Unpacking the Treasury Select Committee VC report – nothing ventured, nothing gained

The Treasury Select Committee is one of the most influential and, for some, the most feared institutions in parliament. The committee inquiry into the UK VC market, announced in March last year, presented a great opportunity to showcase our industry but also had the potential to open it up to criticism in a public forum. The final report falls somewhere in between these two extremes, with press headlines focussing on areas such as diversity where the industry is doing poorly, but also highlighting some of the positive impacts and making helpful recommendations.
It should be noted that several people who were central in the formation of the inquiry, such as Gareth Davies, Kevin Hollinrake and the Committee Chair Mel Stride, have moved on to ministerial roles since it began. In fact, over half the committee members have changed in the last year, such is the transient nature of UK politics in recent times. The scope of the initial inquiry was all encompassing, covering everything from generating talent in education, the role of bodies such as the BBB and ARIA, and meeting national objectives like net zero. The inquiry naturally homed in on certain areas – the provision of EIS and VCT tax reliefs, diversity, and investment in the nations and regions of the UK in particular.
The Committee states in their findings that there has been an “unacceptable failure” on diversity in the sector and investment in businesses led by women and ethnic minorities. It is hard to disagree when looking at the figures, and our latest D&I reports show that while progress is being made, there is a long way to go. One of the recommendations is that the reporting of diversity statistics both in terms of investment roles and investment be a condition of taxpayer support. This is potentially a good way to drive change, but one that would need to be implemented in the right way so that VCs with the resources and skills to do this can but should not put off smaller teams who might find it difficult to meet thresholds that are put in place. It is also right to note that the Investing in Women Code is a vital tool to tackle this historic imbalance.
The report also flags the lack of investment outside London and the south east, although it doesn’t give enough credit to some of the progress made in this area. The majority of investments by BVCA members are made outside London and the South East and if the UK can continue to grow a strong domestic venture capital industry we can continue to break down those regional divides. UK based funds are also twice as likely to invest outside London and the South East than those from overseas and we have seen growth in recent years. Members that invest in the regions have also highlighted issues with deal flow and investor readiness that are issues that occur before companies look to venture capital investment, which the report does not examine. The British Business Bank is doing a lot of work to address this with its Regional Angels Programme and Nations and Regions Investment Funds.
The recommendation to extend the sunset clause for EIS and VCT schemes at the earliest opportunity is very welcome and indeed unusual for a committee to do, as they often ask to keep tax reliefs under control. The sooner the government can give clarity, the better. The report also provides recommendations on broader areas such as regional inequality in terms of investment and the scale up gap. They recommend changing the rules, such as the 7 & 10 year age limits, to help companies in the regions that take longer to scale, and asking the government to consult on raising the thresholds of the schemes so they can support companies at later stages. These are sensible proposals. However, there is a lot more that can be done to support companies, especially at the scale up stage – much of which we outlined in our response to the committee.
The BVCA was pleased to be called to give evidence alongside the EISA, VCTA and AIC, but a missed opportunity perhaps was the chance to hear from a wider range of VCs and even founders. Hearing from trade bodies was a sensible place to start, and while they did speak to some excellent funds such as Albion, Future Planet Capital, and Mercia, they should have heard from a broader range of funds who could have provided more detail on areas such as the lack of scale up funding in the UK.
Ultimately though, the inquiry has provided a useful forum to showcase the industry, its growth over the last decade, and the benefits to the economy. The Committee has also launched an inquiry on SME finance that covers similar ground and the BVCA team will once again be fully engaged. Areas such as the scale up gap, which were noted in the report but light on detail, are also going to be looked at again in this review.
Members should be in no doubt that we will continue to be the voice for VC in the UK, being upfront about where the industry falls short, but steadfast in asking for reforms that support the sector and the companies they invest in.
Chris Elphick
Senior VC Manager, BVCA