A new research report revealed that startups in the U.K. are seeing a big impact from Brexit – for the first time in five years, startups and fast-growing companies in the region saw a dramatic drop in funding last year.
Beauhurst’s data showed that the number of funding deals in 2016 for these companies decreased by 18 percent to 1,460, with the total amount invested dropping to by 12 percent to £4.1 billion ($5.1 billion), Business Insider reported.
The company, which tracks high-growth businesses in Britain, said its research report depicts “a dramatic halt to years of growth” and “a worrying trend for the short to medium term.” Beauhurst has monitored equity investments in private startups and high-growth companies in 2010, noting that the 2016 results represent the first yearly decline.
But was the biggest culprit behind the change really Brexit?
It’s easy to assume that the ramifications of Britain’s vote last year to officially split from the European Union (EU) are now impacting the funding of the country’s startup ecosystem. However, Beauhurst noted in its report that there was in fact no significant reduction in deals after the vote took place in June. The busiest month for investment was September, when nearly £500 million was invested across 117 deals.
While the number of deals may not have seen a direct impact, the amount invested in startups did — and started a steady pattern of decline after January 2016. The air of uncertainty that’s arisen with Brexit seems to have put many investors off — or at the least, made them more cautious.
“The large-scale drop in equity deal numbers across the board is concerning, not least for the businesses who are looking to raise capital to fund their growth,” Pedro Madeira, head of research for Beauhurst, said in a statement.
“But it’s not all doom-and-gloom – investors and companies (many of whom opposed Brexit) have kept a stiff upper lip and continued their deal-making. Skyscanner’s acquisition was the largest (of those with disclosed values) since 2011; crowdfunding platforms are moving up the value chain and (in some cases) becoming proto-fund managers; life sciences has always been a strong sector in the U.K., and the opening of the world-leading Francis Crick Institute will surely further cement that.”