UK's VCTs attracting investors interest with new Budget rules

The United Kingdom has long promoted VCTs, Venture Capital Trusts, as investment vehicles to give a boost to its venture capital and growth equity companies. Moreover, a number of nominated advisers (NoMads) on the AIM market have promoted VCTs as public investment vehicles.

Now the UK Chancellor in a move to turbo-boost small enterprise investing in the UK has improved certain qualifications for VCTs:

• They now qualify for 30 per cent income tax relief
• VCTs offer tax-free dividends and tax-free capital growth
• VCTs can now invest in substantially bigger companies - up to 250 employees from 50 and £15m gross assets, previously set at £7m.

This is great news for startups and small companies, but the challenge remains "operational". Sure, many of these fund managers will be able to raise funds for their VCTs, with the help of a few Nomads, but are they going to succeed in growing their investments. Many of these smaller companies cannot grow at dougle-digits on a standalone basis. What they need is optimal size to reach scalability.

So VCTs will probably get on a rush over the next 6-9 months to assemble restructuring teams, composed of executives who've done it before, to help them realize their investments and the expected value-add. A nice "side-effect" for the Chancellor as this will boost hiring and thin out the UK's unemployment rolls.

Venture Capital is more than Money

The U.S. venture industry provides the capital to create some of the most innovative and successful companies. But venture capital is more than money.

Venture capital partners become actively engaged with a company, typically taking a board seat. With each startup, daily interaction with the management team is common. This limits the number of startups in which any one fund can invest.

Few entrepreneurs approaching venture capital firms for money are aware that they essentially are asking for 1/6 of a person! Yet that active engagement is critical to the success of the fledgling company. Many one- and two-person companies have received funding but no one- or two person company has ever gone public!

Along the way, talent must be recruited and the company scaled up. Ask any venture capitalist who has had an ultra-successful investment and he or she will tell you that the company that broke through the gravity evolved from the original business plan concept with the careful input of an experienced hand.

Venture capital firms are professional, institutional managers of risk capital that enables and supports the most innovative and promising companies. This money funds new ideas that could not be financed with traditional bank financing, that threaten established products and services in a corporation, and that typically require five to eight years to be launched.

For every 100 business plans that come to a venture capital firm for funding, usually only 10 or so get a serious look, and only one ends up being funded. The venture capital firm looks at the management team, the concept, the marketplace, fit to the fund’s objectives, the value-added potential for the firm, and the capital needed to build a successful business.

A busy venture capital professional’s most precious asset is time. These days, a business concept needs to address world markets, have superb scalability, be made successful in a reasonable timeframe, and be truly innovative. A concept that promises a 10 or 20 percent improvement on something that already exists is not likely to get a close look.

Thanks to the Research Team at the National Venture Capital Association for an outstanding job they are doing for us in the venture community!

Rachid Sefrioui supports US legislation for the US Startup Visa for Immigrant entrepreneurs

• To represent the interests of entrepreneurs everywhere— in Silicon Valley, in the US, and around the world.
• Inspired by posts on the Startup Founder Visa Movement.
• Make it easier for entrepreneurs to come to the US, start new businesses, and most importantly create more jobs.

 

The current plan is a proposal to modify the EB-5 visa, in order to enable non-US entrepreneurs with funding from a US investor to get a visa to start a company. 

On Dec 10^th, 2009, legislation was proposed by Rep. Jared Polis (D-CO) in the House called the Employment Benefit Act of 2009. 


On Feb 24^th, 2010, this proposal has been joined by The Startup Visa Act of 2010 in the Senate, sponsored by Senators John Kerry (D-MA) & Richard Lugar (R-IN), and is also supported by over 100 US Venture Capitalists and Angel Investors. 

We hope to have one or both of these bills formally presented to Congress sometime later this year.

Under the proposed legislation, instead of the visa going to an investor, a startup company founder or entrepreneur who receives a minimum equity investment of $250,000 could qualify as an EB-5 visa recipient. At least $100,000 would have to come from a sponsoring US investing entity.

Overall we hope to make it easier for more entrepreneurs to start businesses in the US and create jobs