Of course it’s hard to know for certain what Brexit will entail as no one has ever been down this path before. But it seems certain that it will result in a slowdown in the UK economy, at least in the short to medium term. This in turn is bound to be reflected in a tightening of the free cash spend which has until now fuelled ECF growth.
Take this together with the lack of returns for investors to date and it is likely that platforms will see a slowdown in investments.
This may not be a bad thing.
This tightening could result in investors being far more cautious and therefore thorough in the due diligence they do before having a punt. So, the good pitch will still make the deal, providing much needed funding for the UK’s vital SME sector. The hopefuls, however, who have until now managed to get ECF funding, will find it increasingly difficult to dip their hands into a shrinking pot and this will, in turn, discourage them from trying (see next blog for more on this). This would, in the end, be beneficial to the whole sector, which is still riddled with poor pitches, poor plans and businesses that barely last the four seasons.
There are numerous caveats to this analysis. The most obvious one being that when do we leave the EU, how do we leave the EU and what impact will this have on our GDP? In times of uncertainty – and I think we can all agree that now we are in one of those – people do tend to err on the side of caution. Clearly ECF would never have got off the ground if we were all wired this way the whole time. Early adopters got this whole show on the road, but will they be inclined to keep at it under these new circumstances?
Another caveat is the overall performance of the investments these people have made to date. If, for example, one of the major platforms managed a sizable exit anytime soon, this would bolster investor confidence. I can’t see anything on the horizon but the fact that the UK’s largest platform has just embarked on a large new capital raise, suggests they might know something we do not?
Yet another caveat is the way the passport system for Euro is handled. Currently UK platforms can take investments from anywhere in the EU – instantly. With Brexit, the UK’s financial passport for access to the EU will be part of the negotiations. Clearly a vital part for the City. One platform I know has already stated that if this passport were to be removed, they would simply set up an EU office to handle EU investors. But I wonder if it can really be that simple? I doubt it.
What is sure is that nothing is certain or, alternatively, in the words of Bob Dylan –
Come gather 'round people, wherever you roam
And admit that the waters around you have grown
And accept it that soon you'll be drenched to the bone
If your time to you is worth savin'
Then you better start swimmin' or you'll sink like a stone,
For the times they are a' changin'!