The EU is adding fuel to the Brexit fire through new burdens on technology startups

 
Dan Gandesha
The EU should be doing everything in its power to make life easier for businesses in Europe (Source: Getty)

You might think, given Europe’s anaemic rate of growth and enduringly high levels of unemployment, that Brussels would be doing all it can to encourage small tech businesses to grow. After all, the evidence shows that SMEs are the motors of job creation and technology companies provide the best chance of new high-value, high-wage employment.

It is certainly an ambition the European Commission claims to share. Supporting this sector so it can compete with both Silicon Valley and growing tech hubs in India and further afield has been the goal of a mountain of policy papers and initiatives over the years.

And when you consider that Britain votes in June on whether to stay in the EU, and a central plank of those campaigning for withdrawal is the need to free businesses from red tape and unnecessary costs, you might also have hoped that the Commission would be very careful about imposing new burdens. It would have made sense for every policy to be carefully tested to ensure it helped firms to grow, not least to prevent more ammunition from being handed to the Brexit camp.

But as many British businesses have learnt over the years, that is not the way the Commission works. It might genuinely want to promote enterprise but, time and time again, its policies have a counterproductive impact.

That’s sadly our experience at Property Partner. A new Brussels initiative which, as is so often the case, started with the good intention of making it easier for tech companies to trade right across the European Union, risks scuppering our plans to expand into Europe.

European expansion hugely interests us at Property Partner. Our crowdfunding platform allows anyone to buy shares in individual residential properties from as little as £50. Although we only launched in January last year, already more than £28m has been invested on the platform – a track record which saw us named as one of the world’s top 50 emerging fintech companies by KPMG.

We started off buying individual flats and houses in London, but quickly expanded to institutional-grade investment blocks all over the country. We’re now working with small and medium-sized developers to buy developments in bulk, speeding up transactions and boosting housing supply. And by enabling people to invest their savings in property, many of whom are aspiring first time buyers, we are helping them keep up with rising prices instead of falling behind.

We now believe there are big opportunities to source properties, raise investment and boost supply across Europe.

So we were delighted to learn that the European Commission wanted to harmonise the rules around raising funds across all 28 member countries. We believed it would be a major step in creating a genuine single market in this important area.

But we have been horrified to learn that, rather than reducing costs, the Commission’s Directive is going to increase them for us and many other small startups. Rather than building on the sensible Treasury framework (which has seen the UK’s fintech sector grow to become more successful than its Californian counterpart), they have adopted tougher regulations from other member states which have prevented those countries’ own startups from flourishing.

For us, it means that, to raise investment across Europe, we would have to publish a full investment prospectus every time we want to raise as little as €500,000 to buy a property. We believe the bill in terms of legal fees, extra checks and paperwork will run to as much as €50,000 every time – adding 10 per cent to costs and slashing returns for investors, without providing any extra safeguards for them. Even with a streamlined prospectus process, cross-border investment is unlikely to be viable.

So not for the first time, a step which started with good intentions will end up stifling innovation, stopping expansion, and costing jobs and growth. It means successful businesses will have to consider whether they are better off basing themselves in the US for growth.

We have not yet made the final decision about our future, just as I have not yet made up my own mind which way to vote in June. I see the benefits of Britain’s EU membership in terms of prosperity from a single market of 500m consumers. I also recognise that we will have no influence over EU policy if we are on the outside.

But these benefits can only be reaped if we remove barriers to business, not put new obstacles in place. It is misjudgements like the proposed amendments to the Prospectus Directive which help explain why the Brexit argument is striking such a chord – and why Europe’s economy is still in deep trouble.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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