The Bank of England calls the Brexit; “the biggest risk to domestic financial stability”. The access to international investments in the future is governed by uncertainty. Investors never liked uncertainty. Many investments are probably going to be postponed until the UK departure terms are set out clearly.
The short-term effect is likely to be negative as there will be a reduced confidence in sterling which can discourage investments. This morning, The Pound was the lowest since 1985. A Goldman Sachs analyst predicted that the sterling would collapse by 20%. At the opening of the London stock exchange companies such as Barclays and RBS dropped by 25-30%.
At this moment, the long-term impact on investments is still unknown and controversial but are likely to be negative. Here are 2 reasons:
- The European Investment Fund (EIF) is the biggest investor in the UK’s venture capital firms. In October 2015, they made £100 million agreement with Barclays to finance SME’s.
- Foreign Direct Investments (FDI) – investments to acquire local companies, to expand existing establishments- in the UK are valued over £1 trillion, half of which comes from the EU. Brexit will damage the UK’s productivity and attractivity for the investors.
How does this affect your SME or Startup?
Startups are dependent on venture capital firms as they sell part of their equity in return on investments. The success of UK startups is partly due to the flexibility provided by the EU membership, which gives access to a wide pool of talent.
Damian Kimmelman, Founder DueDil, stated that “without access to Europe the pool of applicants shrinks dramatically. We are a venture-backed business, and a venture-backed business means we are invested in to create super growth. But you can’t create super growth if it’s so difficult to hire the people that can create that super growth. People in tech are the number one commodity”.