The UK Government is thinking big with its recently announced Digital Strategy setting a goal of strengthening the country’s position as a Global Science and Tech Superpower.
Chris Philp, the Minister for Technology and the Digital Economy between September 2021 and July 2022, highlighted in the strategy the advantages the UK has including super-fast internet access, cyber security capabilities and universities which lead the world in fundamental and applied science.
The UK already has more tech unicorns – that is privately owned companies valued at more than $1 billion – than any other European country. Private capital inflow into UK tech last year at £27.4bn was around double second-placed Germany and treble that of third place France.
Maintaining the flow of innovation and start-ups in the UK tech sector is crucial to successfully delivering the strategy and the Minister noted the role of finance, writing: “The UK has deep pools of capital and an excellent funding ecosystem for technology companies to use. This ecosystem has been very substantially supported by tax incentives – in particular, the SEIS, the EIS and VCTs.”
The VCT success story
Last year Venture Capital Trusts (VCTs) delivered £668.6m in new and follow-on investments in UK-based small private businesses and Alternative Investment Market (AIM) companies. The money continued to flow throughout the pandemic when £1.2bn was invested in UK SMEs, underlining the importance of the £6.6bn VCT industry.
Venture capital is central to the success of technology firms with its focus on start-up companies and small businesses that VC firms think have long-term growth potential. Facebook, Google, and Twitter are all well-known venture capital success stories, and a UK equivalent could be the next VC success story.
VCTs offer more than just equity capital – although the capital is of course vital. They deliver management support, provide companies with industry connections, make follow-up investments, and in general help to expand the company’s future funding options. VCTs, once they have exited their investment, then use the proceeds from successful companies to invest in other new young businesses and begin the cycle again.
VCTs will be crucial in delivering the UK’s Digital Strategy and at the Venture Capital Trust Association (VCTA), the industry body for VCTs representing 13 of the largest venture capital trust managers, we are focused on playing our part.
Success for the Digital Strategy will provide much wider economic and societal benefits including spreading wealth across the country while helping companies meet ESG goals.
Technically levelling-up
The UK’s tech dominance extends beyond London - five British cities are now featured in Europe's top 20 areas for tech investment, with Cambridge being the leading tech city outside the capital. The VCTA focuses on investment in companies based across the length and breadth of the UK with more than 20 regional offices in towns and cities across the country.
Investment professionals based in major cities can be closer to the companies in these areas and will have a better understanding of their needs. Local presence ensures that the availability of patient capital is well known and understood by local entrepreneurs.
VCTs have an excellent track record of creating well-paid jobs in innovative, fast-growing industries across the UK. For example, the average salary for an employee at an unquoted, VCT-backed company in the Northwest of England is approximately £40,000 which is nearly £10,000 higher than the average wage for the region. Average salaries for quoted VCT-backed companies in the Northwest, rise to £50,000.
In the West Midlands, the average salary for an employee at a quoted, VCT-backed company is over £41,000 rising to more than £47,000 at unquoted VCT-backed companies. The average wage across the region is around £30,000.
Tech adoption is accelerating swiftly, especially in areas like healthcare, and will need to continue to grow to help the UK deliver its Digital Strategy with the support of VCTs.
With that comes significant opportunities for entrepreneurs to reach new markets and build scalable businesses with global ambition while also helping to support the government’s desire to level up and to promote the UK as a global tech superpower.