How will we go on without EU? As the UK begins its departure from Europe, we look at how Brexit will affect Britain’s young entrepreneurs By Jarod Lawley 10 5AM <strong>Magazine</strong>.indd 10 11/03/2019 13:59:03
When Darren Croman and Hannah Thompson, a young couple from Wiltshire, decided to set up their own business, it was never going to be easy. “This was our first venture, it was very exciting,” says Darren. “We didn’t even know if we were going to end up living on rice and beans or afford to be able to pay the bills.” This exhilarating uncertainty is usual for any new entrepreneurs, looking forward to seeing how their idea grows from a concept to a livelihood. Hannah and Darren had been inspired to set up an inflatable hire company, called About-A-Bounce, after getting a bouncy castle for their daughter’s first birthday and realising how much fun it was. However, at the same time as they began the start-up, their daughter became ill. Time was taken up by hospital visits and massive amounts of emotional energy were exhausted on this distressing period in their family lives. Whatever they had left, they poured into the business, finding it a welcome distraction from the distress of hospital doctors and operations. But this effort was not returned by British banks. When seeking conventional business loans, they were deemed too unstable and risky. It seemed that their idea would struggle to one day become a sustainable business. The funding this year has increased by £100,000 compared to 2016. This comes even against a backdrop of pressure from policy advisors and think tanks to plug the gap in SME financing. By contrast, funding to Britain through the EIF has dropped dramatically from 27% of overall European equity to just 8% in 2017. Figures for 2018, revealed in April, are expected to be even lower. That’s where the European Investment Fund (EIF) stepped in. This European Union agency provides finance to small and medium-sized enterprises across Europe through private banks and funds, especially to those who have been deemed unsuitable for other forms of funding. For the young couple, 8 months in since the start of their business, the funding came at just the right time. “We had felt rather secluded and unable to move forward” says Darren, “but being accepted for the loan helped us to expand and make our business move forward during these difficult times. We had been growing at a slow pace, all our funds were being used up on the business, but the loan gave us a rocket boost and helped us tap into other markets.” Today, the business is going strong and looking to expand its size in 2019, and stories like this aren’t unusual. EIF funding helps around 10,000 innovative companies across Europe every year, and EU venture funding “Find something you’re really passionate about, then drill down your plan to the finest details” is the single largest source of early-stage capital on the continent. However, since the EU referendum in 2016, the EIF has redirected its approach, and British ventures are losing out in a big way. Quarter upon quarter, UK directed venture capital from the EIF is falling. So how do young entrepreneurs stand after Brexit? And how will Britain’s SMEs carry on without access to European funding? In 2017 Chancellor Phillip Hammond proposed setting up a new fund to help fledgling UK businesses thrive post-Brexit. This dedicated fund would ensure that firms have the support they need. But considering the cash from Europe is already drying up, where is the money? <strong>Turnover</strong> has revealed through an FOI request that the shortfall from Europe is not being balanced at home. The British Business Bank, which provides finance for smaller businesses, has only boosted annually. We are yet to see concrete reassurances from the government that national funding will be more readily available for SMEs and startups in a post-Brexit world. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment scheme (SEIS) will continue to support investment with tax relief, but these schemes do not compare in terms of equity raised with the European funding schemes Britain’s entrepreneurs have previously had access to. So what are the alternatives, and what does the future look like? One huge and growing trend is crowd-sourcing. Once called ‘alternative finance’, it can hardly be described as ‘alternative’ anymore. In fact, one in four UK start-ups funded by equity last year were established thanks to help from online platforms such as Seedrs, Indiegogo and Crowdcube. “It’s a highly effective way of raising finance,” says Luke Lang, CMO and co-founder of Crowdcube, which is now one of the biggest crowdfunding platforms in the UK. “But there are benefits beyond just raising the capital.” 11 5AM <strong>Magazine</strong>.indd 11 11/03/2019 13:59:08