Written evidence submitted by Roliscon Ltd


I write as someone who is an active stock market investor including in Venture Capital Trusts and have historically been a director of several start-up and early-stage companies that have benefited from EIS schemes.


My comments are as follows:



The venture capital market is certainly a lot healthier than it was ten or twenty years ago. It is now relatively easy for early-stage companies to get finance if they have a sound business proposition.


You can see this from the growth in the funding raised by Venture Capital Trusts (VCTs) which according to the AIC raised £1.13bn in the tax year to 5 April 2022. Venture Capital Trusts have been very successful in supporting the growth of early-stage companies many of which have subsequently listed on AIM.


VCTs have been able to raise these funds from private investors because of the attractive tax benefits they provide. The risks associated with VCTs (and the companies in which they invest) are substantial however and without the tax benefits they would not prove attractive to private investors. The last set of changes to the rules for VCT investment have increased the risks and it has yet to be shown what the long-term impact of those changes will be so I suggest that changing the rules or amending the tax reliefs to investors should not be considered until the impact is clearer.


As regards the EIS and SEIS schemes I feel that the tax benefits are so high that they encourage investment in projects that are not likely to be commercial successes. They also affect the valuation of early-stage companies in general, i.e. make the values higher than they should be. It is not in the long-term interests of the venture capital sector to have valuations put on companies that are shown in retrospect to be excessive.


As regards the merits of strengthening the venture capital industry you mention four areas for comment:

  1. Opening new pools of capital such as pension funds and retail products (e.g. through ISAs). It is worth pointing out that SIPPs and ISAs can already be used to hold investment companies that invest in early-stage companies. This is not always a success though – the Woodford debacle showed how it can fail. I doubt that traditional company pension fund managers would have the knowledge and experience to invest successfully in start-up or early-stage companies. It is surely better to place reliance on fund managers who specialise in this sector. I suggest with traditional pension funds there should be a limit on what proportion they are allowed to invest in venture capital funds – say 10%.


  1. Generating home grown talent through the education system. There is certainly scope for more business education that would help to develop potential entrepreneurs. At present there are good M.B.A. qualifications but they are expensive for students and are postgraduate qualifications plus most M.B.A. students go into established companies who can afford to pay high salaries. More lower-level business qualifications are required such as first degrees (BSc) and HNC/HND qualifications. The latter need to be made more attractive and more available to students as opposed to the current focus on degree level qualifications. The problem really starts at an earlier stage in schools where the emphasis by teachers is put on academic qualifications rather than the objective of gaining practical skills useful in a business environment. This web page gives you the breakdown of degree versus HNC/HND qualifications and the subject matter of degrees


  1. Attracting international talent. This is not an obvious benefit. Much better to develop home-grown talent.


  1. Other interventions. Experience of past direct interventions is not good. Governments and civil servants are very poor at understanding the needs of the commercial world. Intervention by the offer of tax reliefs can be good (as in the case of VCTs) or potentially bad (as in the case of the EIS and SEIS schemes). Encouragement of students to study business subjects would be gained by giving them better financial incentives such as lower fees, lower loan costs, etc. Some subjects should be favoured as against others.


As regards international best practice, I have some experience of the USA business environment and there is a big difference there in the availability of staff with sales and marketing experience in comparison with the UK.  Those are the essential skills in early-stage companies.  There is also more willingness for staff to move location with low-cost rental accommodation readily available unlike the UK. It’s all the little things in the business environment that makes the difference. But the UK is much better than most other countries in the rest of Europe.


The major difference in the USA is a large homogenous market which makes it easier for start-up companies to succeed.



May 2022