Tech entrepreneurs in the UK must look on longingly at their counterparts across the Atlantic, with a knowledge sector bolstered by enterprise-focused US universities and a multi-billion-dollar bursary system. With business confidence on the rise, venture capital funding across all US industries grew by 49 per cent in the first quarter of 2018, according to Goldman Sachs. This is backed up by the Fed’s annual survey of small firms, which has highlighted rising profitability, increased confidence and easier access to financing. Donald Trump’s corporate tax reforms should also be factored in.
Lest we forget, the US is the biggest single source of foreign direct investment into these shores. So last year the UK was recognised as the leading international destination for Silicon Valley investors, with more than 90 per cent of the total venture capital raised by UK tech firms. Figures from Innovate Finance, a fintech trade association, show 224 deals attracting $1.8bn (£1.35bn) of venture capital investment, a 153 per cent year-on-year increase, with close to half destined for challenger banks and ventures linked to money transfer and forex.
For now, risk appetite remains healthy enough to guarantee adequate funding, but what does any of this mean for retail investors, who have often struggled to gain exposure to this fast-growing sub-sector, not least because many of the start-ups remain in private hands? Probably just as well really, given the attrition rate of these companies, but if you’ve managed to get in through collective vehicles it’s worth noting that the Association of Investment Companies (AIC) has decided to stop publishing key information documents (KIDs) on its website after a highly critical report underlined their potential to mislead investors. Analysis from the AIC found instances where KIDs (which were only introduced in January 2018) overstated potential future performance and understated risk, with venture capital trusts exhibiting the lowest average risk indicator amongst the AIC’s members, despite the fact that they routinely invest in higher-risk small businesses. The AIC has dutifully called on the Financial Conduct Authority to prevent the widespread dissemination of these risk indicators, although I’ll wager that members of the legal fraternity will be paying close attention to how the issue pans out (IC personal finance editor Leonora Walters will be providing some in-depth insights into this issue in due course).
