LONDON — Britain’s tech industry put up a brave front in the wake of the Brexit vote, claiming the country’s startups and venture capitalists are still open for business.

But for British venture capital firms — still the deepest pool of money in Europe dedicated solely to investing in tech companies — the prospect of Brexit is already hitting them directly in the wallet.

Since the country gave notice it was leaving the European Union in March, a growing list of British venture capital funds has been told they will not receive financial support from the European Investment Fund, an EU agency that provides almost half of the money for the region’s venture capital industry, according to several fund managers who held discussions with the body. Some of the investors spoke on the condition of anonymity because their conversations with the fund were private.

“The pullback of the EIF puts the U.K. at a structural disadvantage compared to other European countries,” said Fred Destin, a London-based venture capitalist who previously worked for Accel, one of the city’s largest venture houses, and is now raising his own fund but has not approached the agency.

“The EIF is such a strategic partner,” he added. “The U.K. government needs to take action.”

The British government's efforts to fill this gap in funding — worth, collectively, hundreds of millions of euros — have been slow to emerge, including plans announced earlier this month to create a new tech investment fund that, so far, have been short on details.

“We were continuing the process with the EIF until Article 50 was triggered, but then they stopped the talks” — Simon Murdoch, partner at Episode1 Ventures

This likely shortfall in new financial backing, many in Britain’s tech community claim, raises concerns about how the country will maintain its spot as first among equals within Europe’s tech industry as counterparts in France, Germany and elsewhere court startups and entrepreneurs into leaving London and other British cities.

It also comes as tech founders and venture capitalists are already grumbling that the steady flow of developers and engineers, often from other European countries, is slowing, while others fret about the financial uncertainty created by Britain’s pending departure from the world’s largest trading bloc.

Tap turned off

The EU agency, whose remit is to promote economic development across the region and whose largest investors include the European Commission and European Investment Bank, rejected suggestions it has stopped financing British venture capital, though it admitted there has been a slowdown.

While little-known outside tech circles, the Luxembourg-based fund remains the largest backer of European venture capital, often providing up to 40 percent of funds’ total investments, equal to billions of euros each year. It has invested in many of the region's largest venture houses, including Atomico and Lakestar, that have backed some of Europe's best-known startups — like Spotify, the music-streaming service and Supercell, the Finnish gaming company behind the "Clash of Clans" franchise.

In Britain, for instance, the European Investment Fund forked out €2.3 billion between 2011 and 2015 to support 144 local venture and private equity funds, or roughly one-third of overall investment for the sector, according to the latest figures available from the agency. The EIF does not break out how much was earmarked specifically for local venture funds.

David Yormesor, a spokesman for the European Investment Fund, said that due diligence on potential British investments “now needs to be more thorough,” adding that it had to “take into account a wider range of factors.” He declined to comment on what those factors could be.

Yet records of discussions reviewed by POLITICO between the EU agency and several tech investors — some of whom had been in talks for more than a year — show that in reality, the tap for European funding already has been turned off.

Among the British venture capital funds recently rebuffed by the European Investment Fund: Hoxton Ventures, Seedcamp and Episode1 Ventures, early investors in some of the country’s best-known startups like Deliveroo, the food-delivery service, and Transferwise, the foreign exchange startup.

These rejections began soon after Britain triggered Article 50 in late March, setting the clock ticking on the country’s departure from the 28-member bloc.

Over a series of often uncomfortable phones calls, according to people with direct knowledge of the matter, officials from the European Investment Fund told the British venture capitalists that any new investments — valued at tens of millions of euros, combined — were postponed indefinitely.

The officials added that the EU agency lacked approval — or any guidance — from the European Investment Bank and European Commission over whether it could continue supporting tech funds focused on Britain.

“We were continuing the process with the EIF until Article 50 was triggered, but then they stopped the talks,” said Simon Murdoch, a partner at Episode1 Ventures, which is raising a new fund of up to £60 million. “The strong suspicion was that it was related to Brexit.”

After the Brexit referendum vote last summer, the European Investment Fund told funds that at least two-thirds of future investments must be made within the EU — already a difficult target for British funds focused mainly on the local tech sector.

Now, any new investments by the agency in Britain remain unlikely, though the British government and the European Investment Bank are trying to negotiate a compromise.

Britain struggles to fill void

With EU money increasingly off the table, the British government is trying to fill the void, though its efforts have met with a subdued welcome from some venture capitalists.

Chancellor Philip Hammond announced last year that the British Business Bank, a state-backed agency, would offer £400 million in new support for the country’s venture capitalists. And in June, he added that the British financial institution would also provide up to half of the investments in any new fund, compared to the previous maximum of one-third of new capital.

“The British Business Bank is already an important player for the whole ecosystem,” said Eileen Burbidge, a partner at Passion Capital, which has received financial backing from the British bank.

In another effort to calm nerves, the British government also proposed the creation of a new investment fund on August 1 that would mirror the structure of the European Investment Fund, another sign of the pullback by the EU agency.

More details on the fund will be published after a two-month consultation ending in October. But officials are expected to channel any new investments for the country’s tech sector through the existing British Business Bank, and they stress that the aim is to help British funds compete globally.

But people in the venture capital industry question if the state-backed financial institution has the resources, skills and manpower to take on an expanded role, as well as whether Britain can ever fully replicate the financial support offered by the European Investment Fund.

“Most U.K. funds don’t just invest in the U.K. We can’t restrict ourselves to just one country" — Sean Seton-Rogers, partner at PROFounders Capital

Typically, according to fund managers, the British Business Bank has required funds to invest primarily within the United Kingdom. But while many venture capital funds are headquartered in London, they have often invested across the European Union and further afield.

That has raised concerns that any attempt by the British government to plug the gap left by the EU agency will inevitably be hamstrung, as local venture funds may lack the ability to compete for global deals with European and international rivals.

“Most U.K. funds don’t just invest in the U.K.,” said Sean Seton-Rogers, a partner at PROFounders Capital, which has received backing from the European Investment Fund. “We can’t restrict ourselves to just one country."