital to invest in other businesses.
The number of startups expected to grow and take on additional investment – known as the “graduation rate” – is expected to decline as many struggle with inflation and what’s been called the cost-of-doing-business crisis.
Most active venture capital firms revealed – There were 2,722 equity rounds in 2022 – down 7 per cent on 2021 but higher than years prior
VCTs raised over £1bn in funding in 2022 for the second year running. By comparison, wider UK venture capital funding fell by almost a quarter last year.
Total sales of VCT supported companies totalled £18.2bn in 2022, growth of 54 per cent versus 2021. Of these, VCT-supported companies made £3.7bn worth of exports in 2022, up 29.8 per cent.
The Venture Capital Trust Association surveyed 600 early-stage companies that have taken on VCT investment for its annual survey.
Will Fraser-Allen, Chair of the VCTA, said: “UK plc is increasingly in need of innovative young businesses to push the economy forwards and help to drive growth by investing in new technologies such as artificial intelligence. With Government policy also looking to bolster UK growth by encouraging investment in fast-growing companies, the vital role of VCTs in the investment ecosystem has never been clearer.”
VCTs compensate for riskier investing in young companies by offering investors 30 per cent upfront income tax relief if they hold newly-issued shares for at least five years. Investments are also exempt from capital gains and dividend tax.
The current VCT scheme is set to expire in 2025 and the Government, although committed to extending VCT investment, has yet to give details about how it will operate in future.
More on venture capital
Growth Business UK venture capital directory – a comprehensive guide to every UK-based venture capital firm in the UK