What will happen to UK entrepreneurs when the EU money runs out?
With less than 100 days until Brexit, UK entrepreneurs are no clearer on what will happen when the EU funding structures stop.
Most people are unfamiliar with the European Structural Investment Fund (ESIF). And when the referendum to leave the EU was called in 2016, no explanation was given to the average voter about the workings of the European Investment Bank or European Investment Fund. Even now, as we rapidly hurtle towards the end of March 2019, these funding structures are barely mentioned in the ongoing Brexit debates.
The Brexit effect on UK entrepreneurs
Here’s how much these structures matter to entrepreneurs. An average of 2.5 billion Euros has gone to the UK every year from these funds between 2014 and 2020. Government figures show that the largest percentage of this money is dedicated to support UK SMEs.
The European Investment Bank has also paid approximately 117 billion Euros to UK projects during its lifetime. Priorities for this money include making sure UK SMEs have access to finance and supporting innovation. The European Investment Fund, on the other hand, provides money for venture capitalists and about 2 million Euros have gone into funds operating in the UK. Other funding initiatives, such as Horizon, have also been established to support innovation.
These institutions go right to the centre of the debate within the UK about the benefits versus costs of being in the EU. ‘Remainers’ point out the benefits from the EIB ad ESI, while the Leave side say that the UK should fund its own projects. Either way, the money is going to run out when the UK leaves the EU. And the impact on UK entrepreneurs is unlikely to be positive, despite alternatives being mentioned by Government.
What will it mean for investment?
There’s no doubt this will affect investment. The European funding programmes designed to support entrepreneurs, whether directly or by ensuring a smooth trading environment, play a part in decisions made by angel investors and venture capitalists.
When we think about risking our own money, funds like the EIF give a background of security to our decisions. We are due to leave the EU on 29 March 2019, and assuming some kind of deal gets through UK Parliament, there will be a certain period of transition. However, the EU’s commitment to UK entrepreneurs has already suffered. In the period directly following 2016’s referendum, the EIF froze the flow of funding to venture capitalists in the UK, forcing them to go elsewhere.
Border complications
CEO of the UK Business Angels Association (UKBAA), Jenny Tooth, says that angel investment is likely to be affected by other factors relating to the EU, particularly in Ireland. She says: “What we’ve seen in Ireland is that angels from the Republic who live close to the border are looking in Northern Ireland for opportunities. And an all-Ireland business angels association has been formed.”
This means that there are tangible opportunities to encourage investment across the Irish border. This would benefit both regions of Ireland, but the investment surrounding the post-Brexit investment environment jeopardises this.
Regional variations in the UK
More leave voters came from specific regions of the UK, in particular the North East and the Midlands. Tooth says: “The irony is that these are the regions that will suffer the most from the withdrawal of EU funds.”.
It’s certain that these regions will suffer from a reduction in investment for entrepreneurs. So, what is the Government doing about these risks? Various institutions have been announced, including the British Business Bank aimed at lessening the detrimental impact of EU funding.
An agency called Innovate UK will provide funding to the tech sector and help has been announced for the ‘regions’ via the Government’s Industrial Strategy. However, it’s unlikely that the transition period will be plain sailing for UK entrepreneurs.
Access to finance under threat
It’s not just about funding innovative start-ups, there are real concerns about access to funding for family businesses. Finance provider Capital Step carried out a survey that shows around 40% of respondents saying they are worried that Brexit might “break family businesses.”
Capital’s co-founder Rael Sarembock says there are two Brexit questions on family business owners’ minds: “First of all, there is still a lot of uncertainty about the shape of the final deal. And secondly, people are asking what Brexit means for the ability of family businesses to access capital.”
He thinks that the family business sector has been overlooked by the Government, and that any plans relate to fast-growth start-up tech companies. He says: “The Government really has to think about ways to ensure that capital is allocated to SMEs.”
Whatever happens, entrepreneurs and established businesses are facing a period of uncertainty. When a deal is finally ratified, it will lead on to trade talks and no-one is clear on the final outcome. For now, we have to wait and see.
