Written evidence submitted by Wealth Club


This document outlines Wealth Club’s response to the Treasury Committee Call for Evidence. We welcome this opportunity to provide our views.


About Wealth Club and why we are responding

Wealth Club is the UK’s largest broker of tax-efficient investments – predominantly VCTs, EIS and SEIS investments.


It was set up to open the lid on venture capital investments: providing well researched, unbiased investment information and making them easier for experienced retail investors to find and apply for. 


Since February 2016, 9,600 high-net-worth and sophisticated investors have invested more than £933 million to support young, fast-growing, mostly private businesses – from start-ups to scale-ups. Over 45,000 investors have registered to receive information on these types of investments.


We are, to our knowledge, the only scaled operator focusing on this area of the market. Our growth – Wealth Club is on the Financial Times’ 2022 list of 1,000 fastest-growing companies in Europe – reflects the surge in investor demand.


Executive summary - widening the funnel


While more than £2.5 billion is invested overall into Venture Capital by individual investors each year in the UK, this is still a nascent area of the market.


We believe widening and improving access to Venture Capital investments could deliver significant benefits to both investors and the UK economy as a whole.


Benefits to individual investors

Value creation has shifted from the public to the private market. Of the $11 trillion created by companies founded in the last 10 years, almost 70% ($7.5 trillion value), are still private. The number of public companies is declining. For individual investors, not having an exposure to private markets means losing out on this growth potential.


Benefits to the UK economy

It is becoming increasingly clear that scalable start-ups are the engines that drive economic growth and job creation in many markets around the world. According to Dealroom data, start-ups in aggregate grow about 3x faster than the traditional economy and are responsible for 10% job growth worldwide since 2017. 


In recognition of this, policymakers around the world are taking steps to help investors gain exposure to venture capital and private markets:


Our considered view, based on six years of raising funds for fast-growing UK companies, is that the UK Venture Capital schemes work well – however, there is abundant scope for improvement. In particular:


  1. Increase tax relief for VCTs, EIS and SEIS: our research shows tax relief is a key element of the government’s Venture Capital Schemes’ appeal. We would suggest tax relief is increased or – at the very least – retained at the current level. Historic data on funds raised by VCTs shows a very strong correlation between the rate of tax relief available and the amount raised.
  2. Increase allowed investment amounts particularly for SEIS: we believe the amount companies can raise under the schemes could be increased – this is of urgent and crucial importance for SEIS. Whilst the introduction of higher limits for knowledge-intensive companies in 2019 has helped innovative EIS-qualifying companies, the SEIS limit has been stuck at £150,000 since the scheme was introduced in 2012/13. This cap is now completely out of date, making the scheme inadequate to support very early-stage companies.
  3. Make private market funds more accessible to sophisticated or high net worth retail investors: whilst VCT, EIS and SEIS investments are relatively accessible to high-net-worth and sophisticated retail investors, private equity largely remains the realm of institutional and professional investors. The investment industry is starting to address some of the issues – namely illiquidity and very high minimum investments – with the recent development of semi-liquid, monthly or quarterly dealing fund structures, such as SICAV Part II funds. However, the regulatory framework has not kept pace. We believe such funds could be more accessible. If successful, this has the potential to provide entrepreneurs with access to greater pools of capital to scale up their businesses.


We explain in more detail the rationale for our submission below. If the Treasury Committee has any questions on our response, or would like further information, please do not hesitate to contact us, using the below contact details.


The current state of the venture capital industry in the United Kingdom, including opportunities and threats, such as the availability of domestic capital to allow firms to scale up in the UK.

We believe the government’s Venture Capital Schemes serve a vital role in supporting innovation and economic growth, providing funding to young, asset-poor, innovative companies which couldn’t easily raise finance via more traditional methods.


That said, the effectiveness of the schemes relies entirely on them being appealing and easily accessible to investors. This leads to both opportunities and threats.


Growing investor and company demand is in our view the key opportunity.


The biggest threats in our view come from any changes in the tax reliefs available and / or eligibility criteria.


Tax relief is essential. A recent survey of Wealth Club clients demonstrated that for 88% of clients, the tax benefits were the main reason for investing. This is in line with research from the AIC last year which also demonstrates that 88% of private investors used VCTs for tax relief. Furthermore, 72% of investors stated that  tax relief is the primary motivation for investing and 63% say the upfront income tax relief is the most important benefit. Whereas the tax-free dividends were the most important element for 19% of investors, and for 18% it was the tax-exempt capital gains. 


Eligibility is key. Currently, retail investors are eligible to invest in VCTs and, provided they can self-certify as sophisticated investors or high-net-worth individuals, they can also access EIS and SEIS. Should the eligibility criteria be restricted further – and there are two current consultations from the FCA and HM Treasury that threaten to do that – it could dramatically affect how much is raised through the schemes. London currently ranks second to Silicon Valley as world's best start-up hub. This could rapidly change if new regulatory restrictions turned the tap off to  venture capital investors.


The UK scale-up ecosystem is still underdeveloped – this is both an opportunity and a threat.


We believe the UK is a hot bed for early-stage entrepreneurs. But when companies experience success, raising scale-up capital may prove difficult. For this reason, it is not uncommon for companies to sell up to overseas investors, or float on the Nasdaq. That is good news for investors and allows the company to continue growing, but means the UK is losing out to Europe and the US.


Making private market funds more easily accessible to sophisticated or high-net-worth retail investors has the potential to increase the amount of domestic capital available to UK businesses.


The level of co-operation/integration between start-ups and established industry.

No response provided. 

The operation and effectiveness of the current tax incentives (such as the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs)) in the venture capital market, including any options for change.

Broadly speaking, we believe the Venture Capital Schemes are effective in supporting young, entrepreneurial British businesses.


There is, however, significant scope for improvement in our view. In order of priority:


  1. The maximum amount a company can raise under SEIS should be increased from £150,000 to at least £250,000

The £150,000 cap has been in place since 2012/13, when the SEIS was introduced. Over that time, the value of the investment has decreased by c. 23% due to inflation alone.
The sum is also completely out of kilter with what companies tend to raise at Seed stage. Typical Seed fundraises range from £150k to £500k with a median of £250k (Pitchbook, 2018). Outliers can raise up to £2 million.

At seed stage, risks are very high – statistically an investor only has a 5% chance of an exit – which is precisely why SEIS tax relief at the generous level of 50% was introduced. Yet the current SEIS limit means that only a small part of an average seed-stage investment could qualify for SEIS relief. This needs to be urgently addressed in our view.


  1. The level of tax relief available should be increased

If we look at VCTs – the only Venture Capital scheme where the level of tax relief available has changed over time ­– the strong correlation between tax relief and funds raised is immediately apparent. The first funds raised peaks (in 2004/05 and 2005/06) clearly coincided with the rate of available income tax relief being increased from 20% to 40%. Conversely, when in 2006/2007 the rate of tax relief dropped to 30%, funds raised also dropped by two thirds (from £779 million in 2005/06 to £267 million in 2006/2007).


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This is also supported by research conducted by Wealth Club amongst its investors and by the AIC, as mentioned earlier.


Consequently, to support further investment in VCTs, EIS and SEIS, we would recommend the rate of income tax relief to be increased from 30% and 50% to 35% and 55% respectively.


  1. The process for companies to apply for EIS Advance Approval from HMRC should be simplified

According to Growthdeck, the number of small businesses planning to raise money under the EIS rose from 2,965 in 2019/20 to 3,245 in 2020/21. At the same time, 295 applications for EIS Advance Approval were rejected last year – an increase of 59% on the year before. It is reported some businesses see some of the restrictions on applications as quite arbitrary – for example the seven-year age limit on companies applying for funding. We would support any initiative that saw the Government and HMRC work to open EIS up to more businesses rather than restrict it.


  1. Promote greater awareness of the venture capital schemes amongst businesses and entrepreneurs

We believe the government should support media campaigns to increase awareness of EIS, SEIS and VCT to businesses and entrepreneurs. In particular, this should target entrepreneurs from underrepresented groups, from female entrepreneurs to ethnic minorities.



EIS: Since Enterprise Investment Scheme was launched in 1993/4, 65,910 individual companies have received investment and around £25.6 billion of funds have been raised in total, from 1.9 million individual investments.

SEIS: 19,350 companies have raised £1.5 billion under SEIS since its launch in 2012/13. We would like to see the level of SEIS increased from £150,000 to £250,000. That would reflect inflation since the cap was initially introduced, and could allow SEIS funding to make a meaningful difference to a company’s prospects. According to data from Beauhurst, there were 1,635 first-time seed-stage deals completed in 2021, which is an increase of 1.2 per cent from 1,615 in 2020 but an 18 per cent decline on the 2,005 deals done in 2018.

VCTs: In 2021/22 tax year, £1.4bn of capacity was made available to investors from 27 VCT providers. 

Each VCT would typically invest in 30 to 100 companies, and hundreds of companies benefit from VCT funding every year.


The operation and effectiveness of the regulatory regime(s) concerning venture capital.

In our informed opinion, the regulatory regime concerning venture capital requires careful consideration.

As mentioned, currently retail investors are eligible to invest in VCTs and – if they can self-certify as sophisticated investors or high net worth individuals – in EIS and SEIS.

There are proposals for this to change. Through two separate consultations, the FCA and HM Treasury are suggesting much stricter – and much more difficult to implement – eligibility criteria. Should these proposals become effective, we expect investment in EIS and SEIS to drop dramatically. And a drop in investment means fewer companies getting funding to support growth, fewer jobs created, lower and slower economic growth.

A survey of Wealth Club investors about the proposals showed nearly half of respondents would not be eligible / likely to invest if the proposals were implemented. The overwhelming comment from our experienced investors was “This is patronising – I have experience and know what I am doing”.  

We believe the current regulatory regime for EIS and SEIS should not be changed.

In addition, we believe the eligibility for investments in semi-liquid open-ended private market and patient capital funds (such as SICAV Part II funds) should be opened up. We believe the current regulatory framework penalises experienced investors, potentially leading to worse outcomes by precluding them from gaining exposure to one of the fastest-growing investment areas.

The role of other key bodies, such as the British Business Bank and the programmes which it oversees (including the Future Fund and British Patient Capital), and the Advanced Research and Invention Agency, and how they can support the venture capital market.

No response provided

The merits of policy proposals for strengthening the venture capital industry in the United Kingdom, such as:


The UK has the largest wealth management sector in Europe. Broadly speaking, it is restricted to investing in daily dealing funds / highly liquid investments. Allowing HNW / sophisticated investors who understand and can tolerate the risks to easily invest in semi-liquid open-ended private market and patient capital funds (such as SICAV Part II funds), could unlock substantial amounts of capital for UK private companies, not just for the nation’s scale up businesses, whilst also providing funding for vital infrastructure projects, and the government’s net zero ambitions. 

The effectiveness of any other government or public sector intervention in the venture capital industry.

No response provided

The effectiveness of government policy around venture capital in meeting wider government objectives (for example: around “levelling-up” and tackling regional inequality, the aim for the UK to be a science and technology “superpower”, net zero).

Green industrial revolution

Regional inequality

London and the South East have received the largest amount of EIS funding. However, many EIS and VCT asset managers focus outside of these areas. Examples of the most active regional investors from the last decade (to 2021) include:

Science and technology

The sectors of technology and life sciences account for the lion’s share of VCT, EIS and SEIS investment.

Both sectors are ideally suited to these schemes for two main reasons:

It is fair to say, in our view, the UK science and technology innovation output would greatly suffer should investment in VCTs, EIS and SEIS decrease.


June 2022