With just six months to go before we ‘officially’ leave the European Union (EU), it is understandable there remains a great deal of uncertainty about how the UK economy might react and what the future will be for UK plc. As we inch closer towards our departure, the stakes grow ever higher for many businesses right across the country.
There is a great deal of discussion about how various UK business sectors might react in a post-Brexit world but the good news is that – as things stand – there are a number of areas where the UK is a genuine world leader, and, as a result of this, there are clear home-grown investment opportunities for advisers and their clients.
The technology sector is an obvious area of expertise within the UK – as highlighted, for example, in a recent report from Tech Nation, entitled Connection and collaboration: powering UK tech and driving the UK economy.
While there is growth right across the country, perhaps unsurprisingly the report highlights London in particular as one of the key technology ‘ecosystems’ in the world. For instance, you might not be aware that:
* London is cited as the third most competitive ‘global tech start-up ecosystem’, behind only Silicon Valley and New York;
* London is the second most connected tech ‘ecosystem’ in the world – a quarter of entrepreneurs across the world report having a ‘significant relationship’ with two or more entrepreneurs in London.
* One-third of London’s tech company customers are based outside the UK.
Digital technology is also growing rapidly right across the UK, and the report identifies some significant regional ‘clusters’ including Guildford, Aldershot, Slough and Heathrow in the South, but also Southampton, Portsmouth, Bristol and, in Deepbridge’s ‘home region’ up in the North West, especially around Manchester and Liverpool. Indeed the report refers to these as ‘digital suburbs’ where firms are naturally congregating and suggests there is a far greater level of productivity in these areas of the country.
Interestingly, there is now much talk within investment circles about the value for money when investing in early-stage tech businesses in London, with comparatively higher wages and overheads coupled with potentially overly-ambitious valuations in the Capital being a barrier to investment.
The rising incidence of regional hubs and ‘suburbs’ indeed reinforces our assertion there are great growth-focused digital, tech and life sciences companies throughout the UK and, as such, it is not merely a case of just focusing on London-based enterprises – as we see with our companies spread from Aberdeen to Kent.
As a business with strong university and science park links, we certainly see a growing number of tech businesses seeking out like-minded entrepreneurs and firms, piggy-backing to a certain extent on the expertise, resource and quality personnel that can be available in such regions.
In these regions, the increase in tech-based firms is quite staggering, and this creates further jobs – often well-paid – as well as further supporting the economic development of that area. It is something of a virtuous circle and we would not anticipate any slowdown in such activity even as the UK leaves the EU.
The other positives in the technology sector are the sheer diversity of the firms, the challenges they are confronting, the products and services they are developing and the sheer breadth and potential for what they are bringing to market. Key themes over recent months have included the likes of artificial intelligence (AI), machine learning, developing and using ‘big data’, and cyber security.
We are, however, conscious of not becoming distracted by ‘buzzwords’ or fashion – the companies we select have to be great companies in their own right and not merely added to a portfolio simply to satisfy an ‘on trend tick box.’ As an example, we must have seen dozens of Blockchain-related companies and yet have only invested in one to date.
The scope of this development has been fast and is only likely to advance rapidly. For advisers and investors, there are clearly quality opportunities to invest in such businesses and to support both the established organisations plus the next wave of new start-ups that are likely to push the envelope even further.
In that sense, both Enterprise Investment Schemes (EIS) and Seed EIS (SEIS) are very important tools in order to channel funds into these business and for advisers to present to suitable clients – the changes to the rules, introduced this year, meant the government only wanted ‘knowledge-intensive’ companies to be able to secure such funding, and it is clear many tech-based firms will meet these requirements.
Gone are the days of the ‘capital preservation’ EIS and, instead, we have the opportunity to present a quality EIS/SEIS to clients full of ground-breaking and highly-skilled businesses that could also become world-beaters.
As the UK continues to be a world leader in technology, both EIS and SEIS offer investors opportunities to participate – and benefit – from this growth sector, while also being provided with generous tax reliefs. In a world that may seem uncertain, we may not be able to provide certain returns, but it is possible to provide investment opportunities that have – what we believe to be – the very best chance of succeeding with companies that could well turn out to be major tech players of the future.
Andrew Aldridge is partner, head of marketing at Deepbridge Capital