UK proposes national startup fund to mitigate Brexit risk

A National Investment Fund for startups would "struggle" to bridge any gap in lost funding from its EU equivalent, according to a lobby group for the UK's tech industry.

The UK government floated the idea of creating a national fund based on the results of a Treasury consultation, published yesterday, that revealed a 4 billion gap in funding between UK businesses and their counterparts in the US.

It believes a 'National Investment Fund' could close this gap, making startups more competitive against the US once the UK leaves the EU, especially if startups lose access to the EU's own funding initiative, the European Investment Fund (EIF).

"Britain is an innovation powerhouse and it's vital that we make sure our cutting-edge firms have the funding they need to meet their potential and conquer new markets," said chancellor Philip Hammond. "Meeting this challenge will boost our productivity and enable us to create more well paid jobs across the UK."

But while TechUK CEO Julian David welcomed the idea of the fund, he urged the government to make sure the UK stays inside the EIF. According to figures provided to IT Pro, the EIF supported 11,000 UK SMBs with around 8bn in funding last year alone.

"The EIF continues to be a key investor into UK tech, and any new post-Brexit system considered as part of this consultation must seek to maintain the UK's link to this European-wide funder," said David. "A new national fund would struggle to compete with such an established source of support sitting just across the Channel."

He added: "Determining how the UK can improve its own funding mechanisms to help businesses of the future grow must sit alongside continuing to be part of established European systems post-Brexit. We should not be looking to reinvent the wheel."

UK businesses, particularly startups, have expressed concerns that the government will be unable to provide the same levels of funding that have been enjoyed as part of the EU. A report published in March found that one in 10 London startups had already lost funding as a result of the Brexit vote, with almost a third finding it difficult to grow their business. However, another study found that VC investment into London startups actually increased post-Brexit, from 245 million immediately after the EU referendum, up to 345 million in the first quarter of 2017.

The exact nature of the fund has yet to be decided, but it could be launched as a partnership between public and private sectors, or it could be fully attached to the government's balance sheet and sold off once it's established.

The government identified that fewer than one in 10 UK firms that receive seed funding go on to get fourth round backing, compared to nearly 25% of firms in the US. It also said it wants to boost the number of 'unicorns' emerging from the UK, firms with valuations above 1 billion - currently the majority of these startup firms are based in the US or China.