We are still the most popular destination for venture funding in Europe, by far. Last year, the UK attracted £6.8bn, that’s more venture funding than France, Germany, the Netherlands and Italy combined. The closest rival was France with £2.4bn.
Moreover, the UK was able to increase its share of total European venture funding to 43 per cent from 32 per cent in 2015.
On the other hand, venture financing and deals closed have been declining over the last year, albeit have been stabilising recently. Since the referendum there has definitely been some pullback as investors worry about the bigger picture. Questions around the status of EU tech workers in the UK, the stability of international financing, trade regulations and everything else will deter some investors.
So how do we square this with the following observation: VCT (venture capital trust) fundraising hit the second highest level on record with £542m, an 18 per cent increase on the year. Moreover, VCT assets under management are also up on the year from £3.6bn to £3.9bn. So, perhaps what we are witnessing is a decline in traditional venture money couple with a more than offsetting increase in tax plays?
If this is the case, we should have high hopes for SME funding. The acting director general of EISA even suggested SMEs and the sector could benefit from Brexit given the lower exchange rate and the expectation that the Treasury would cut regulations associated with EIS. The EIS and SEIS schemes are to be reviewed in the next couple of months and the expectations are hopeful given the government seems to be aware of how useful these have been for the economy; we could see some further boosts here.
A decade of low interest rates, a robust economic recovery and dwindling options for savers appear to be pushing an increasing number of people towards tax-efficient investing into SMEs. Given SMEs account for 99 per cent of businesses and 60 per cent of private sector employment, this could have a sizable impact on the economy.
Rehan Islam, is investment director at E2Exchange