UK tech will reportedly struggle to cope if Britain cashes out of the EU's investment bank

UK tech startups and venture capitalists would be “significantly disadvantaged” if Britain cashes out of a major source of European funding when it quits the EU.

A report from TechUK, a trade body whose members account for almost half of all British tech jobs, argued that Britain should retain its membership of the European Investment Bank after Brexit.

The European Investment Bank (EIB) is a major backer of British venture capital firms through the European Investment Fund (EIF). Those venture capitalists now face considerable hurdles in raising new funds from the EIF, which is reluctant to back British firms in the wake of Article 50.

Chief executive of TechUK Julian David said: “Losing the EIF risks seriously damaging the ability for innovative new or rapidly growing tech companies to get the funding they need. The case for the UK retaining a piece of the EIF is overwhelming from an economic and practical point of view.”

He added that while the UK could do more to fill any funding gaps itself, the loss of EIF funding would be like “pull[ing] up the drawbridge.”

A quick primer: the EIB is a multilateral development bank. In plain English, all the EU member states pay into the bank and are shareholders. The UK has a 16% shareholding, equating to €10.2 billion (£9.34 billion), according to The Financial Times. Member states receive funding for infrastructure and other projects that might promote the EU’s ultimate objectives of cohesion.

The EIF specifically provides funding to small and medium-sized businesses, and committed almost £2 billion to British venture capital firms to date before its quiet moratorium on funding.

It’s not clear what will happen to the UK’s shareholding in the EIB.

The most attractive option is to simply waltz off with the €10.2 billion share — but in reality that’s unlikely to happen, not least because of Britain’s “exit bill.” Even if the UK does recoup some money, there are months of uncertainty in the meantime about how VCs, and therefore tech startups, will access capital. Business Insider earlier this year reported that the EIF freeze had affected firms including Hoxton Ventures, Episode 1 Ventures, and Seedcamp.

Investors told Business Insider they were optimistic that the EIF’s counterpart in the UK, the British Business Bank, might step up. The government has already committed more funding to the bank, and increased the amount it could invest in any one fund.

But TechUK is less optimistic in its report. “The BBB is still relatively young, and such a large scale up in activity, at the speed which would be necessary to prevent any gap in access to finance for UK based tech enterprises would be a complex and difficult challenge for the Bank.”

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