High risk investments in Venture Capital Trusts (VCTS) are paying off for businesses, according to a review of the market.
Almost £1 billion was staked by business angels against small companies over the past two years.
The money has gone to innovative, cutting edge firms carrying out research and development in sectors like healthcare and green technology.
Since 2017, VCTs have invested in 181 businesses that generated £385 million of sale, with around a third going to export, says data published by trade body the Association of Investment Companies (AIC)
The investments also support jobs, with the average business employing 38 people and 45% of the companies employing fewer than 25 staff.
Venture Capital Trusts Offers finance to start-ups
London and the South East are investment hot spots, with 37% of the money raised going to businesses in or around the capital.
Ian Sayers, the AIC chief executive, said: “Whilst this report was prepared before COVID-19 reached the UK, it demonstrates how VCTs are supporting many of the UK’s most innovative smaller companies with high potential for growth in sectors as diverse as healthcare, retail and green technology.
“VCTs offer an effective way of bridging the finance gap for young companies and the UK stands to reap significant benefits by continuing to nurture an environment where small businesses can grow and thrive.
“The £619 million raised by VCTs over 2019/20 demonstrates that demand for VCTs remains high, despite the uncertainty caused by coronavirus. VCTs celebrate their 25th anniversary this year and the businesses they back have the potential to deliver important economic and social benefits, from exports and increased tax take to innovative technology and jobs.”
VCT tax breaks
VCTs come with some generous tax breaks for investors.
Business angels putting money into a VCT can stake up to £200,000 in a tax year and pick up a 30% income tax refund pro rata their investment up to a maximum of £60,000.
VCT dividends are free of income tax and any gain in share value is exemp0t from capital gains tax.
There is no minimum time to hold VCT shares to qualify for the tax breaks.
However, the investments are considered high-risk and losses are cannot be offset against other investments.