The UK’s decision to leave the European Union has not dented business confidence among SMEs and may actually be a positive development for small businesses, the head of a London-based private equity company has said.
Luke Davis, the founder and chief executive of IW Capital, said that Brexit could offer SMEs a short-term lift given the UK government’s increased support for the sector in response to the referendum result.
Mr Davis said that, in contrast to many Irish SMEs that were concerned about the impact of Brexit, the firms he had invested in had not yet seen any damaging effects.
“I think you’re going to see more money coming into companies as a result of Brexit. Markets hate uncertainty and as soon as [the referendum result] was announced I saw more deals getting closed and more business getting done than I had for the previous six months
“I’ve invested [in] 25 companies and there’s been no negative effect on any of those companies but I operate in a unique area [with SMEs] — I can’t really comment on what Brexit looks like for a multinational,” Mr Davis told The Times.
A survey released this week by Close Brothers, a financial services group, found that 51 per cent of UK SME owners expected their business to grow in 2017 despite being pessimistic about the UK economy’s growth.
IW Capital invests in companies eligible for the Enterprise Investment Scheme (EIS), which is designed to help small, high-risk companies to raise finance by offering tax relief to investors.
While Brexit may have a negative effect on UK businesses, Mr Davis said that a “silver lining” could be the removal of EU-imposed red tape that had made the EIS more difficult for companies to access.
Increased support from the UK government for the SME sector could also provide a boost, he said.
“No one really knows what Brexit will look like in two months’ time or two years’ time but in the short-term I think it’s probably quite a good thing for SMEs, especially if we can get those incentives to get the money into the companies.
“There’s a lot of people scared in bigger businesses, but for me I’m not coming across it and I’m investing in all sorts of companies at the moment. I’m not seeing any negative effect on the quality of deals that I’m getting,” Mr Davis said.
Since the referendum last June the UK government has announced a number of new measures to support small businesses, including an additional £400 million of venture capital funding through the British Business Bank.
A spokesman for the UK Department for Business, Energy and Industrial Strategy said that the government also remained committed to saving businesses £10 billion through cutting red tape and improving payment times for small businesses.
Mr Davis said that demand for alternative finance was likely to grow in the coming years, which he said was proven by the success of Funding Circle, a peer-to-peer lending platform.
“There’s more and more need for alternative finance. Funding Circle have lent £1.8 billion so far and they’re just taking the business that would’ve normally been [handled by banks]. I think there’s going to be more and more call for alternative finance — especially if the banks can’t afford to do it or don’t want to do it.”
Separately, a surveyby Albion Ventures, a UK venture capital fund, found that younger entrepreneurs were far more likely to consider equity financing than previous generations of business leaders.
More than 70 per cent of under-35s said they would consider equity financing, compared with 44 per cent of those in other age cohorts.
