According to a new Treasury Committee report, the UK’s venture capital-focused tax relief schemes having a seven-to-10 year business “age limit” is disadvantageous to startups in regions outside the “Golden Triangle.”

The recently published Venture Capital Report highlighted the uneven levels of venture capital (VC) investment across the UK, with the Golden Triangle — London, Oxford, and Cambridge — receiving around 80% of VC investment.

Further, the British Business Bank’s nations and regions tracker found that in 2021, London alone accounted for 66% of overall UK small- and medium-sized enterprise (SME) equity investment, and 49% of deals.

The report underscored that VC-focused tax relief schemes — which includes the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs) — are internationally competitive schemes that have had a positive impact on businesses in the UK.

For instance, VCTs encourage individuals to invest indirectly in smaller trading companies that are seeking to grow, with the VCTs being managed by fund managers who are usually part of larger investment groups.

However, and while the EIS and VCT schemes are available to businesses across the UK, both initiatives have certain qualifying conditions that must be met, including an “age limit” where firms must be no older than seven years from their first commercial sale, and 10 years for “knowledge intensive companies.”

As justification of the schemes’ age limits, the HMRC suggested that “the rules ensure that tax relief is targeted on investments in earlier-stage companies, companies that need several rounds of tax-advantaged funding before the market will invest in them.”

Dr. Mark Payton, the CEO of Mercia Asset Management, a regional-focused VC fund, told the Committee that as regional firms tend to take longer to grow due to lower available resources, the system is “disproportionately punishing” for regional businesses.

“Just get rid of the age cap—please just get rid of the age cap on businesses. It is really hamstringing the regional businesses, in particular,” he suggested.

Douglas Hansen-Luke, the Executive Chair of Future Planet Capital — a venture capital fund with regionally-focused investments — evidenced that “just last week we had a company in the midlands that had a partner walk away […] because they were seven years and half a month, we were not able to invest in them.”

In response, the report advocates for the UK Government to extend the seven and 10 year age limits for support through the EIS and VCT schemes, with a revised limit taking place from April 2025.

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In addition to the inequality in VC funding allocation across the UK, the report also highlighted that the UK venture capital market is highly unrepresentative when it comes to gender and ethnicity.

The British Business Bank told the Committee that “For every £1 of equity investment in the UK in 2021, all-female founder teams received 2p, all-male founder teams received 84p, and mixed-gender teams 14p.”

As the report also referenced, the UK Business Angels Association’s data showed that only 15 to 18% of angel investors are women and only about 11% of the angel community are from ethnic minorities, showing a substantial gap on both sides of the market.

Among its recommendations, the Committee advised that all relevant organisations in the VC industry become signatories to diversity-boosting initiatives like the Women in Finance Charter and Investing in Women Code, if they have not done so already.