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Brexit creates a new vocabulary for startups in Europe

TechCrunch TechCrunch 26/06/2016 Adeo Ressi

The “United” Kingdom just punched the European startup scene in the face and we’ll see if Europe can recover.

The problems that the Brexit vote will bring will have ramifications that will be felt across Europe. In any tumultuous change, though, the weakest entities suffer the most, and in business who will be the ones most exposed to the effects of the Brexit by definition? Startups.

Here’s a new lexicon of Brexit-styled terms that startups may want to learn to discuss what will happen…

Eurogeddon: The amount of funding for European startups will drop by 20% or greater by the end of the year. Approximately 50% of European funding is from London, and London dominates the later stage funding rounds.

I don’t see how London VCs will continue “business as usual” until the regulatory implications are better understood. Once London slows down the funding rate, particularly in the later stages, this will force the earlier stage European VCs to slow down as well. Forget about raising VC in Europe.

Eurogration: As millions of refugees pile into Europe, top entrepreneurs will flee for brighter funding prospects.

With funding rates across all stages declining in both London and Europe, experienced entrepreneurs that need to raise money in 18 to 24 months will go to where the money is: Silicon Valley, New York, Singapore, etc. I would expect to see half of the top 5% of entrepreneurs leaving the region within the next two years. If you need money in Europe, get out now, as the diaspora will drain foreign funds, too,

Berlinifacation: If London is out, then who will dominate the decimated European startup scene? Berlin, of course.

Within five years , Berlin will go from being poor and cool to the tech hub of Europe. The billions of dollars that once populated UK venture capital funds will gradually move over to German funds, and the German efficiency will be put to work. In ten years, the first major crop of European unicorns will appear under the umbrella of Germany. If you don’t need to raise soon in Europe, then move to Berlin now.

Corpacolapse: The corporate appeal of the Commonwealth to startups will dry up overnight. No startup in their right mind will go to a rainy island with no market and a stalled VC industry to incorporate a business.

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The UK had become one of three major startup hubs to incorporate a business (Delaware, Singapore, UK) due to the rule of law, available capital and market access. Two of the three benefits are now gone, and the rule of law is changing, too. No startup should incorporate in the UK at this moment. If you are incorporating in the UK, stop now. If you need to incorporate in Europe, go to Germany.

Startups have a lot of problems as it is. When you introduce structural risk at the economy level, then good entrepreneurs need to react accordingly. Being born in hard times can be good for startups, as it makes them both hungry and lean. Adding unnecessary struggle to the plight of a startup is generally not a good idea. For European Founders, this is a pivotal time.

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