What Role Do Entrepreneurs & Alternative Finance Play Post-Brexit?

Brexit is edging closer every day, and equally everyday risk and opportunity float in a volatile sea of decisions for every business. Below Luke Davis, CEO and Founder of IW Capital, talks Finance Monthly through the complexities of alternative finance post-Brexit.

With a new tax year now underway, the first two weeks of April have also brought the revelation that investment spending in the UK grew more than in any G7 country in the lead up to 2018. Following outstandingly favourable conditions for British business in 2017, the first quarter of 2018 has held form for the new tax year. With the first round of Brexit terms agreed, and the passing of the Finance Act earlier last month, investor reactions to the events of 2018 steadily come under a time-sensitive microscope.

The government crack-down on asset-backed EIS opportunities and the significant expansion of new-age sectors such as med-tech, biotech and fintech has also significantly increased the focus on investor portfolio decisions for the 2018/2019 tax year. In a recent report from Mayfair-based private equity firm IW Capital, the high net-worth facing data found that one in five UK investors were turning away from traditional stocks and shares and instead choosing to invest in to new-age tech sectors such as energy tech and med-tech. Equally significant, the doubling of the EIS investment cap for knowledge-intensive companies, and the launch of a government consultation into a knowledge-intensive fund ensures these sentiments are duly supported by the infrastructure that supports the alternative finance arena.

The research further unveils that a post-Brexit climate in the investment arena is far from a bleak one, as over seven million investors say SMEs are more attractive as a result of increased trade prospects on the back of Brexit. Furthermore, over a quarter of investors say that they feel more encouraged to invest in SMEs after the formalization of Brexit has run its course.

This data comes amidst a more cautious outlook from the UK’s SME business leaders who previously predicted that smaller business would suffer a slow-down in the post-Brexit business climate. Seventy-five percent of small business owners said that they faced rising business costs, while the Federation of Small Businesses Quarterly Confidence Index also reported negative figures for the second time in five years.

Investors, on the other hand, have maintained a firm and optimistic perspective on both pre-and post-Brexit investment agendas in relation to the UK private sector. While the disparity between investors’ positive outlook and SME leaders’ scepticism reflects the UK market’s preparation process for Brexit, the discord also presents an opportunity for leaders on both sides of the investment spectrum to develop a symbiotic relationship.

Supported by one in five investors believing that Brexit will lead to higher quality and more frequent deal flow, and almost a third predicting that Brexit will improve SME productivity, the UK’s upcoming exit is an opportunity to drive new trading opportunities that could mean more SMEs seeing beyond Europe and proactively engaging more with the rest of the world. Moreover, many retail investors are keen to allocate funds in high-growth UK companies, and now have a much stronger chance of doing so due to the ongoing disintermediation of the alternative finance industry.

In order to leverage the growth in opportunities investors—particularly those in the alternative investment space—must transfer their optimism to SME business leaders. Government regulations on EIS investments, and other fiscal adjustments made in the Chancellor’s 2017 Autumn Budget, further provide a pre-and post- Brexit roadmap that can bring investors and business owners closer together. With this infrastructure in place, closing the disparity in Brexit perspective hinges on transmitting not only resources, but confidence. While many see Brexit as a challenge to both business leaders and investors, it is much more likely to provide opportunity instead.