Wednesday, March 30, 2011

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.