Wednesday, January 30, 2019

What will happen to UK entrepreneurs when the EU money runs out?

How will Brexit affect UK entrepreneurs?

We are rapidly approaching the date set for Brexit, and UK entrepreneurs are still largely in the dark about what will happen when EU funding ceases.

The referendum vote in 2016 didn’t mention much about European funding structures, and it’s unlikely that the average voter knows about them. But they have a huge effect on the UK’s SME sector, and when the money stops coming in, we could have a tricky transition period.

UK entrepreneurs unclear on funding

An average of 2.5 billion Euros has been pumped into the UK annually from EU funds between 2014 and 2020. Funding structures like the European Structural Investment Fund (ESIF) and the European Investment Bank have been propping up the SME sector for decades.

UK Government figures show that the biggest percentage of the money coming into the country goes towards funding UK SMEs. Similarly, the European Investment Bank has paid about 117 billion Euros to projects in the UK. This money goes towards innovation and funding small businesses and entrepreneurs. The European Investment Fund goes towards venture capitalists. There are other funds, such as Horizon, that specifically support innovation.

Funding structures like this go right to the centre of the entire EU debate – whether the UK is best off out or in. Either way, when we leave the EU, the money will stop. And it’s unclear how this will affect entrepreneurs, despite some Government plans being announced.

How will it affect investment?

There’s little doubt that Brexit will affect investment. The EU funding programmes that support entrepreneurs by maintaining a trade environment, clearly play a large part in decisions made by venture capitalists and angel investors.

As an investor, when it comes to deciding what to do with my own money, it’s helpful to have a secure infrastructure informing my decisions. We are leaving the EU on 29 March 2019, and whatever the final deal is, there will undoubtedly be a transitional period for investors as well as entrepreneurs. We’ve already seen the kinds of impact it will have following the EIF freezing funding for VCs directly following the referendum in 2016.

Regional differences in the UK

A greater number of leave voters come from regions such as the Midlands and the North East. CEO of the UK Business Angels Association (UKBAA), Jenny Tooth says: “The irony is that these are the regions that will suffer the most from the withdrawal of EU funds.”.

What is the Government doing about the effects of funding withdrawal? They have set up some institutions aimed at lowering the risk of problems due to no EU funding. These include the British Business Bank and an agency named Innovate UK, which will give funding to the tech sector. Less specified help has also been announced for the ‘regions’ through the Industrial Strategy. Despite these measures, there will be a tricky transitional phase for entrepreneurs in the UK.

Family businesses affected

Funding problems don’t just apply to start-ups. Family businesses have also expressed concern in a survey by finance provider Capital Step, which shows 40% of respondents think that Brexit could “break family businesses.”

Whatever happens to the final deal, both entrepreneurs and established businesses in the UK are facing an unspecified period of uncertainty. When a deal is ratified, trade talks will follow, and no one is sure what that will mean for the UK.

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