EIF Drops UK Start-up Funding

Scottish Businesses Brexit Preparation

Since Article 50 was triggered last year, British start-ups have noticed a marked decrease in the amount of money pouring into the UK from the EU’s investment arm. Is the EU deliberately ignoring British companies?

British start-ups are beginning to feel the pinch of Brexit after the European Union’s investment wing, the European Investment Fund (EIF), shut down funding to UK-based firms. This move is depriving a vibrant sector of important financial resources and could cause difficulties for future start-ups.

The European Investment Fund invested just £52 million in UK-businesses last year, down a shocking 91% from 2016, despite British taxpayers still continuing to fund the EIF.

Does this signal a lack of confidence in British business for the years ahead, or is it a politically motivated ploy by the EU and a shift towards a more distant relationship?

Warning Signs

Warnings have been raised over the EIF’s continued investment in the UK over the past 18 months. Concerns over a weakening relationship between British and European business institutions were raised last year as British technology investors were told they risked being cut off from the EIF – Europe’s largest source of venture capital funding – even before the UK leaves the EU.

The EIF is a partnership between the European Investment Bank and private investors. It has provided valuable funds for British start-ups over the years, accounting for more than a third of investment in budding UK-based businesses between 2011 and 2015 with over £2 billion invested in various funds.

The EIF had previously said that it would “not change its approach to operations in the UK” following the Brexit vote. However, last year investors claimed that after Article 50 was triggered, the cash flow began to significantly drop. To counter this potential outcome, Chancellor Philip Hammond said that he is prepared to give extra firepower to the British Business Bank should the EIF stop backing UK investors.

In November last year Mr Hammond said: “I want to reassure you that if we can do a deal that allows the EIB, the EIF, to continue lending to the UK then we will.”

He added: “But if we can’t, the British Business Banks stands ready, willing and able and the Government stands ready to capitalise it to enable it to step into their shoes.”

Risk to British Innovation

In its Annual Report published this month, the EIF said it had backed only three UK investors, which is a considerable drop from the 20 it supported in 2016. Across Europe, the level of funding remained roughly the same at €9.3 billion, however the amount given to UK investors dropped from €708.8 million to only €61.1 million. That means British investors – and in turn, businesses – received only one percent of the EIF’s total investment.

The risk this poses to innovation in UK business cannot be understated. Britain’s vibrant technology sectors continue to lead the world in a host of trades, however for up-and-coming firms, this loss of investment could stifle their ability to grow and flourish. Additionally, it will force start-ups to seek alternative methods of investment which may not be as easily accessible as the EIF.

The UK tech scene far outperforms that of its European counterparts. Technology start-ups in the UK attract more funding than any other EU nation by a significant margin. Investors put £3 billion into the UK tech scene in 2017, which according to figures is four times more than Germany, the next biggest market.

Investment Elsewhere

These figures appear to be a slap in the face for British businesses when one considers the recent moves by the EIF. Earlier this month, the EIF and the National Bank of Greece (NBG) signed three agreements worth €640 million to improve access to finance for small and medium-sized enterprises (SMEs) in Greece. Under this agreement, NBG will provide loans at favourable terms to various businesses and start-ups for two years.

As the UK edges toward Brexit, could this be an initial sign that British start-ups and investors will be among the first to feel the pinch?



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