UK Prime Minister Theresa May has a plan to make up for a potentially massive shortfall in funding to British venture capitalists.
Currently, UK-based VCs rely heavily on the European Investment Fund, an EU organisation that pools funding from different governments and banks to fund investments.
Now that the UK plans to quit the European Union, it isn’t clear whether VC firms can rely on EIF funding even in the short term.
But the Conservative manifesto, released this morning, pledged that the UK’s British Business Bank will make up for any EIF shortfall.
The detail is scant, but it states: “When we leave the European Union, we will fund the British Business Bank with the repatriated funds from the European Investment Fund.”
There’s no further detail than that — such as amounts, a timeline, or even whether the UK can really get its money back. But VCs are optimistic.
“Four thumbs up,” said Rob Kniaz, founding partner at Hoxton Capital. “It’s absolutely essential.”
The EIF is controlled by the European Investment Bank, in which the UK has a 16% stake. According to a Financial Times analysis, that stake might be worth as much as €10.2 billion.
By the end of 2015, the EIF had funnelled €2.3 billion (£1.9 billion) into 144 UK venture capital firms, including well-known names like Balderton Capital, Atomico, and Seedcamp. VC firms see the potential loss of that funding as a serious risk.
An EIF spokesman told Business Insider that “there is no moratorium” on lending to the UK, but added that the extra due diligence now required means funding can take longer. The EIF’s current agreements are still valid, and Business Insider understands the fund expects to sign new deals this year.
Still, Business Insider also understands some new agreements might new special arrangements, because the extra risks.
In short, the EIF now needs to assess whether it could stay committed to a UK investment, and funding might be about to get very tough.
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