With Brexit negotiations kicking off, there are several challenges ahead but fortunately British startups are likely to retain a healthy relationship with the rest of Europe’s tech hubs
London is the undisputed champion of European innovation. Thanks to a powerful combination of access to funding, talent and support, the city has successfully produced several tech unicorns. But Brexit has left the British capital at risk of losing its crown. “Entrepreneurs certainly aren’t welcoming it,” says Philip Salter, founder of The Entrepreneurs Network, the organisation championing startups in the UK. And the numbers back him up: a recent survey from Tech London Advocates revealed that 29% of the capital’s tech leaders doubt the city will still be Europe’s primary innovation hub in five years. “They actively opposed Brexit and this speaks of their frustration,” says Salter. And with the divorce negotiations underway, the community is left wondering what leaving the EU will mean for its relationship with the continent.
The problem is that very little guidance has been offered by the politicians leading the talks. While Theresa May pledged in January that Britain would leave the single market and has given some proposals as to what she wants the rights of EU citizens to be after Brexit, her ill-advised snap election lost the Tories their parliamentary majority and further muddied the subject of what Britain leaving the EU will entail. And this uncertainty has become UK entrepreneurs’ biggest worry, according to a Tech London Advocate’s survey. “And that surprised even me,” says Russ Shaw, founder of Tech London Advocates. “I’ve been running these surveys for over three years and this was the first time market uncertainties climbed to the top.”
One huge worry for entrepreneurs has been what Brexit will mean for investment in UK startups. “Right after the vote a lot of people thought investors weren’t going to raise funds in the UK and that they would go elsewhere, like the US, instead,” says Michael Francoise, programme manager at CyLon, the cybersecurity accelerator. “But actually not that much has changed.” As a matter of fact the number of investment deals in UK tech firms rose to 269 deals in 2016, marking a ten-year high, according to a report from EY. “So there has been a huge amount of fundraising over the past six to seven months,” says Francoise.
Additionally, while VC firms like Atomico and 83North have raised funds to invest in startups from all over Europe, the fact that most of them are based in London is good news for UK entrepreneurs. “It gives us a built-in advantage that we won’t lose anytime soon,” says Shaw. “Investors have a better knowledge of what’s local to them.” But even with the home advantage, it’s safe to say that there are plenty of other worries for startups.
One of the especially palpable consequences of the vote and the subsequent unpredictable political landscape is the impact it’s had on startups looking to recruit foreign talent. “The attractiveness of coming to the UK has been impacted,” says Salter. The lack of clarity around migration has already had the result that foreign tech talent accepting roles at British firms has dropped by a fifth since the Brexit vote and 70% non-native tech workers are even considering leaving the nation, according to research from Hired, the tech recruitment portal. Similar trends can also be spotted across the healthcare, financial and media sectors. “If you’re very talented, in demand and cosmopolitan, would you really want to go somewhere where you won’t feel welcome?” says Salter.
A similar risk is that the potential restrictions on free movement could also see fewer foreign entrepreneurs launch businesses in the UK. “Because of Brexit, people may not chose to come here and set up their business,” says Salter. “At least not until we’ve got a deal that makes us more welcoming than we are at the moment.” While a massive number of entrepreneurs haven’t abandoned Blighty yet, several founders from EU-countries – such as Marta Krupinska, co-founder of Azimo – have openly said that they’re not sure they feel welcome in Britain anymore. “The extent of the impact it’s had is hard to judge,” says Salter. “Sure, a lot of entrepreneurs will still be attracted to London because of the companies that are already here but it’s definitely not as attractive as it was before.”
And with other hotbeds of innovation growing by the day across the continent, skilled workers and entrepreneurs are spoiled for choice when it comes to places to move to. “London is the number one place for innovation and entrepreneurship but it’s clearly not the only option,” says Salter. It’s no secret that France has recently upped its efforts to grow its startup scene. Not only is the world’s largest incubator being built in the south of Paris but the newly elected Emmanuel Macron has also pledged to make France a nation of entrepreneurs by introducing new tech visas. And if founders are less interested in strolling by the Louvre than renting affordable offices and having access to talent then they can always go to Berlin. And the German Free Democratic party would certainly welcome them with open arms, having even invested in an ad on the side of a van driving around London telling startup founders just how welcome they’d be. But while entrepreneurs may opt to set up shop in either of these two or any of the other numerous hubs rising around the continent, it doesn’t necessarily mean that London will suffer as a consequence. “If London remains competitive, the city will still benefit even if Berlin does become the tech capital of Europe,” says Salter. “It’s just like Silicon Valley: it may be the leader but we all benefit from the technology.”
One way London could benefit from the ascendance of another European startup hub is the way in which the different communities can inspire one other. “These hubs will complement each other as they expand,” says Shaw. “But each city should look at its DNA and consider what it does best.” For instance, the Swedish startup scene is particularly good at developing video games. Given that Berlin’s entrepreneurial community has grown up among the city’s music and art scene, it’s not really surprising that the German capital’s innovators have a distinctly creative edge to their tech. And the support from the Irish government and accelerators has made Dublin a fintech hub to count on. “Of course there will be some competition but the stronger other European cities become, the stronger London will be,” says Shaw.
In fact, these hubs can serve as more than just inspiration: they can still potentially act as a stepping stone to new markets. With access to the single market still uncertain, two-fifths of UK startups are planning to open an office on the continent and 10% are even contemplating moving their headquarters, according to a survey from Silicon Valley Bank. “It’s a good business plan for the future,” says Salter. “It’s only rational that people are opening offices and that companies put in place a plan to potentially move.”
And even if other communities are levelling up, their entrepreneurs still choose to go to London to scale. “I often joke that London is the capital of Scandinavia,” says Shaw. “There are so many Swedes, Norwegians and Icelanders working here.” In part, this is because the Nordic innovation centre still lacks the infrastructure to grow properly. “And when they look to scale, Silicon Valley can be a bit too far while London’s proximity means it feels like a more natural step,” Shaw says. “That’s where London and the Scandinavian capitals will maintain a symbiotic relationship. And because of their more Anglo-American nature, these startups usually feel more comfortable expanding here than going to Munich or Paris.” And the Scandi techies are certainly not the only ones.
The vote to leave the EU certainly wasn’t welcomed by many in the tech ecosystem but the unrelenting willpower of both British and European entrepreneurs is sure to make the most out of it. “It’s a big challenge but if we get it right it’s also a big opportunity,” concludes Shaw.
What opportunities does Brexit present to UK startups?
Today real opportunity lies abroad. Berlin and Paris have already started offering attractive deals to London startups – like salaries covered by Berlin’s regional government and a unique portal created for British companies that want to set up in France. Those European countries that offer tax incentives and legal advantages may stand to gain a lot in the near future.
Jeremy Middleton, founder of Home Serve and angel investor
Startups are driven by great ideas, access to finance and the drive of their founders. The antics of politicians and the brinksmanship of the EU negotiations will create headlines but have little impact on the entrepreneurs building the companies that will create jobs and pay taxes in the future. The world of business does not begin and end with politicians.
Chris McCullough, co-founder of RotaGeek
There are very good reasons to be positive about leaving the EU. But this requires political parties to be sensible in their approach. They should guarantee the rights of EU nationals in the UK and accept that migration is a positive for both business and the country. We need to use the Brexit opportunity to open up the UK to skilled migrants from all over the world.
Freddie Achom, founder and chairman of Rosemont Group
While the risks for startups and VC investors seem to have been exacerbated by Brexit, the demand for innovation should be seen as the greatest opportunity of all right now. This goes double for businesses that don’t have production or manufacturing costs to consider – online and digital startups for example – as they require less cash in the early stages to get started.