Small and start-up businesses are the bed-rock of industry in the UK. The Conservative Party rebranded itself as a government for small businesses in the late 2000s, not only in a bid to curry the favour of a new generation of businesses but also to react to the truth of the UK’s changing landscape.
Today, start-ups remain vital to the UK’s success, but continue to emerge in a saturated market. Funding is thin on the ground and loan agreements difficult to square away. One of the driving forces behind innovation in business today is not the conventional loan structure, but rather venture capital. What is it, and how have businesses benefited from it?
What is Venture Capital?
‘Venture capital’ is a financial term that refers to a specific form of business seed funding or investment, provided by individual investors or enterprises. These individuals or enterprises are venture capitalists; they seek out early-stage companies that demonstrate a high growth potential, in hopes of growing their own portfolio.
Unlike traditional avenues for business financing, venture capital does not involve interest, or indeed repayment in the conventional sense. Instead, venture capitalists provide funding, expertise and advice in exchange for equity in the company. In so doing, venture capitalists aim to generate significant returns on their investment through the rapid growth of the business and its value.
Facts and Figures
While venture capitalism is generally used to explain the shrewd decision-making of individual investors and businesses, there is also something of a venture capital industry within fintech – born through the creation of venture capital pools and programmes that enable less-informed retail investors to benefit via third-party decisions.
According to recent statistics given by the UK government, Venture Capital Trusts (or VCTs – being businesses that exist to invest in other businesses), issued well over £1.1 billion in shares between 2021 and 2022. This does not reflect the billions traded and transacted globally in the same annual period.
Who Benefits from Venture Capital?
The impact of venture capital naturally extends beyond financial backing, as illustrated earlier. Venture capitalists are often industry veterans, able to provide guidance as well as access to valuable networks and resources. This combination of financial support and expertise fosters innovation, with the possibility of propelling technological advancements.
As such, certain sectors have emerged as major beneficiaries of venture capital as a funding model. It is true that businesses in all sectors have benefited, but those in technology, healthcare, and energy are amongst the most successful.
In the technology sector, venture capital enables innovation above and beyond. Without venture capital, private start-ups in areas such as artificial intelligence, blockchain, and cybersecurity could not realise some of the groundbreaking ideas of our time – whether new consumer AI models or new quantum computing tech.
In healthcare, venture capital has fuelled key advancements in biotechnology, medicine, and medical devices. Where academic funding is falling short through Brexit-related issues, private funding enables the continued development of world-leading solutions.