One in four tech startups in London has lost out on investment because of Brexit, according to research released today by Tech London Advocates, the private sector network of more than 7,000 tech leaders and investors.

Startups say it has also been taking longer to close funding rounds because venture capital investors have been deferring their decisions, worried about the fallout from the UK leaving the European Union later this year.

“What we are hearing is that later stage funding rounds are going ahead but earlier stage businesses have struggled to raise funding,” says Russ Shaw, founder of Tech London Advocates.

“From about November and December of last year we’ve sensed more panic coming into the conversations between companies investors especially as there is still no decision in sight on Brexit.”

It is not surprising that tech companies say they are missing out. Tech investment into London fell by 29% in 2018 according to figures from London & Partners and PitchBook figures earlier this year.

The flow of funds from Europe, in particular, has decreased.

The European Investment Fund, a “fund of funds” investor run by the European Investment Bank, decreased investment in UK-focused funds from €708.8m in 2016 to just €61.1m in 2017. The EIF has historically accounted for more than a third of investment into UK funds.

Xavier Lazarus, partner and cofounder of Elaia, a French early-stage investment fund, says he has become more wary of investing in UK startups, in part because it is now not clear whether they should be classified as EU companies or not.

Funds will often have a certain proportion of their money allocated to a specific region, such as the EU —and, particularly in France, can receive tax benefits if they invest in EU-based companies. With the UK’s status uncertain it is often simplest just to hold off from funding UK companies, he says.

Lazarus says he would normally do between two and four deals in the UK each year, but is now “not specifically targeting UK companies”.

The fall in the value of the pound since the 2016 Brexit vote has mitigated the situation a little, investors say, with London companies looking like a bargain for investors from abroad. However, a slowdown is still evident.

“It is not catastrophic,” says Victor Basta, managing director of Magister Associates, a boutique investment bank focused on tech. “But in terms of overall activity it is drifting, especially for larger rounds of around $25m to $50m, that money is harder to come by than it was five years ago.”

Basta says Magister has rebalanced to focus more on work outside of the UK. “We always did a lot of work outside of the UK and we have increased that.”

Basta adds that it is difficult to quantify the missed opportunities. “A company may raise $100m and that looks great, but they are not telling you they were trying to raise $200m.”

Shaw says Tech London Advocates is trying to increase links with African, Middle Eastern and South American tech hubs, in part to counteract the falling investment from Europe.

Funding was not the only Brexit-related problem London tech companies reported in the Tech London Advocates survey. Nearly a third of companies said their employees, including EU nationals, were expressing concern about visa and immigration regulations, and that it had become more difficult to hire from overseas.

Not surprisingly, London’s tech companies appear to be distinctly “Remain” in their outlook, with 64% wanting either no Brexit or a second referendum.

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