The United Kingdom is to change the laws governing startup investment vehicles known as Venture Capital Trusts (VCTs) but has opted against some of the dramatic alterations previously mooted. VCTs will still face new restrictions on the companies to which they can provide private equity cash, though.
If the proposal comes into force, biotechs founded within the past 12 years that employ no more than 499 people will be allowed to raise up to £20 million ($30 million) from VCTs. The investment vehicles were created to provide a tax-efficient way to connect young companies with investors, but officials have become concerned they could fall foul of European state aid laws. Such worries led to a consultation last year, in which government finance officials floated the idea of limiting VCT investments to companies founded within the past 7 years and capping the total they could receive at £15 million.
|Chancellor of the Exchequer George Osborne|
The proposal prompted a strong reaction from the likes of the UK BioIndustry Association (BIA), which argued the restrictions would harm biotechs. A small clutch of specialist tech and healthcare VCTs--such as Hygea VCT and Oxford Technology--operate in the U.K., and some companies have continued to receive funding from them long after passing the 7-year and £15 million marks. BIA cited Redx Pharma--the AstraZeneca ($AZN)-partnered drug developer--as a company that would have suffered if the £15 million limit was in place when it was getting started.
In light of these concerns, the government is treating "knowledge-intensive companies" differently, notably by increasing their VCT investment employment limit from 249 to 499 people and allowing them to raise 33% more than other businesses. Even so, the adoption of restrictions will still affect some companies. "As always, as a result of today's legislative tweaks, there will be inevitably some companies that just miss out on funding that are on the cusp of the qualifying criteria," Octopus Investments Managing Director Paul Latham said in a statement.