The Keith Arundale Website

 

There should not be too much impact on SME’s post Brexit from a raising finance viewpoint as the usual sources of early-stage finance from the local high-street banks, crowdfunding and business angels should still be available. Where they may be a problem is with finance from the so-called 3 Fs (friends, family and “fools”). Friends and family may be more cautious in both lending money to SMEs and investing in them as their risk appetite potentially lowers depending on how they view the uncertainty surrounding Brexit and their need to stockpile own cash resources for “rainy” days. This may also apply to business angels to an extent. But finance from venture capitalists for larger amounts of early and later stage finance could be affected by the VCs’ own potential problems in raising new funds from European investors post Brexit (see below). This could hamper SME’s ability to raise VC finance to allow their companies to grow and scale up. Also grants and other funds provided direct to SMEs from the EU may no longer be available.

It is generally acknowledged that there is a shortage of later stage finance to help scale up potential high growth businesses. A large proportion of the money in VC funds in UK is derived from the European Investment Fund (>30%). Continued support from EIF is questionable following Brexit; there is anecdotal evidence that the EIF has already stopped funding new UK VC funds. This could result in a shortage of funds going forward for potential high growth, innovative companies – although the British Business Bank does have increased funding available including a new £2.5bn Patient Capital Fund.

Another issue is passporting for private equity and VC funds. Currently UK funds can raise their funding from institutional and other investors located in any country in Europe. But what happens post Brexit when there will no longer be a common “passport” to do this? Those outside the EU will have to deal with 28 national private placement regimes – a big increase in complexity and cost. ‎Otherwise UK funds and fund managers could consider re-domiciling away from UK.

The message for companies which are looking for larger amounts of later stage finance to scale up their operations is to get some advice now on how Brexit may impact on your finance raising plans.

Any comments? Please add them here.

Disclaimer: The information included in this blog been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained here without obtaining specific professional advice. The information reflects the views of the author of the blog (Keith Arundale) and does not necessarily represent the current or past practices or beliefs of any organization. The author is not engaged in rendering accounting, business, financial, investment, legal, tax or other professional advice or services whatsoever to the readers of this blog. Accordingly, to the extent permitted by law, the author accepts no liability, and disclaims all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this blog or for any decision based on it.