‘Then what?’, I hear you say.
The European Investment Fund is a European controlled source of investment for start-ups and early stage growth companies – mainly in the tech sector. It was created by the EU in 1994 and has its base in Luxemburg, where it employs a team of around 400 people. So it has a history and size that makes you wonder why we didn’t get to hear about it during the Brexit debate.
Figures which were published in the FT recently show that the EIF has invested over €2.3 billion or around £2 billion in UK start-ups between 2011 and 2015. That makes the money currently raised via equity crowdfunding here seem very, very small. The shareholders are mainly commercial banks and other financial bodies. This £2 billion over 4 years represents more than a third of all such investment in the UK.
The UK version of the EIF might be The British Business Bank, which was formed by the Coalition Government in 2014. Its record does not come close yet to the EIF’s. Whether it ever will is still up for debate.
Investment from the EIF went to more than 144 venture capital companies between 2011 and 2015 and this makes it the largest investor in UK tech start-ups. Venture funds also receive their support from other city sources, but talking to investors since the Brexit vote, I find most are happy to sit on their hands until we have some clarity on what the UK will actually look like post-Brexit.
The more you look at the support provided by the EIF in the last 4 years, the larger the hole looks if this support were to dry up on our departure from the EU.
Will the hole be inevitable?
Well, that all depends on the Brexit deal struck. The UK has a thriving tech start-up sector and it would be madness to throw away this kind of support. The vote to leave the EU has not meant that all of our talent, the talent that the EIF has seen fit to support up till now, has suddenly disappeared. So providing the channel is kept open, the investment will continue.
Whether our politicians are able to understand this situation is another matter.
One thing is for sure, equity crowdfunding will not be able to fill this gap for many years to come. So if the channel is closed, tech start-ups that currently thrive in London, Cambridge and the laboratories of many of our universities, could be forced to set up EU companies to qualify for EIF investment. That would mean added costs, added administration and a mess that was quite avoidable.