Technology

UK’s tech start-ups feeling stress of Brexit challenges

Fundraising, hiring and European access main causes of anxiety among entrepreneurs

“Leaving the single market is going to brutalise our start-up culture. Running start-ups is hard enough – we don’t need the extra burden.” Photograph: iStock

Tue Feb 14 2017 - 08:18

British technology start-ups are beginning to stress over Brexit. Initially confident that their industry wouldn't be harmed by Britain's break from the European Union, UK tech entrepreneurs are now girding for a bevy of challenges.

A poll of 940 start-up executives in the UK and other nations found that Brexit, which is set to be triggered in March, is sowing anxiety about fundraising, the hiring of non-British employees, and accessing the European market.

Less than half the executives believe 2017 will be a better year than 2016, according to the survey released Tuesday by the London unit of Silicon Valley Bank, a California-based investment bank. More than a fifth of fledgling UK tech ventures expect to open offices in continental Europe, and one out of 10 are considering moving their headquarters across the English Channel.

Despite the angst, the UK should remain the biggest technology hub in Europe for some time, thanks to supportive regulation and London’s vibrant start-up scene, said Phil Cox, president of Silicon Valley Bank’s UK branch.

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“I’m not saying it’s going to be easier,” he said, “but these companies are very disruptive, and they will find a way to employ the right people and sell their products and services across borders.”

Bright spot

The survey is another sign that Brexit may exact a toll on an industry that has been a bright spot in the British economy since the 2008 global financial crash. London has become a hotbed for ground-breaking financial technology, which is reshaping the banking and payments processing industries.

However, venture capital investments in British fintech firms dropped 34 per cent in 2016, to £625 million (€738 million), according to a report released last week by London-based Innovate Finance.

By contrast, German fintech companies received 35 per cent more funding than their UK counterparts in the first three quarters of 2016, according to a separate report from KPMG and CB Insights, a New York research firm. The performance marked the first time German fintech ventures attracted more investment than their British counterparts.

A number of nations are following Germany’s lead by encouraging fintechs. France, Spain and the Netherlands are offering government-backed investments, subsidised office space, and tax incentives to start-ups. Portugal recently unveiled a €200 million fund to invest in local ventures.

Body blow

Some UK-based entrepreneurs say that prime minister Theresa May’s vow to leave the European single market and prioritise immigration was a body blow.

Hiring talent is the biggest concern of start-ups. Even if a visa regime favours highly skilled workers, they will be tied to the companies that hire them. That means employees won’t easily be able to hop from one firm to another like they do now, or quit and start their own enterprises. Such mobility is crucial to fomenting a thriving technology hub.

“Leaving the single market is going to brutalise our start-up culture,” said Jennifer Arcuri, founder of Hacker House, a Manchester-based firm that consults companies on cyber security. “Running start-ups is hard enough – we don’t need the extra burden.”

– (Bloomberg)

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