The EU referendum has highlighted a broad range of immediate concerns for UK businesses including the impact of immigration, trading within a single market, national security and the number of jobs. Further down that list there are more specific, longer term issues which carry the potential of causing huge problems for tech start-ups which are dependent on venture capitalist funding and the protection of their disruptive technology.
Start-ups comprising Silicon Roundabout have not only benefited from EU funding policies to leverage growth, but have also invested in the protection of their patented technology and product designs. London may be soaring past competing innovative cities, but the funding and intellectual property systems supporting UK tech start-ups could be severely compromised if the nation decides to leave the EU.
Increased Cost of Protecting Intellectual Property
As highlighted by Taylor Wessing LLP’s recent global report, businesses are dependent on stimulus for innovation and investment, with growth ‘intrinsically linked’ to new technologies rich with intellectual property. In the firm’s assessment of 43 legal jurisdictions, the European Commmunity was ranked as number 1 for affording the widest range of design rights including 3D trademarks; a table in which the UK took a dive to 13th position. The range of legal rights available to UK tech start-ups is not the only issue Britain faces upon an exit; there are cost implications too.
As part of the EU, UK tech start-ups with a Registered Community Design or EU Trademark currently benefit from EU-wide rights granting trademark or design protection in all Member States. However, if Britain exits the EU, these rights would no longer have effect in the UK and business costs would increase as a result of the requirement to file for a separate UK registration. UK tech start-ups would also face the sharade of reviewing licensing, co-existing and franchise agreements in addition to intellectual property contracts which could no longer apply in the UK.
The continued effect of patent protection in particular may not be so much of a problem since the UK can remain a signatory to the existing European Patent Convention without being an EU Member State. However, this patent system is set to be replaced with a new Unitary Patent System, which means the UK can only become a signatory to the new system if it is a Member State of the EU. This will be the biggest change to EU patent law in 40 years.
Rob Kniaz, Founding Partner of Hoxton Ventures and investor in Deliveroo, one of the UK’s fastest growing technology start-ups throughout Europe, commented that intellectual property “will certainly create more burden in the long term. The UK is currently on track to join the EU Unitary Patent System sometime later in this decade, which will unify and simplify the patent process across the EU. Leaving this process will ensure additional hassle of filing patents in the UK as well as the EU. This creates additional overhead for startups and costs, which most startups can ill afford.”
Discontinued Funding from European Investment Fund
In addition to increased costs, tech start-ups may also face a decrease in funding. There is huge ambiguity as to whether the London venture community will continue to receive money from the European Investment Fund, a specialist provider of risk finance to EU Member States for entrepreneurship, growth and innovation. The European Investment Bank stands as the lead shareholder with 62% ownership of the Fund, overseeing the core mission of supporting SMEs. This mission is not fulfilled by direct investment in SMEs; it is instead fulfilled by indirectly investing in SMEs through financial intermediaries.
In the context of Silicon Roundabout’s venture capital scene Hussein Kanji, fellow Founding Partner at Hoxton Ventures, points out that “the largest investor in venture capital funds is the European Investment Fund.” He confirms that the market is not entirely transparent, yet it is estimated that the European Investment Fund constitutes 30% – 50% of all limited partner dollars; it is a core investor in many of Silicon Roundabout’s key players including Balderton Capital, DFJ Esprit, DN Capital, Seedcamp, Notion Capital and Connect Ventures. Hussein commented, “if the UK leaves the EU, it’s not clear to me whether the European Investment Fund will continue funding venture funds based in the UK.” Further to this, the Mayor of London has joined with 140 of the city’s leading tech Founders to sign a letter calling for a ‘remain’ vote.
With the potential of increased costs to protect the innovative technology many UK start-ups are built upon, in addition to the potential decrease in funding which UK start-ups thrive upon, there is clearly more for start-ups to consider when weighing up the dominant concerns surrounding the EU referendum.