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Why most of London’s tech sector believes Brexit will prove a disaster

TechCrunch TechCrunch 16/06/2016 James Silver

A decision over the U.K.’s future membership in the European Union is now just days away, with latest polls indicating a race to the wire.

Among the most fearful of a potential Brexit is big business, whose main lobby group, the Confederation of British Industry, which represents some 190,000 businesses, has warned of a “serious economic shock” should voters choose to quit the EU in the referendum on June 23.

The other side of the argument, spearheaded by “Vote Leave,” has also fought hard (though less convincingly) to claim it speaks for business, publishing a list of 250 business leaders who argue that the EU has a stifling effect on British companies.

In London’s tech and startup sector, however, few such divisions apparently exist. Many in the industry were quick to coalesce around vocal opposition to “Brexit.” A survey for Tech London Advocates, a campaign group, found that 87 percent of the 320 members it polled believe that EU membership benefits the U.K. economy, while 72 percent of those questioned in Silicon Valley Bank’s Startups Outlook report said that if the UK were to quit the EU, it would have a negative effect upon their business.

From breathless early-stage startups to veteran investors, it appears that many in the tech industry, including many of its leading lights, foresee only downside should the U.K. opt to hand back its EU club card. Here’s why.

London’s position as Europe’s top technology hub might be irreparably damaged

According to Gary Stewart, the U.K. director of WAYRA, a leading startup accelerator, many entrepreneurs come to the U.K. because it’s widely seen as the best place in Europe to start a company. “My concern [about Brexit] is that if people felt there was a better chance of exploiting the European market from a place like Berlin, they’ll just choose that or other locations instead,” he argues. “Startups will always go to places where they’ll have the best possibility of success.”

Christian Hernandez, managing partner at White Star Capital, a VC firm based in London, New York and Montreal focused on seed- and Series A-stage companies, agrees. Specifically he worries that, after Brexit, talented European founders would stop coming to London to build their startups. “While there’s better access to capital in London, it might be less painful for [founders] to simply grow their company from Estonia or Stockholm or wherever they are — and have people like me fly out to find them,” he says.

It appears that many in the tech industry … foresee only downside should the U.K. opt to hand back its EU club card.

Meanwhile, Hussein Kanji, a partner at Hoxton Ventures, a $40 million early-stage VC firm, whose signature investments include Darktrace (cybersecurity) and Yieldify (e-commerce solutions), reckons it will take another five or 10 years to know the true impact of Brexit on London’s status, partly because there isn’t a natural replacement. “Berlin is still too raw, Stockholm is too small, and the rest of Europe is still too fragmented, “ he says. “In some respects, Brexit would be as much of a setback for Europe as for London — it’s almost mutually assured destruction, in terms of taking out momentum from the whole ecosystem.”

But London’s status as “the venture financial capital for Europe” would certainly take a hit, he adds. “Brexit puts that into question, because if it’s less easy to be able to do business from London into the continent, you might see local and regional European funds start to flourish again.”

Brexit will trigger a tech talent crunch

A key factor in London’s success is the (relative) availability of top-tier talent, which Mutaz Qubbaj, CEO of Squirrel — a fintech startup which is part of WAYRA’s 2016 cohort — argues will almost certainly be, at least temporarily, impeded by Brexit. “What concerns me is that more than half of my developer team is not from the U.K., [but they are from EU member states],” he says. “Will Brexit make it more difficult for me to hire amazing talent regardless of its source?”

Ofri Ben Porat, CEO of Pixoneye, also part of the current WAYRA crop, adds that extra red tape around hiring in a post-Brexit environment is the last thing startups need. “We need to be removing barriers,” he says, “not adding them.”

Leaving the EU would obviously make finding talent even harder … there is a massive shortage of British tech people.
— Melinda Nicci, Baby2Body

That’s a theme echoed by Melinda Nicci — founder and CEO of London-based Baby2Body, an online resource and retail site for expectant and new mums — who doesn’t currently have any British talent working for her. “My tech team are Slovenian — a couple of them are still based there and come back and forth, and the other is based here — my chief operating officer is a Brazilian, who lived in the U.S., my editor is from the U.S. and our chairman is German,” she says. “Leaving the EU would obviously make finding talent even harder — applying for visas and work permits is the last thing you need as a startup. But if you want the best people you need to be able to draw from the largest pool of talent. And there is a massive shortage of British tech people.”

For Tom Marsden, CEO of Saberr, a startup that uses data science and algorithms to predict the performance of potential hires, the U.K. suffers from a classic skills gap problem, which quitting the EU will only exacerbate. “It just so happens in some of the areas that are most critical for technology businesses, there is excellent talent available from European markets,” he says.

“A significant part of that talent, in terms of developing, UX and product management comes from Spain, France and Eastern Europe and not having direct access to European talent would place significant constraint on the U.K.’s ability to really compete,” explains Marsden.

A case in point is Saberr’s Lead UX Designer. Originally from Portugal, Marta Matos says that when she first came to London with a friend, looking for work, she had enough money to stay in the capital for a month. “If the U.K. hadn’t been a member of the EU, I probably wouldn’t have come here, I would have picked another European country,” she recalls.

Investment from the European Investment Fund (EIF) could be switched off

VCs interviewed for this article say Brexit, crucially, would plunge the U.K.’s future relationship with the European Investment Fund (EIF), a major investor in European and U.K.-based VC funds, into doubt. Approached for a statement, the EIF was able to offer little by way of clarification. “It would be premature to speculate on the impact of any referendum result in favor of the U.K. leaving the EU, without clarity on the timing, circumstances and conditions of such a settlement,” it said. However, well-placed insiders ask why an institution set up to “foster EU objectives” would continue to support funds based in a non-EU country?

Uncertainty is a startup killer

Kanji argues that the biggest challenge surrounding Brexit is that it adds another layer of complexity for founders. “And whether it’s around hiring folks from Europe, or how trade agreements would work across the continent, [uncertainty] is something a startup doesn’t need,” he says. “No one really knows what the exact implications of Brexit are and because of that you end up with this situation where you don’t know what you don’t know.

This is uncharted territory, and no one really knows what a post-Brexit business landscape would look like.

And that, says Elizabeth Varley, founder and CEO of TechHub — a global community of 750+ technology startups, headquartered in Shoreditch, East London — is inherently problematic. “The biggest concern is the damage caused by the uncertainty of the U.K.’s position following Brexit,” she says. “Although it is unquestionably the centre of the European technology startup ecosystem, London’s success is built partly on being a first place of expansion for European startups, and an English-language gateway to Europe for countries outside it. The potential consequence of Britain leaving the EU is that London could lose this role.”

Corporate middle management may leave

Over the past 10-15 years, London has become not just the nexus of venture capital in Europe, but the nexus of larger tech corporates too, says Kanji. “If you look at every major tech company, whether it’s Facebook, Microsoft, Amazon or Google, they all have London as their centre in Europe. With Brexit, I think that falls into question. And that has knock-on effects for the startup community. If that executive pool of middle-management talent disappears from London, it gets much harder for startups to scale, because those are the kinds of people you’re recruiting to your company, as you develop and mature.”


The U.K. Government, which has been campaigning for “Remain,” claims voting to leave the EU could lead to “years of uncertainty and potential economic disruption,” as the U.K. unpicks its relationship with the EU and renegotiates trading agreements around the world. (Vote Leave, meanwhile, argue that a “Leave” vote will enable Britain, among other things, to “take back control of [its] borders,” save £350 million a week and “free [its] businesses from damaging EU laws and regulations.”)

Uncertainty aside, the reality is that this is uncharted territory, and no one really knows what a post-Brexit business landscape would look like; educated guesses prevail. From a tech perspective, however, TechHub’s Varley argues that if the vote ends up being in favor of “Leave,” the government will quickly need to refocus on immigration policy, because engineering talent could dry up.

“London’s uniquely diverse talent pool is a massive competitive advantage for its startup scene,” she says. “But [post-Brexit], engineering talent could become so expensive that startups get priced out of the market entirely, as the major banks and large tech firms scramble to replace many of the 100,000 engineers they currently employ [who might no longer be able to work automatically in the U.K.]. The government would have to work hard to rebuild its visa policy with the European nations.”

For his part, Hernandez predicts a prolonged period of limbo in the event of a vote for “Leave.” He says: “Ultimately we don’t know what will happen, and how quickly — it will take years structurally for some of this stuff to be flushed out. Do we stumble for a couple of years trying to figure out what role the government plays and how it continues to support the ecosystem, while Berlin and Stockholm take off, while China continues to thrive and Silicon Valley just continues to be ‘The Valley’?” He leaves the question hanging, before adding, significantly: “Perhaps.”

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