The UK tech start-up scene may cease to exist, thanks to Brexit, claims the boss of one start-up, and the problem relates to the European Investment Fund (EIF).
Between 2011 and 2015, the EIF committed no less than 2.3 billion euros to around 144 UK venture capital firms. “It is an open secret among British venture capitalists that many of their funds would have never gotten off the ground without a hefty cheque from the European Investment Fund,” claims a report on Bloomberg.
According to Business Insider, the EIF has frozen all funding to British Venture Capital.
Funds that have been affected include Seedcamp, Dawn Capital, Hoxton Ventures, and Episode 1 Ventures, says Business Insider.
So, what does this mean?
Simon Murdoch, founder of Episode 1 Ventures was quoted by Business Insider saying: "Until Theresa May said that we would trigger Article 50 [to leave the EU], in all that time, the EIF engaged with us in a fair and diligent way. Then after meeting them in January, they just went silent. Then we triggered Article 50 and the EIF [said] it wasn't going ahead with us."
He added: "We suspect that if [the UK] hadn't triggered Article 50, we would have had a much better chance. We can't be sure. But we think leaving the EU and Article 50 was instrumental in us being turned down."
Tech City News cited Ethar Alali, CEO of Manchester-based engineering startup Axelisys as warning that "the UK’s tech start-up ecosystem may even ‘cease to exist’”.
But is it really that hopeless?
Clearly, Brexit is set to hurt the UK tech start-up scene, and for more than one reason.
Not only will it hit funding from the EIF, but there is the immigration issue too – many tech start-ups rely on talent coming from elsewhere in the EU – some even have a head office in London and a second office employing tech talent in eastern Europe. Indeed, according to a survey survey from Hired, The UK’s foreign tech talent pool has halved since the Brexit vote.
But, the UK is not without hope.
As Russ Shaw from Tech Advocates said, British firms will need to look towards the US, China and India for funding.
Then again, take Japan’s SoftBank’s planned $100 billion tech fund, with backers including the Saudis and Apple. The fund is to be based in London. It won’t invest solely in the UK, but the London base will surely help. Besides, this fund will make the EIF seem small.
But then even though the fund is not yet launched, SoftBank has already invested some half a billion into UK Virtual Reality company Improbable.
The UK boasts the biggest slice of Europe’s unicorns and if such companies sell out but stay in the UK, as happened with Edinburgh’s Skyscanner, creating a hundred or so millionaires living in the city, much of that money is re-invested. Skyscanner was sold for $1.4 billion – not so far off the loss of funding from EIF.
And finally, there is the point about what the UK will do with the supposed savings from its contributions to the EU budget. Sure, the UK will lose money from the EU budget, but its saving will, in theory, be greater. Mrs May says that the government will make up for any shortfall in EU investments. Anecdotal evidence suggests that she sees the UK tech start-up scene as very important. One assumes she will be as good as her word.