Celebrating 30 Years of VCTs: Reflecting on Their Impact and Future

Introduction

Since their introduction in 1995, Venture Capital Trusts (VCTs) have revolutionised the UK’s investment landscape. Initially intended to support early-stage businesses, VCTs have adapted to the dramatic shifts in the venture capital landscape, especially with the rise of technology-led innovation. Despite these changes, their core mission remains unchanged: backing ambitious, high-growth businesses that propel the UK economy forward.

Key Milestones

• 2004: Increase in the maximum annual investment limit for individuals
• 2011: Reduction in the VCT tax allowance from 40% to 30%
• 2015: Amendments to VCT rules to target younger and more technology-focused companies
• 2024: Extension of the VCT scheme until 2035

To attract investments into the sector, individual investors are offered a range of tax incentives in exchange for the risk involved in investing in small companies.

Albion has been part of this journey from the beginning, having launched one of the earliest VCTs in 1996. We have witnessed the evolution and growing popularity of the sector, from raising £160m in 1996 across 12 VCTs to over £1bn in 2023 and 30 VCTs. Many successful companies have emerged during this time; for example, Zoopla became the first VCT-backed business to achieve a valuation of over $1bn. Albion’s own Active Hotels investment was acquired to become the now publicly listed Booking.com.

Evaluating Impact

The success of the VCT scheme can be viewed through three lenses: the entrepreneurs, the UK economy, and the VCT investors.

1.Entrepreneurs and the UK Economy

VCTs have fostered a venture capital industry within the UK, enabling entrepreneurs to access funding to realise their ambitions. Many of these young companies have thrived, creating thousands of jobs and boosting the UK economy in the process. Data from the VCTA shows that VCTs collectively manage £6.5bn and employ over 100,000 people across the country.

VCTs have also promoted economic development in regions underserved by traditional sources of capital. Data from the AIC in 2021 shows that 56% of VCT investment was directed outside London, which supports the government’s levelling up agenda. The scheme has been a success from this perspective.

Reflecting on the impact of the Albion VCTs, the aggregate revenue of their 57 software companies grew 30% last year, despite economic challenges. Our largest company, Quantexa, reported over £80m in revenue in 2024, whilst our latest exit (in July 2024) of cybersecurity software business Egress delivered a return of over 7x for our VCT investors after growing to over 300 employees and supporting over 2,500 enterprise customers globally.

Beyond the financials, Albion’s portfolio of companies has created over 4600 jobs, helped power some 7,400 UK homes with renewable energy and improved the outcomes of over 700K patients. As a VCT manager, we have also helped drive more female participation in the ecosystem through the launch of our Radia programme.

2. VCT Investors

Investors too have reaped the benefits of VCTs. In addition to the tax reliefs, VCTs have offered diversification beyond public markets and access to high-growth sectors that individual investors cannot otherwise easily reach. Early-stage investment was, before the advent of VCTs, limited to institutional players with access to private deals. VCTs have changed this dynamic by democratising access to venture capital and in today’s market, their appeal has only deepened. With IPO activities still sluggish and companies staying private for longer, VCTs are one of few options for retail investors wanting exposure to such companies.

A helping hand

The growth and development of the VCT industry have been supported by three key industry bodies:

• Association of Investment Companies (AIC), which represents the interests of investment companies
• British Venture Capital Association (BVCA), which represents some of the largest venture capital managers in the UK
• The Venture Capital Trust Association (VCTA), which represents the largest VCT managers in the UK

Together they make up a significant force that, through advocacy, industry representation, and other initiatives have helped to shape the industry. These trade bodies have collectively helped change the regulatory landscape and created a supportive environment for VCTs to thrive and contribute to the UK’s economy.

Driving Future UK Innovation

The government harbours high ambitions for innovation-led growth. With policy initiatives focused on AI, biotech, and clean energy, many of the businesses receiving VCT funding are at the forefront of these national priorities. Healthcare technology and biotech are advancing at an unprecedented pace, with breakthroughs in digital health and personalised medicine presenting significant societal benefits for the country and investment opportunities for investors.

The application of artificial intelligence is in its infancy, but it will indisputably materially change the world in which we live and as many VCTs invest in technology, such as software, they are well placed to benefit from this growth.

For VCTs investors, the role that VCTs play in investment portfolios will also continue to grow. With increasing restrictions on pensions and more people being pushed into higher tax brackets, we expect demand to rise as investors with long-term capital seek out tax-efficient growth and income. The continuing relevance of VCTs has already been bolstered by the Government’s decision to extend the VCT and Enterprise Investment Schemes until 2035.

Three decades in and VCTs have become a cornerstone of the UK’s venture capital ecosystem. We are confident that VCTs will continue to drive economic growth, and foster innovation across the UK, whilst delivering attractive returns for investors.