Discussion has been prominent about the impact of Brexit on the digital advertising industry, since Britain chose to leave the EU on 23 June. While many disagree on whether the impact will be positive or negative, all agree that it will leave its mark. Matt Byrne (pictured below), UK director, FastPay, a specialist lender focused on digital media tells ExchangeWire how Brexit could potentially impact funding within ad tech and how businesses should place themselves to come out the other side as unscathed as possible.

Three weeks have passed and the impact of the EU referendum continues to dominate the headlines. On a macro level, although recent developments in politics have had a calming effect, there is no doubt that uncertainty will continue for some time in the lead-up to official exit negotiations.

This piece will focus on the smaller picture: the impact of Brexit on investment in ad tech. As a funding platform for digital media, we at FastPay are focussed on the health of the ad tech industry and the funding options available to players in the space. So, post referendum, what is on our minds?

As we’re all well aware, in recent years, funding via venture capital has started to dry up for ad tech. This follows a period of over-investment and disappointing public market performance for the industry. The harsh reality is that Brexit is likely to compound this trend. In the first half of the year, the looming possibility of a UK exit already had a negative impact on VC sentiment. Now, a vote to leave has happened and the resulting uncertainty will further dampen VC enthusiasm across industries.

Matt Byrne, UK director, FastPay

According to the Financial Times and Pitchbook, European funding from venture capitalists fell by over a third in Q2 2016, versus the same period in 2015. In the same FT article, Balderton Capital tells us that Brexit brings with it “big questions about access to capital”. In fact, there is much evidence that this access is already drying up. For example, pre-referendum, Funding Circle, a peer-to-peer lending platform, was in the process of signing a deal with the European Investment Bank to lend to UK SMEs using EIB funds. However, in the wake of Brexit, Funding Circle has now stated that further progress with that deal is almost certainly off the table­.

On top of all this, many are predicting that a dip in consumer confidence resulting from Brexit will create anxiety amongst marketers and lead to a reduction in ad spend. With market research firm GFK telling us that UK consumer confidence has seen its sharpest drop since 1994, this is certainly cause for concern. If digital media budgets shrink, so too will investor enthusiasm for the industry. Put simply, nervous shoppers = nervous advertisers = nervous investors.

With all that being said, regardless of Brexit, we should remember that VC funding is not always the best source of capital for ad tech companies. It is expensive and requires the trading of equity for capital. We believe that savvy digital media companies should be investigating all of their funding options in order to mitigate against the impact of Brexit to keep their businesses healthy and maintain growth in uncertain times.

Here are a few of these options:

Traditional lending 

Traditional lending, or bank finance, remains one option. However, it is likely to go much the same way as venture investment. Sentiment amongst these lenders generally tends to follow that of VCs.

Peer-to-peer lenders

Peer-to-peer lending has gathered pace over the past few years. Post referendum, the P2P platforms themselves are likely to take a more favourable view of the market than traditional banks. They are able to react more thoughtfully from a credit perspective. However, if the investors who fund these platforms perceive there to be more risk in the economy, P2P money becomes more expensive. With a lower supply of funding, P2P borrowing rates could be pushed up.

Specialist industry lenders 

By exclusively financing one industry, a specialist lender has the advantage of large amounts of market data and deep sector experience, often driving more thoughtful and informed credit decisions.

At FastPay, we remain bullish on digital media and ad tech. We know that digital advertising continues to see unprecedented growth (16.4% YoY in the UK in 2015 – the fastest rate for seven years) and we have confidence that this growth can weather the storm of Brexit. Although a short term reduction in ad spend is a valid concern, the relatively low cost of digital media, and its accountability versus other types of media, make it a desirable option for frugal marketers in uncertain times.

Our recommendation to any growing digital business is to avoid becoming disheartened by shifts in investor sentiment post referendum. When seeking to grow in times of market skepticism, knowledge is key. Innovations in finance mean that more funding options than ever are on the table. Speak to multiple funding platforms to get an understanding of which of these options best suits your needs, your industry, and your stage of growth.