Britain’s start-ups already losing access to EU investment funds
More Brexit costs as Britain’s start-ups are set to lose access to significant EU investment funding.
Theresa May’s Brexit plans to take Britain out of the single market and out of the customs union will mean the country’s growing technology sector is likely to lose access to the European Investment Fund (EIF). The Financial Times reports the EIF accounts for more than a third of investment in venture capital funds based in the UK. So this would be no small loss.
And despite Britain’s withdrawal not actually due to take place until 2019, the FT reports that investment has already slowed. Speaking to the FT, Invest Europe Michael Collins said that the prime minister’s triggering of Article 50 “made it much more difficult for it [EIF] to back UK fund managers”. You can read the FT article for more on the implications of the loss.
In another report by the FT, Kadhim Shuber explains that one of the reasons it would be more difficult for the EIF to back British venture capital is that the fund needs to be “established” or “operating” in an eligible country. And by eligible, that means a country in the EU, EEA or a country participating in Horizon 2020. But the Tories want to take Britain out of all three.
The loss of EIF funding was also highlighted as a risk to small businesses across the country. City AM reports Federation of Small Businesses (FSB) national chairman Mike Cherry saying “EIF funds are particularly important for firms aspiring to grow, assisting firms looking to expand moderately as well as those seeking to scale-up”.
EIF funds are particularly important for firms aspiring to grow, assisting firms looking to expand moderately as well as those seeking to scale-up.
Mike Cherry, national chairman of FSB
Given that British businesses also risk losing the same access to its biggest trading market as it does as an EU member, it doesn’t bode well for attracting other investors to replace the EIF’s loss.
Could British Business Bank make up for EIF loss?
In the Autumn Statement, the chancellor Philip Hammond announced plans to put £400m into venture capital through the British Business Bank (BBB). But according to another City AM report, experts in the tech industry do not think it goes enough. City AM quotes KPMG’s Tech Growth practice co-head Patrick Imbach saying that it was “a drop in the ocean” compared to historic levels of investment to the start-up community.
The reality is £400m is a drop in the ocean when you look at historic levels of investment into the UK start-up community.
Patrick Imbach, Tech Growth practice co-head at KPMG
The FT’s report also notes that a key difference between the EIF and British Business Bank is that the latter “is not allowed to borrow in addition to funds committed by the government”. So whilst the additional investment via the BBB could go some way in plugging the gap left by the EIF, there are limits to it.
Away from money, another problem highlighted in City AM is if Brexit leads to a shrinking of the talent pool. Tech London Advocates founder Russ Shaw said the chancellor’s plans do not “address the tech sector’s number one issue – access to talent”. Shaw added that “financial incentives can only be successful if we have skilled workers that can use them to innovate and create value”.
Financial incentives can only be successful if we have skilled workers that can use them to innovate and create value
Russ Shaw, founder of Tech London Advocates
It’s a sentiment shared by many UK industries. Yet, in addition to Theresa May’s commitment to taking the UK out of the single market and customs union, she has also promised again to cut net migration down to the “tens of thousands”.