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Ahead of the European Union (EU) referendum, minister of state for culture and the digital economy Ed Vaizey said leaving the EU would put tech startups at risk. But what exactly will the looming Brexit mean for the startup industry?
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The tech startup industry as a whole was backing the remain campaign. However, the industry is now faced with a different and uncertain future that is likely to affect investment, funding and skills.
One of the main challenges the industry now faces is access to funding. Gartner predicts that as a result of the UK leaving the EU, IT spend will drop significantly not just at home, but in the rest of Europe.
John-David Lovelock, research vice-president at Gartner, said the current forecast growth for UK IT spending is 1.7%.
“The Brexit will drop this figure between 2% and 5%. In other words, UK IT spending growth will certainly be negative in 2016,” he said.
Frost & Sullivan’s research director for digital transformation Adrian Drodz and practice director EIA Ajay Sule added that access to funding and credit will be affected by Brexit.
“Although the Bank of England has been quick to state it has plans in place to support the UK economy and the financial services sector, concerns will be raised with regards to the ability to obtain credit and funding – especially among startups,” they said.
“The European Investment Fund [EIF] is the largest investor in UK venture capital firms – whether this funding stream remains in place, and for how long, is a major question mark.”
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The loss of the digital single market, which Vaizey has hailed as an “opportunity for tech companies in the UK to spread their wings even more than they are already doing”, will also affect the UK’s role as a digital hub.
“For many firms seeking to harness opportunities, the UK has long been seen as a gateway – especially for US firms, due to the cultural affinity between the two countries. Startups have also been attracted by the culture of innovation fostered in London in particular,” said Frost & Sullivan.
Ahead of the referendum, Vaizey said: “If you are a big investor from the US looking at Europe after the UK has left, you will be looking much harder at places such as Berlin and Paris than London, which is probably the default place now. Outside the EU, it will be hard to attract the right kind of companies that scale up.”
London has long been hailed as the tech startup capital of Europe. However, Forrester predicts that digital startups will now begin to favour other European cities, such as Amsterdam, Stockholm, Barcelona and Berlin, over London.
Christoph Gerlinger, CEO of German Startups Group, said the Brexit was good news for the German startup scene.
“We expect a significant decrease in new incorporations in London in favour of Berlin, as well as an influx of successful London startups,” he said.
Techspace, a flexible co-working space for tech startups, has expanded to Berlin – a decision which was taken ahead of the referendum.
However, its CEO David Galsworthy added that there is “no doubt London will also continue to be a central hub”.
Computer Weekly previously reported that Australia has called on UK technology startups to set up shop on its shores, with the promise of government support, a highly skilled workforce and a stepping stone to Asia.
Australia also offers tax breaks to early stage companies. With the future of the EIF uncertain, startups could benefit from making a move abroad.
British startups are already looking to establish themselves in Asia, another option now seems even more alluring.
However, it’s not all doom and gloom. Russ Shaw, founder of Tech London Advocates, said while the result of the EU referendum was “not what the London tech sector wantred to see”, digital and tech entrepeneurship has already taken hold in the capital.
Tudor Aw, head of technology sector at KMPG UK, echoed his thoughts and said he remains “optimistic and confident” over the future of UK tech.
Ed Relf, CEO of tech startup Laundrapp, said although he wanted the UK to remain in the EU, it’s now important to “unite around the majority democratic decision and focus on what’s important now, which is making Britain even greater”.
“In true startup spirit, we’ve truly jumped off the cliff and now it’s down to a ‘United’ Kingdom to build the parachute on the way down,” he said.
“Today is truly ‘Startup Britain’, and with change comes immense opportunity.”
App developer Apadmi Enterprise CEO Matt Hunt said the UK and EU markets have offered tech businesses “huge growth potential”, but that there are no boundaries when it comes to technology.
“The UK tech industry has been in a strong position, and the only limitation we’ve been faced with to do business has been our own ability,” he said.
“With the impending Brexit, there is now a high level of risk and uncertainty around our future, and questions are being asked as to how will we be able to build on our success and further grow without the support of the EU.”
Skills could still be available
While Vaizey pointed out ahead of the referendum that a Brexit will put investment and talent at risk, the Tech Nation Visa Scheme will remain.
In 2015, the government changed the rules for non-EU IT experts to get visas to work in the UK, to help meet the skills demand from UK IT companies. This means startups will still be able to attract skilled workers from outside the EU.
If the UK’s Brexit deal means that EU workers no longer have the right to freely live and work in the UK, it’s also likely a similar scheme will be introduced for skilled workers.
PricewaterhouseCoopers (PwC) UK private business leader Suzi Woolfson said although there will be a “bumpier economic climate” ahead, the UK is resilient.
“Private businesses and SMEs are at the heart of the real economy and they are nothing if not resilient. I am confident they are well equipped to weather the changes,” she said.