- Startup founders and venture capitalist in the UK are alarmed by proposed new laws to scrutinize foreign buyers buying and investing in British firms.
- The laws would impact firms operating in 17 so-called ‘sensitive industries’ such as artificial intelligence, quantum computing, and data.
- Any prospective major investors or buyers would need to pass the scrutiny of a new Investment Security Unit.
- Charles Delingpole, CEO of anti-fraud startup ComplyAdvantage, warned the move would “effectively give the government a veto” over any foreign acquisition.
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Venture capitalists and founders in the UK have expressed alarm at government plans to limit foreign companies from buying up British firms, warning such a move could be “risky for the startup ecosystem”.
On Wednesday, the UK government announced a proposed overhaul of takeover laws that give it greater power to scrutinize foreign acquisitions of and investment in UK companies in the name of national security.
The proposed measures would require foreign buyers in 17 key industries, including AI, quantum computing, autonomous robots, and data infrastructure, to check in with a newly-formed government department about their plans.
Directors of businesses that fail to comply could face fines of up to £10 million (or around $13 million), or their companies be forced to pay up to 5% of their annual turnover.
The new rules will end the UK’s historically laissez-faire approach to foreign acquirers snapping up local assets.
Not everyone is happy at the prospect of (rich) overseas buyers facing greater hurdles.
Charlie Delingpole, founder and CEO of AI-driven anti-fraud platform ComplyAdvantage, told Business Insider such legislation risked giving the government too much power over future takeovers.
“The list of sectors is so broad that it will seemingly capture every possible company that looks to be acquired,” he said. “So many companies use technology like AI as a fundamental building block … This would effectively give the government a veto over any corporate acquisition activity.”
He added: “Why invest in a company incorporated in the UK when the government will veto any sale? What kind of pricing discount will this result in if investors can’t realize a return on investment?”
Oliver Holle, cofounder and managing partner at Speedinvest, warned politicians were at risk of “underestimating the complexity of the innovation economy”.
“While the urge to limit takeovers of technology companies in critical sectors by foreign strategic investors is understandable and makes a lot of sense, any move that cuts access to global funding is very risky for the startup ecosystem,” he said. “Without access to these huge pools of capital, many tech companies will never reach the critical size that the UK needs to remain competitive globally.”
The UK received foreign direct investment in 2019 than France and Germany combined, at $1.89 trillion.
Nick Stocks, a general partner at White Star Capital, noted that the equivalent US program — the Committee on Foreign Investment in the United States — had slowed investment from China.
“We’ve seen the impact of CFIUS in the US: Chinese investment in US technology deals fell to $2.2 billion in 2018 from $10.5 billion in 2017,” he said.
He added: ‘The UK ecosystem does not have the levels of domestic capital that the US has, so there is concern that late stage capital may not be as readily available without foreign sources.It is imperative that the UK government step in to provide greater funding by expanding current schemes.”