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New VCT Rules and Knowledge Intensive Businesses

I attended the Annual General Meeting of Northern Venture Trust (NVT) yesterday – one of the more successful VCTs. Management representative Tim Levett gave us a briefing on the impact of the new “draconian rules” (as he called them) for VCTs arising from EU regulations. His criticism also arose from the fact that the legislation is effectively retrospective as it impacts both “old money” from past fund raisings and new money.

One particular oddity is that the amount of money than can be invested in a company depends on whether it is a “knowledge intensive business”. The rules on what qualify for that are quite complex, but one of them is that you should have a certain proportion of employees with higher education qualifications – or as Tim Levett put it, you just need to employee secretaries with M.Scs or PhDs.

What he did not point out but perhaps should have is that those well known business leaders of knowledge intensive companies Bill Gates, Steve Jobs and Mark Zuckerberg would not count as they were all college drop-outs. So Microsoft, Apple and Facebook might not be considered as such. It seems that software companies, which are often staffed by people with a mix of formal educational levels, might therefore be prejudiced in favour of those with a more traditional “scientific” focus. This is of course what happens when you get civil servants with little knowledge of the real world trying to devise complex rules to favour their own prejudices. But there is one thing for certain – the complexity of the rules will create enormous difficulty in interpreting and staying within them. Not exactly an “entrepreneurial” approach at all.

Otherwise it was an interesting meeting and it looks like traditional VCTs like Northern will be able to adapt to the new rules. A full report is here.

Roger Lawson

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