Editorial & Advertiser Disclosure Global Banking And Finance Review is an independent publisher which offers News, information, Analysis, Opinion, Press Releases, Reviews, Research reports covering various economies, industries, products, services and companies. The content available on globalbankingandfinance.com is sourced by a mixture of different methods which is not limited to content produced and supplied by various staff writers, journalists, freelancers, individuals, organizations, companies, PR agencies Sponsored Posts etc. The information available on this website is purely for educational and informational purposes only. We cannot guarantee the accuracy or applicability of any of the information provided at globalbankingandfinance.com with respect to your individual or personal circumstances. Please seek professional advice from a qualified professional before making any financial decisions. Globalbankingandfinance.com also links to various third party websites and we cannot guarantee the accuracy or applicability of the information provided by third party websites. Links from various articles on our site to third party websites are a mixture of non-sponsored links and sponsored links. Only a very small fraction of the links which point to external websites are affiliate links. Some of the links which you may click on our website may link to various products and services from our partners who may compensate us if you buy a service or product or fill a form or install an app. This will not incur additional cost to you. A very few articles on our website are sponsored posts or paid advertorials. These are marked as sponsored posts at the bottom of each post. For avoidance of any doubts and to make it easier for you to differentiate sponsored or non-sponsored articles or links, you may consider all articles on our site or all links to external websites as sponsored . Please note that some of the services or products which we talk about carry a high level of risk and may not be suitable for everyone. These may be complex services or products and we request the readers to consider this purely from an educational standpoint. The information provided on this website is general in nature. Global Banking & Finance Review expressly disclaims any liability without any limitation which may arise directly or indirectly from the use of such information.

UK TO LOSE TOP SPOTS FOR VENTURE CAPITAL & PRIVATE EQUITY WORLD INVESTMENT DUE TO BREXIT

  • 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 6th position in the world ranking for VC/PE attractiveness (see Figure 1).

Figure 1: Post Brexit Scenario
Figure 1: Post Brexit Scenario

Explaining these figures, Alexander Groh Professor of Finance at EMLYON Business School stresses: “Brexit will have severe consequences on the UK’s economic growth, her trading with the EU and on the dominance of London as a financial hub for Europe. The shift of qualified staff improves the deal making capacity of cities like Amsterdam, Frankfurt, Dublin or Paris who increase their attractiveness in the global competition for institutional capital.”

Some potential positives

Despite their sombre predictions, the authors do point out some drivers of the VC/PE country attractiveness index which UK politicians could move in positive directions in an attempt to offset the financial sector’s loss of market share. For example, lowering taxes and deregulation could improve investment conditions for institutional capital. Despite the political difficulties of making such changes and their negative side-effects, the authors encourage the VC/PE industry in the UK to fight to “ensure as smooth a Brexit as possible.”

World Heat Map

In order to demonstrate shifts in the VC and PE country attractiveness, the authors also performed a comparison of the 2014 and 2018 rankings. This analysis reveals strong increases of VC and PE attractiveness for certain countries, as well as highlighting the impact of financial and economic crises on others.

For instance, Ireland, Denmark, Malaysia, China, India, and several CEE countries have a very positive outlook which the authors translated into “highly attractive countries where investors should increase their exposure”. On the other side of the spectrum, several Latin American countries, Ukraine, Croatia, Cyprus or Slovakia are “unattractive and should rather be avoided,” according to the authors.

The full interactive heat map is available here: http://blog.iese.edu/vcpeindex/heat-map/