UK to Lose Top Spots for Venture Capital & Private Equity World Investment due to Brexit

UK to Lose Top Spots for Venture Capital & Private Equity World Investment due to Brexit
08.02.2018 10:53 am

UK to Lose Top Spots for Venture Capital & Private Equity World Investment due to Brexit

Infrastructure
  • Historically ranked 2nd in the IESE Venture Capital and Private Equity Country Attractiveness Index, the UK is projected to see a fall of at least four positions two years after leaving the EU
  • The 2018 edition of the index sees the US take the world’s number 1, followed by the UK (2), Canada (3), Hong Kong (4) and Japan (5)
  • In its 9th edition, this year’s report also includes a five-year heat map pointing out rising stars such as Ireland, China, India, and several CEE countries; as well as flagging countries not offering the best investment opportunities including several Latin American countries, Ukraine, Croatia, Cyprus or Slovakia

Launched in 2009, the Venture Capital and Private Equity Country Attractiveness Index has shown practically no changes in the top three positions of the table in the past nine years: the US has taken the top spot in every edition, followed by the UK and Canada, for almost a decade. However, the authors anticipate a huge shake-up in the following two – three years, mainly driven by Brexit and its impact on the UK. The most direct and palpable effect will be a drop for the UK from 2nd to 6th position in the index.

“A future loss of several positions is almost inevitable; additional regulatory burdens and increasing costs for UK GPs to gain access to the single market, as well as a slowing economy and an inevitable brain drain, will make the UK less attractive to venture capital and private equity investors,” says one of the indexes authors, IESE Finance Prof. Heinrich Liechtenstein.

The Index analyses 125 countries according to six key drivers: economic activity, depth of capital markets; taxation; investor protections and corporate governance; human and social environment; and entrepreneurial culture and deal opportunities.

Historically and including 2018, the UK has always scored very high on many of these drivers: entrepreneurial opportunities, investor protection, social environment and depth of capital markets. The country has also been very strong in regards to its economic activity which, for the first time, appears to start showing the effects of Brexit with a slower GDP growth.

However, the authors of the study foresee huge and negative changes to these factors. For example, they anticipate a substantial haircut in the indicators measuring the UK’s depth of the capital market. The post-Brexit analysis included in this year’s edition of the VC/PE Country Attractiveness Index, also factors-in a slower GDP growth (1% below predictions in a non-Brexit scenario) and an increase in the UK’s unemployment rate. Incorporating these expectations into the index, results in the UK dropping to 6thposition in the world ranking for VC/PE attractiveness (see Figure 1).

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