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As Brexit draws closer, should the UK prepare for a business exodus?

Written by Antoine Baschiera on Wednesday, 20 February 2019. Posted in Global

Antoine Baschiera, CEO and co-founder at Early Metrics, wonders if all is lost come Friday March 29

As Brexit draws closer, should the UK prepare for a business exodus?

If, as European Council president Donald Tusk said, there’s “a special place in hell” for Brexiteers, it’s possible British businesses might be dragged along in their descent too. Ever since the 2016 referendum, there have been rising concerns that a divorce from the EU would drive businesses out of the UK. The report released in early February by the Institute of Directors sadly confirms this is already happening. Indeed, out of the 1,200 company directors interviewed, 16% have relocated part or all of their operations overseas and a further 13% are actively considering doing so due to Brexit. 

Moreover, Theresa May’s latest tour of Europe in search of assurance is not seeming to produce any tangible result so far, making a no-deal Brexit increasingly likely. If it were to play out without a deal, should we expect the business exodus to get worse? 

As a startup rating agency with a presence in London, Paris, Berlin and Tel Aviv, we at Early Metrics have a front row seat in the evolution of the most dynamic tech ecosystems. Here are some of the key consequences that Brexit could have on the UK’s startup scene.

No deal is worse than a bad deal

Many entrepreneurs, myself included, believe a no-deal Brexit is the worst possible outcome for British tech startups. There are always winners and losers in a change of policy. So a bad deal would obviously hurt some but also offer opportunities to others to create solutions to policy related challenges. But with the complete absence of a deal, we can’t predict and prepare for what’s ahead. Uncertainty is a poison that quickly seeps into all aspects of business and paralyses growth as well as investment. A no-deal scenario would maintain a climate of uncertainty for a much longer as the UK would have to negotiate bilateral deals with each of the 26 countries. For two years, many entrepreneurs have been playing the “wait and see” game. As nothing concrete is in sight, I think they’re more likely now than ever to vote with their feet. 

If talent leaves, so will the money

Despite the polarised and chaotic political debate, investment figures in the UK for the tech sector kept going strong in 2018 – with £6.14bn raised and more exits than any other European country. This is mainly thanks to the rich pool of innovators and entrepreneurs that is still present in the UK. For instance, about 44,000 people work in the fintech industry in London, which is more than in New York and the Silicon Valley. Therefore investor confidence will probably hold up if this ecosystem remains bigger than in other European countries. Considering about one in five directors in British tech startups is an immigrant, the UK tech scene would definitely lose out in crucial talent and investment if Brexit were to provoke a brain drain. 

Is Paris ready to take the crown?

If London loses its appeal to international talent, the question that naturally arises is which city will take the baton? Paris does position itself well in the race to becoming Europe’s next tech capital. Emmanuel Macron’s government has dedicated significant resources to the promotion of entrepreneurship. For instance, in December 2018, the government announced it would spend €500m on blockchain. The PACTE law currently being reviewed by the Senate should also improve the legal framework for fast growing startups. Lastly, in January 2019 the Secretary of State for Digital Affairs Mounir Mahjoubi announced the launch of a new index, the Next40 which will feature the top tech businesses in France and further promote innovation. 

So is all hope lost for the UK? Should the Brits start practicing their French again? Here I have focused primarily on the worst case scenario, as in a no-deal Brexit, but depending on the deal May manages to get, the outcomes could be less catastrophic than expected. London will hopefully still benefit from the presence of big multinational headquarters, a startup-friendly regulatory environment as well as geographical and cultural ties to other dynamic markets such as Hong Kong and the US. Not all is lost for the UK, at least not yet. 

About the Author

Antoine Baschiera

Antoine Baschiera

Antoine Baschiera, CEO and co-founder at Early Metrics, the rating agency for startups and innovative SMEs.

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