BVCA calls for new type of VC fund
In its 'Year of Venture' the BVCA has proposed a new type of venture capital fund designed to build the next generation of world-class British businesses.
As part of its response to the HM Treasury's consultation paper on 'Tax-advantaged venture capital schemes', the BVCA has urged the UK Government to consider a fund structure which would allow traditional investors (LPs) in venture capital to invest alongside Enterprise Investment Scheme money.
Such a vehicle - which is in keeping with and complementary to the current EIS and VCT frameworks - would act as a fund of funds and invest in conventional VC funds provided they in turn invest a percentage of their capital into qualifying companies. Another possibility is for institutional investor money to be raised alongside EIS money into a fund which would then invest into qualifying companies.
To create major global technology companies, high potential British businesses need access to capital in the same amounts as their US competitors, yet this is far from the case. In 2010, VC investments were on average 5.5x higher per company in the US than in the UK (BVCA/NVCA, 2010). The reason for such a shortfall is a lack of UK venture capital funds of sufficient size. By combining traditional institutional investors with EIS money, the new type of fund proposed would enable VCs to invest throughout the lifecycle of a business.
Richard Anton, partner at Amadeus Capital Partners and BVCA Chairman, said: "I welcome HM Treasury's consultation and endorse the proposal by the BVCA for a new type of EIS Approved Funds which can accommodate investment from institutions as traditional Limited Partners alongside EIS money. These additional reforms to EIS will unlock a vital pool of capital which would then be invested professionally into the next cohort of potential world leading companies in the UK." Stuart Chapman, Managing Partner of DFJ Esprit and Chairman of the BVCA's Venture Capital Committee, said: "The BVCA's proposed fund will be able to support more companies through multiple funding rounds to create companies that can challenge in the global markets. This could be a vital first move in creating larger funds that can reinvest in businesses as they grow and develop, helping to create a new generation of world-class British companies."
More broadly, the BVCA welcomes the chance to respond to the HMT's consultation. We have long called for extensions to EIS and VCTs to enable larger companies to benefit, in order to close further the equity gap. The BVCA looks forward to making these proposals a reality as they will deliver more investment into UK SMEs at this most vital of times.
We further welcome the measures to better focus the schemes. It is important that only genuine risky investment is incentivised.
Encouraging seed investment is a worthy aim though we are not yet convinced of the need for BASIS, a standalone scheme. It is perhaps more important that we see a joined up approach to the funding ladder, starting with seed and going right up to later stage venture capital.
Notes to editor
- To read the HM Treasury's consultation paper, please click here
- To read the BVCA's response, please click here
- The British Private Equity and Venture Capital Association (BVCA) is the industry body for the UK private equity and venture capital industry. The BVCA has 500 member firms, representing the overwhelming number of UK-based private equity and venture capital firms and their advisers.