Government Makes New Plan to Support Start-Ups After Brexit

As the reality of Brexit sets in, the British finance ministry is making plans detailing how the country will continue to support new businesses now that funding from the European Investment Fund (EIF) may become unavailable. The treasury is working based on information from a study that shows British start-ups are missing out on £4 billion in funding when compared to what’s available to US firms. This funding gap exists even in the current set-up which includes EIF funding.

Experts that specialize in guidance and advice on company set-ups and corporate structures like Henner Diekmann of Diekmann Associates know just how crucial funding during the first years of business can be. Even promising businesses need funding to gain access to capital, staff and a marketing budget. In the UK, many start-ups aren’t able to gain access to this essential financial assistance so that they can move on to become important players in the country’s economy.

If the EIF funding were to disappear after Brexit, an even greater funding gap would exist. Last year alone, British companies were assisted by about £800 million of equity financing and £400 million of other additional assistance such as loan guarantees, all through the EIF. The fund also works with projects outside of the EU, but nothing is certain now that Britain will exit the bloc. 

The plan for creating a new funding solution is still in progress. As of now, the Treasury says it’s considering setting up a public-private partnership or putting the fund only on the government’s balance sheet with the possibility of selling it off at a later date. The fund could open up new possibilities for UK start-ups.

UK Start-up Needs

As mentioned above, there is a significant funding gap between UK and American firms. This funding gap can be seen clearly in the lack of fourth round investment funding available to UK start-ups. While in the USA nearly a quarter of start-ups receiving seed funding reach the fourth round of investment, only 1 in 10 British firms achieve this level of funding. Another interesting point is that although the UK leads the way in Europe in creating start-ups valuing $1 billion or more (also known as unicorns), the nation is far from leading the way on the world stage. The US creates a whopping 54% of the world’s unicorns, followed by China which creates 23%. One final interesting fact is that the top US firms are younger than the top British firms, suggesting that the US is better at growing new businesses into impressive, large-scale companies.

Based on these numbers, it seems obvious that the UK could stand to improve its numbers. If start-ups had better access to funding, it’s entirely possible that more UK businesses could be grown into big, stable companies capable of employing many more people.

Despite lagging behind the USA and China, Britain is still home to innovation and leads the way in Europe in terms of new successful start-ups. The goal is to take this innovation to new heights by eliminating the problems related to too little funding. The UK start-up sector will likely benefit from this initiative, even if it began due to concerns over the consequences of Brexit. 

Brexit: An Overview

This initiative to boost funding for start-ups appeared as a response to concerns about the economic consequences of Brexit. The process of Brexit has been looming in UK politics and among citizens for a few years. In June 2016, the entire UK had the opportunity to vote in a referendum to approve or reject leaving the European Union. The referendum to leave was approved in a narrow vote.

Currently, the UK is undergoing talks with the European Union council to discuss the terms of Brexit including fees that the UK will pay to the EU. The talks will take two years or more. The current scheduled leave date is 29^th March 2019. 

Brexit will have many consequences and will affect both Great Britain and the rest of the EU countries. However, to date, there haven’t been signs of immediate severe trouble for the British economy. In fact, the UK showed 1.8% growth in 2016, which is good when compared to other strong economies. Unemployment has also continued to fall, although growth has slowed in 2017.  Overall, things look pretty good considering that some predicted doom and gloom should Brexit be passed.

Turning to Start-ups After Brexit

A funding for start-ups initiative along with a growth in entrepreneurial spirit was noticed shortly after the Brexit vote was made. In London, over 600 start-ups were launched daily during the first 6 months of 2016, suggesting that Brexit will not deter the creation of businesses, but rather spur them on. This trend will only improve if more funding becomes available to help start-ups make the step to full-fledged, stable businesses.