GBI logo

Brexit debacle: how alternative investing makes all the difference

by | Feb 23, 2018

Share this article

 

Andrew Aldridge, Head of Marketing at Deepbridge Capital, says alternative investments will be needed more than ever post-Brexit

With the Brexit negotiations ongoing there is plenty of speculation and conjecture not just about the outcome of those negotiations, but what the ‘world’ will look like for the UK economy and business in general when the UK finally leaves the EU on the 29 March 2019.

 
 

Written down in black and white, it doesn’t seem particularly far away, which is perhaps why the temperature is rising in terms of our ability to secure a deal, and what it might look like.

However, let’s assume that the leaving of the EU takes place as scheduled and we do find ourselves in a post-EU environment – there will clearly be some big questions for UK businesses, not least in terms of how they secure the funding they need and, specifically, for new start-ups what route they take in order to source capital, how they use it, and what impact this might have on the UK economy if those sources start to dry up.

Let’s make no bones about it, this will be a crucial factor in determining the strength of the UK economy post-Brexit, and it seems that in a number of crucial sectors such as technology, life sciences, etc, the government seems to recognise that it needs a plan in place in order to support these businesses.

 
 

It’s the reason why both Prime Minister Theresa May and the Chancellor Philip Hammond have been very visible in terms of supporting technology businesses in this country. Just recently, they announced a package of measures including; doubling the number of visas available to talented individuals from around the world, including those working in digital technology; investing £21 million to forge a nationwide network, Tech Nation, to accelerate growth; introducing a new £20 million fund to help those in public services access UK tech expertise; and the launch of a £20 million training programme to help young people ‘test their skills against simulate online cyber threats’.

Huge contribution

It’s clear that the government views the advances made by UK businesses in the tech space as vitally important to the performance of the overall economy. And why shouldn’t they? They contribute a huge amount – for instance, Deepbridge has invested in 19 EIS and 33 SEIS companies over the past 18 months, many of whom are tech businesses, and those firms have been responsible for products used in over 195 countries, with commercial sales or trials in over 30 countries.

In addition, from a source of revenue perspective for the government, the investment these firms have received and their ability to trade, will have contributed significantly to both the Treasury coffers and the overall economy. Those companies mentioned above employ over 350 staff – at its base level if all of those are on the UK’s national average salary of £27,600 a year, they will each be paying an average of £5,500 per year in income tax, which totals £2 million; plus it’s widely believed that we all pay an additional £5,000 a year in indirect taxes, which would push the tax take up to a total of £4.75 million per annum purely generated by that employment. Add in any additional tax revenue in the form of corporate taxes or VAT, and you can see what benefit the economy/government sees when firms are securing funding, getting off the ground, and beginning to contribute right across the board.

 
 

Crucial funding

With a particularly uncertain future upon us, I don’t think we can underestimate the impact the ability to fund such companies can have, and it has been EIS/SEIS funding which has helped deliver on this. In a recent survey we ran of our own investee companies, 100% of respondents said that such funding had been absolutely crucial to their business and to how they were able to develop and forge a product/service proposition.

It’s also important not to underestimate what these businesses are actually working on and that they are developing, launching and selling products which are changing people’s lives. This is not just about the collection of tax revenue, but it’s also about creating efficiency and cost savings in areas of the economy which have traditionally had difficulty in doing so.

For instance, we have investee companies who have multiple products being used regularly or being trialled within the NHS –these are not just saving money for trusts but they are also helping save lives. And if you wanted to bring this back to a point about the benefits to the UK in a post-Brexit world, then we have worked with companies in the US, Australia, Germany, Poland, Portugal and others to discuss ‘re-homing’ companies/innovations back to the UK, with all the benefits this would bring.

Impactive investments

In a true sense this is why it’s important for advisers (and their clients) to consider the overall impact that their investments have, and not simply in the sense of securing a tax saving or generating a return. These, of course, are rightly important, but there’s also the ‘greater good’ perspective which means their money has a direct effect on supporting businesses, helping them get established, developing their proposition, and subsequently supporting significant job creation, plus the economic growth it can deliver right across the piece.

And, in that regard, it seems absolutely right that EIS/SEIS investments are targeted at those businesses best able to deliver on this; that investor’s money does go to the most appropriate recipients and not just those that can promise tax mitigation. In order to do this, we support companies who are involved in sectors such as technology and life sciences that can make a significant mark and difference. We only work with, what we would call, ‘knowledge intensive’ companies – all are highly innovative and our funding supports the development and growth of those innovations. It allows those businesses to forge partnerships with universities and hospitals, thereby providing potential new/additional income streams for such organisations, which are constantly looking for ways to generate more revenue and fund growing gaps.

For some, it may be easy to be pessimistic and negative about the future for the UK at present – uncertainty tends to do that, especially when that uncertainty is generated from unprecedented events. However, regardless of how Brexit might eventually play out, there will still remain some unalienable truths specifically in the business world. Companies and firms are still going to need funding, and those in certain sectors are going to need it more than others especially those start-ups who are untried, untested and have, for instance, a new product/innovation.

We believe EIS/SEIS are fantastic mechanisms in order to support these businesses however we should also not underestimate (or forget) the impact they can have beyond this, certainly in terms of generating economic growth, enabling technological development and ensuring UK plc remains at the forefront of global innovation. As a nation it is important that we ensure we support those following in the footsteps of our great innovators such as Babbage, Bell, Brunel, Berners-Lee, Dyson, Faraday, Fleming, Logie-Baird, et al.

Share this article

Related articles

How do VCTs prove their worth?

How do VCTs prove their worth?

Over several decades VCTs have proven their value to shareholders as long-term investments and ever-increasing numbers of entrepreneurs are seeking to build the ambitious, innovative companies that drive these returns. Investors can tap into exciting portfolios that...

Sign up to the GBI Newsletter

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, that fits perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode

x