Accessing finance in a post-Brexit world
Will Brexit affect the ability of growth companies to secure funding?
The UK is one of the best places in the world to start and grow a business. This is helped by attractive tax incentives for private investment in unquoted companies, including the Seed Enterprise Investment Scheme, the Enterprise Investment Scheme and investment from Venture Capital Trusts.
Funding from these sources is often central to the survival and growth of businesses in their early years.
These tax-efficient investment schemes currently fall within the EU state aid provisions as tax-advantaged ‘risk-based schemes’. Many of the rules restricting the type and size of company that can benefit from them when raising finance have until now been dictated by the EU.
Once we have exited the EU, the UK may become free to amend and improve the schemes as it sees fit, offering greater flexibility around qualifying companies. But until the mechanics of our departure from the EU kick in, we can expect business as usual for these schemes.
So far, it seems that the uncertainties of Brexit have had little short-term impact on the ability of companies to obtain growth funding. Indeed, according to a report by research consultancy, Beauhurst, which looked at all equity investment in UK start-ups and high-growth companies in 2016, there was no significant drop in deal numbers after the EU referendum.
One worry is that the European Investment Fund, which invests EU funds in small businesses, has slowed its investment into UK venture capital funds. This source of finance could disappear after Brexit. However, in his Autumn Statement, Phillip Hammond sent a bolstering signal of support to growth companies through his plans to inject an additional £400m of venture capital funds into the British Business Bank, targeted at UK scale-ups.
In addition, growing businesses now have a far wider choice of funding options with the rise of peer-to peer lending and crowdfunding platforms, as well as various government-backed schemes.
What about UK tech?
For the past couple of years, commentators have been debating the future of the UK’s tech sector, with many believing it’s overheated and heading for a repeat of the dotcom bubble. Is Brexit a trigger for funding challenges ahead?
Venture capital funding into UK fintech companies dropped by a third in 2016, according to Innovate Finance. It says the UK’s fintech startup sector is suffering from the Brexit effect, driven by uncertainties around future passporting rights and access to the European talent pool it relies on so heavily.
Still open for business
It’s clear that there will be some short-term wobbles as we adjust to any changes around access to talent and investment post-Brexit. But with so many advantages, we can be confident that the UK will continue to be a leading global hub where international investors and companies meet to do business. The UK is unique, with a stable legal and regulatory infrastructure. In addition, we have the English language, GMT, a global reputation for talent and service, as well as a track record of championing innovation and entrepreneurship.
The appetite for investment in UK companies has mostly remained solid in the wake of the Brexit vote, and there is every reason to believe that this will continue in the future.
To find out more about Seed Enterprise Investment Schemes and Enterprise Investment Schemes, contact Adrian Walton
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.