H2020 Grants and Article 50: Science and Technology Funding in the wake of Brexit

A few months have now passed since the Brexit referendum and now the dust has settled, we are now getting a clearer picture of how the science and technology funding could be impacted, should Article 50 be filed. Working closely with tech firms, scientists, startups, research institutions, funding bodies, universities and investors alike, it is, to us, becoming apparent that the funding of scientific research and novel technology-based startups appear could be drastically affected. But is it all as bad as it seems? How do grants and article 50 interact? What are the contributing factors to this gloom and doom? And what can be done to mitigate any negative effects, or better yet capitalise on any opportunity that might present itself?

Know your enemy:

To start with, we see this threat likely manifesting in three ways:

1. A slowdown in the flow of SEIS and EIS funding that flows from the City due to the shrinking of London’s financial sector resulting from the removal of European Passporting
2. Inability for UK organisations to access the European Commission’s H2020 grants, such as the SME Instrument, beyond the conclusion of Article 50, and;
3. Restriction to the free movement of people within Europe

Many movers and shakers in the scientific/tech space and the wider press remain bearish about the future for UK science and technology, and plenty are citing independent reports suggesting that £1 billion in research funding could be ‘slashed’ from funding.

Left in the cold from the EU?

Others cite that the removal of access to the EC’s H2020 initiative could not only eliminate the right for UK organisations’ bid for £69 billion in grant funding for pure science and tech startups alike, but may also isolate UK organisations from a vibrant European research and tech scene, leaving it a relative ‘irrelevant backwater’. Times Higher Education, who has positioned itself as a prolific thought leader on the subject, conducted a vox pop of research scientists on the subject and found that, of 167 polled, 51 had general concerns about the future of science as a result of Brexit, 33 were planning to leave the country, 20 cited fears of xenophobia and 16 had encountered disruption to H2020 applications.

Uncertainty in private investment firms has the potential to affect SEIS and EIS

Beyond scientific research, as technology is spun-out and commercialised, there is also a need for private investment to take novel technology and develop it to a state of market readiness. SEIS and EIS funding have played a huge part in this, due to associated tax implications the initiatives offer to private investors. This funding, in one form or another, is often sourced from the private wealth of City workers, whose own prosperity is likely to suffer through the removal of European Passporting. While Boris Johnson cites the opportunity their removal opens up to work with US markets, the Americans, and indeed most banks including Goldman Sachs and Citigroup, have pointed to uncertainty, high interest rates and little else. Others, including JPMorgan Chase, have gone further and warned they may need to ‘relocate’ staff in the absence of these all important European Passporting agreements. As belts tighten, all of this surely points toward less investment from the City and city workers to UK technology and science – which is clearly negative, or is it?

What do we learn?

Reflecting on the above high level characterisation of the present situation, what do we learn?

1. First would be the perceived importance of an EU ecosystem of scientists, innovators and business people that drives the development of new technology in the UK;
2. Second would be the necessity for state aid, like H2020, in accelerating UK science and technology;
3. Third, the necessity for geographically convenient private funding to ensure novel technologies are commercialised.

All doom and gloom? Perhaps not…

Referring to The Times Education piece referenced above, while 51 of 167 scientists polled feel UK science may be damaged by Brexit, apparently 116 don’t, 134 aren’t planning to leave the country, 147 don’t fear xenophobia and 151 haven’t had problems with their H2020 applications; in fact anyone who has worked within an pan-European H2020 consortium call will probably view this as remarkably good odds! H2020 grants and article 50 may be a difficult mixture, but then H2020 grants are always difficult.

Other options for H2020

But surely the inability to access H2020 will be hugely impactful? Yes it probably will, however it is interesting to know that many countries outside of the European Union ’buy in’ to H2020 including Tunisia, Turkey and Israel. And what about the private finance issue? Presumably this hinges partly on European Passporting, an EU mechanism which surely the UK Government would not wish to lose, especially considering the City’s worth to the UK Exchequer.

Impact of Passporting removal

However, would the removal of Passporting be entirely negative? In the short term it would be hard to argue otherwise, but as with any volatility, there comes opportunity. We recently met with a contact from a leading UK equity crowdfunding platform, who all but shrugged at the mention of Brexit stating their firm was ‘born out of a recession’, and that as (if!) the banks tighten up, entrepreneurs and innovators will ‘seek their capital in the alternative funding landscape’ – a very bullish statement but seemingly based in truth. Further, the City has continually garnered some of the UK’s brightest talent, yet failed to offer a ‘meaningful career’ to many, with organisations like Escape the City and Work in Startups capitalising on waves of despondent young professionals looking for ‘work that matters’ in alternative sectors – we’ve even had a few ourselves! Arguably, therefore, a shrinking of the City could release talent to other areas of our economy where these bright, young and well heeled individuals can start their own organisations. This ‘resurgence of entrepreneurial spirit‘ is a noted trend resulting from the 2008 recession, and it could happen again.

Looking forward: Grants after article 50

Back to original question, are grants and article 50 incompatible? Is it all doom and gloom? In the medium to long term, after a readjustment period, we think probably not. The shrinking of financial markets will for a time likely restrict access to private capital for science and technology organisations, but there are other attractive options to keep the funding in science and technology buoyant in the UK market, for example the UK Government could petition to keep access to H2020 (and its successor) beyond Brexit, as many non-EU nations do. While this article covers our estimated guess at how the future of science and technology funding is affected in the wake of Brexit, only time will tell how it will all pan out and we at GrantTree are happy to advise you about how to make the most out of your funding in the meantime.