Following the United Kingdom’s departure from the European Union, a significant shift has taken place in the flow of venture capital between the UK and continental Europe. Whereas London once served as a central node in European startup funding, the Brexit referendum in 2016 marked the beginning of a cooling in the UK’s outward investment appetite. In contrast, investors across the EU have continued to direct funds into the UK market, demonstrating a resilience that runs counter to the retreat on the British side. This asymmetry is the focus of a detailed study recently published in Research Policy, co-authored by scholars Vincenzo Butticè, Annalisa Croce, and Andrea Odille Bosio of Politecnico di Milano, along with Simone Signore and Andrea Crisanti of the European Investment Fund (EIF).

The research investigates over ten years of venture capital activity, analysing how investors responded to the shifting political and economic context around Brexit. The study divides this timeline into three phases: the pre-announcement period, the uncertainty window between the 2016 referendum and formal withdrawal, and the post-Brexit phase that began in 2020. Notably, UK investors acted swiftly in the immediate aftermath of the referendum, slashing cross-border investments and refocusing their attention on domestic ventures. Their response was one of caution and risk aversion, spurred by the political ambiguity and expected market disruptions.

In contrast, European investors exhibited a delayed but ultimately more assertive response. Rather than reacting instantly to the referendum outcome, they waited for clarity and concrete developments before making strategic decisions. Once the UK’s departure was finalised, EU-based funds increased their investments in British startups. This measured approach highlights the extent to which uncertainty—rather than Brexit itself—was the main deterrent for European investors in the interim. According to Professor Vincenzo Butticè, “European investors, instead, waited for greater clarity before changing their behaviour,” which underscores how institutional investors often prefer to base their strategies on settled conditions rather than speculation.

The authors propose several explanations for the continued flow of European capital into the UK. One compelling hypothesis is that British venture capital funds, facing difficulties in raising capital in the wake of Brexit, became less competitive, thus creating room for European funds to step in. At the same time, both sides began to adapt by forming new cross-border partnerships. Analysis of syndication data suggests that investors from both the EU and the UK are increasingly co-investing in startups, utilising collaborative structures to navigate the regulatory and logistical barriers introduced by Brexit. These partnerships may serve as a mechanism to preserve access to innovation opportunities despite the political rupture.

The study sheds light on a broader phenomenon: the reconfiguration of innovation finance across Europe. Capital flows, especially those driven by venture funding for high-growth startups, are not just economic signals but also reflections of confidence, collaboration, and policy alignment. The UK’s retreat from European investments suggests a growing inward focus, which may be to its detriment, while Europe’s continued engagement with the UK market reveals a more pragmatic stance. This divergence may have lasting consequences on how startups in both regions access growth capital and build transnational networks.

For Italy, which currently plays a modest role in the European venture capital ecosystem, the post-Brexit realignment presents an opening. With the UK’s influence in continental venture capital waning, other EU countries have an opportunity to strengthen their positions. Italy could capitalise on this shift by enhancing its domestic startup environment, fostering cross-border investment partnerships, and positioning itself as a more prominent hub within the restructured European innovation economy. The findings of this study, therefore, extend beyond mere statistics; they provide a lens through which policymakers and investors can understand and adapt to a new era of entrepreneurial finance in post-Brexit Europe.

More information: Vincenzo Butticè et al, How Brexit reshaped venture capitals market: An analysis of UK and EU investments, Research Policy. DOI: 10.1016/j.respol.2025.105289

Journal information: Research Policy Provided by Politecnico di Milano