From fears of being unable to recruit EU nationals to a boom in sex party attendees, we evaluated the way Brexit impacted UK SMEs before the official departure
The day the UK finally leaves the EU may be up in the air but it’s safe to say that the divorce proceedings have already affected British businesses.
So we reached out to some of them to see how they’ve already felt the Brexit ripples.
Kasia Borowska, managing director and co-founder of London-based tech startup Brainpool.ai, is feeling the pressure from Brexit
The UK has a strong record in AI. It’s widely recognised as the European hub for AI excellence and third in the world behind the US and China. However, never-ending uncertainty from Brexit is making it significantly harder for UK-based AI startups to get VC funding and attracting or retaining overseas talent in the UK is much more difficult.
UK tech startups – especially in AI – are typically attractive investments for VCs globally because of the depth of skills and breadth of talent in this market. Since June 2016, UK tech companies have received more than £5bn in VC funding, more than France, Germany and Sweden combined, according to research from London & Partners. The UK dominates the European investment charts for funding into the hottest sectors of AI, cybersecurity and fintech.
However, VC funding in startups is down because of Brexit. In a survey of overseas tech leaders by industry group Global Tech Advocates, 68% of respondents cited Brexit as the number one obstacle for UK tech companies. A quarter wouldn’t currently invest in a British tech company because of Brexit, while 55% wouldn’t expand their business into the UK.
Brainpool.ai’s experience backs this up. We’re seeing VCs delay funding decisions or demand that startups have offices in Europe. We, like others, are contemplating having to move to Amsterdam to become a safer bet for VC funding and to recruit global talent.
A significant percentage of London’s tech workforce originates from outside the UK, with around one in five coming from the European Union. Brexit impacts not just investment but the entire tech talent pool in the country, so much so that the UK could potentially lose its position as a world leader in AI. The clock is very firmly set to countdown but we’re still no nearer to getting the clarity we need.
Emma Sayle, founder and CEO of Killing Kittens, the female-centric sex party company, has seen a rise in attendance of the escapist events her scaleup organises
Let’s talk about Sexit Brexit or why we believe we see a rise in attendees at our events during political unease.
The world stopped for a moment in 2016 when it was announced we’re headed into a divorce with the European Union. Brexit was born and it hasn’t stopped crying since.
However, amongst the current unease for business across the UK, we aren’t feeling nervous. A business like ours, one that offers escapism from the realities of the everyday norm, thrives when there is political unrest. We launched our business 14 years ago, ahead of the financial crash of 2008, so we have experience riding the negative wave.
It’s a proven fact that human beings, if dwelling on troubling things happening in the world that are beyond their control, will experience a decline in mood and an overwhelming feeling of misery.
Killing Kittens offers an events haven, a place to escape, unwind and be free from the turmoil we’re feeling as a nation divided. In the last six months Killing Kittens has seen a 13% increase month-on-month compared to its usual 6% rise in memberships as per previous years. The packed schedule of events is selling out weeks in advance and the waiting list is double what it was a year ago. We have the insight as a business to be able to compare this to October 2008 – numbers attending Killing Kittens events doubled in a month then and what we’re experiencing now mirrors exactly that.
We work regularly with behavioural psychologists and they tell us that it’s standard human nature to, during uncertain times, seek out opportunity to escape and be hedonistic, to unwind and seek out ways to lower stress levels. We offer the outlet for just this. As the stress decreases the sex increases and the Kittens thrive. For us it’s a Sexit Brexit.
Where are all the people at?
Ricky Thomas, founder and CEO of AVORA, the business analytics startup, believes Brexit is making it difficult to source talent
Brexit will impact UK SMEs in many ways but the biggest worry I have at the moment is about recruiting talented staff once we’ve left the EU. Our company is made up of more than 15 nationalities and we always strive to recruit the best people wherever they’re based. Being able to tap into both the UK and European Union talent pools is absolutely crucial. Now there’s a lot of uncertainty as to how we’ll continue to attract the best talent as AVORA grows. But we’re taking steps to prepare. In February we registered the ability to sponsor international hires for visas but we have received little to no guidance from the government as to how this is actually going to work.
The government must do more to support and guide small businesses on how we should prepare and manage every Brexit eventuality. There needs to be greater certainty as to what is actually going to happen so we can best prepare for it.
The fear of rising costs
William Bown, managing director of SuperFOIL Insulation, the insulation trader, fears Brexit will damage his company
As the managing director of a family-owned company that manufactures high-performance insulation, employs 19 people and imports materials and exports goods, I’m really worried that a no-deal Brexit will be very bad for us and for the wider construction supplier industry.
Our European exports amount to 20% of our overall sales each year and it’s a growing market with rising demand for our products driven by increased housebuilding and the rise of modular builds. This has meant that, despite the looming threat of Brexit, we’ve just enjoyed a record year and I’ve been able to build on this success with investments in new people and a new premises but I’m worried that things will be much, much harder for us after Brexit.
Recently, the Treasury looked at the most likely outcomes of the different types of Brexit and concluded that a no-deal situation would cut Britain’s GDP between 7.7% and 9.3% over 15 years. This was backed up by a report from the Bank of England which said that in the worst case scenario, a no-deal could cut our GDP by 8% next year and sink us into an even worse recession than the one following the 2008 financial crash.
While these were the figures that made the newspaper front pages, the Treasury report also provided calculations for the likely costs for manufacturers from anticipated tariffs, trade costs and other fees arising from customs procedures.
For us, this would amount to between £45,000 and £85,000 or more each year or up to £1.3m over 15 years. This is an eye-watering sum but I’m worried that the costs will be even greater because the calculations don’t take the devaluation of the pound into account. Immediately after the referendum, the value of the pound dropped 10% and this meant we lost purchasing power overseas, making our imported materials 10% more expensive. If we’re to suffer another recession as a result of Brexit, this cost could be extremely punishing for us.
Yes, if we struck free trade deals then reduced tariffs would reduce the cost of goods but this wouldn’t be enough to overcome the increased costs of exporting to Europe.
I’m lucky in that Brexit hasn’t significantly held us back so far but if we are to endure a no-deal, we will be much worse off and it would inevitably impact our prices and our ability to create jobs in future.
Brexit hits the development finance market
Holly Andrews, CEO of KIS Finance, the brokerage firm, claims the waves of Brexit has washed over the financial industry
As an independent brokerage, we’ve seen first-hand how the long running uncertainty of Brexit has impacted confidence in the finance sector.
Prior to the referendum we saw steady growth, particularly in the development market, with good levels of new investment. However, there’s now a steady reduction in those looking to invest in new projects.
An increasing percentage of our business is now focused on emergency refinancing as people are affected by tightening markets. Rather than helping them grow we’re supporting clients to weather the current storm.
Those who already have bridging finance may find they need to re-bridge as they’ve been unable to sell a property that they were relying on as their exit strategy. This is particularly the case with higher value properties, especially in London, where the market has slowed alongside the current uncertainty. People are weary of committing themselves to long-term investment when so much is up in the air.
Similarly, people’s appetites to invest in large projects has slowed. We’re frequently helping customers to raise finance against property assets to support their business and help them keep going until the economy settles.
Lenders are responding by reducing the loan to value that they will lend on, further depressing the market. This tightening of the market is worryingly very reminiscent of the last credit crunch.
Some funding lines have also been adversely affected, especially those from the US, who see Europe as a safer option than the UK at present.
However, we’ve also seen some take advantage of the current climate as entrepreneurs often thrive in times of market uncertainty. They can adapt more quickly to changes in conditions and are on the lookout for new opportunities.
A job-hunter’s paradise
With so much uncertainty surrounding Brexit, we’re seeing a mixed reaction across the UK job market. In fact, our data tells us that employers are remaining resilient and are continuing to advertise their vacancies, with the amount of jobs on offer increasing by 4% in February 2019. In turn, this has a positive impact on our business, as employers are still putting financial investment into their hiring efforts.
While this increase is great for job-hunters, we know many candidates are being careful about moving jobs in the current climate. This is clear from the 3.4% decline in candidate applications that we saw in February, which almost equally matches the rise in new job vacancies. Obviously, Brits want to stay safe in the knowledge that their employer will protect them, no matter the result of the Brexit deal.
In terms of what this means for our business, we’re having to be careful that our customers are still getting the vital applications they need to fill their jobs. Despite this, candidate registrations are on the rise, increasing by 5.6% year-on-year, which is extremely positive. This suggests that while candidates are cautious about making their next career move, they’re certainly considering their options, which is helping to grow our CV database – one of our key selling points to customers.
The increase in registrations could also be related to the incredible hike in average salaries across the UK, which rose by 30.2% on average. Employers have realised that to convince cautious candidates to apply for their roles, they’ll need to stand out – and the best way to do this is to offer a competitive salary. Indeed, higher salaries will ensure that employers not only attract candidates but retain them further down the line, thus preventing them from repeating the costly hiring process. While our data reveals a slightly mixed bag, it seems that business is continuing as usual for now.