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Tech-xit – Reshaping Europe?

Updated: Apr 5, 2019

London has developed to become the leading light in the European tech scene – with 18 of 47 European Unicorns headquartered in the UK. Brexit has come as a shock to all, but what will it mean for both the London tech scene and also to the broader European tech community. (Please note this article was first published in August 2016).


The uncertainty around Brexit will inevitably cause some issues for the UK's tech scene

Two months post the vote on Brexit the much prophesised UK economic collapse has not yet happened and London is still strongly positioned as a tech-hub, built on the back of certain key advantages, principally a well-developed ecosystem, including a sophisticated financial, legal and broader professional services sector, a large well-educated pool of talent and a global outlook. Nevertheless, with the shock of Brexit we, at Kobolt Growth Advisors, feel:


· The UK tech sector will suffer over the next few years due to a high degree of uncertainty.

· That there is likely to be a longer-term hangover as London’s competitors across Europe will look to capitalise on this uncertainty to their own benefit, either further consolidating their well-established eco-system (Stockholm and Berlin) or seizing the opportunity to grow (Barcelona). This is likely to make for an increasingly competitive European technology landscape with stronger competitors for London in the medium-term.

· Whilst no one can predict the longer-term impact of Brexit we feel that the UK government should take certain steps today to recognise and mitigate those mid and long-term risks.


Short-term - Uncertainty


The UK’s decision to exit the European Union was met with surprise and largely disappointment from most of the Continental tech-community (at least those we have talked to) and to a shocked response in London. Inevitably there has been a period of evaluation to establish what Brexit means for London in practical terms, which has meant a hiatus on investment decisions over the summer months and already it has meant investment being withheld and deals falling over in certain instances.


Having said this, many of the economic indicators are not as negative as many initially feared; there are advantages for export focused-businesses given the weak pound, we will no doubt see both investor and corporate investment in the UK as a cheaper, and therefore relatively better value for money market. We have also already seen the acquisition of UK headquartered technology businesses by foreign investors and corporations (see the recent acquisition of ARM for £24B).


However, we feel the fundamental issue for London in the short-term is uncertainty. Ultimately whether you are a large corporate, an investor or a start-up you will be drawn to locations that offer a high degree of predictability; the one thing no one can predict with any degree of certainty at the moment is what is going to happen in the UK over the coming months and years.


On this basis the appeal of other tech-hubs within the EU, where there is greater certainty, will continue to rise at the expense of London. One cannot help but think that founders and earlier-stage businesses in particular will seriously consider establishing their operations in alternative locations and so relocate some of the next generation of tech success stories; this is yet to be proven in substantial numbers and only time will tell. Unfortunately, there is little London can do to provide greater certainty (yet), other than make clear statements of intent about the planned route the country will aim to take in the medium and longer-term.


Mid-Term – Positive intentions


Whilst it is difficult for the government to address specific concerns for the technology community until negotiation with the EU is underway, the UK government can send positive messages to the community, and demonstrate clear empathy with the key concerns for businesses choosing to headquarter themselves or invest in London:


A. Access to the single-market: The initial sounds coming out of Brussels are not wholly encouraging; whether as a start-up or as an access point to the European market for US corporates, one can envisage that businesses will continue to look for a location with guaranteed access to the EU market.

· Develop a clear focus on no / very limited tariffs with the EU and improved trading relationships with other international trading blocks.


B. Britain still open for business: A number of leading UK headquartered tech businesses are owned or managed by foreign investors and founders and there will naturally be concerns that their status will change.

· Demonstrate the ambition to maintain limited regulation to establish businesses in the UK, an attractive tax regime and incentives to attract foreign companies, investment and founders.


C. Free movement of people: All tech businesses are built on the quality of their people. Technology businesses have very specific requirements for talent and limiting access to candidate pools can only hurt the sector in the medium-term. Traditionally London has been able to attract talent internationally and the composition of teams in London tends to be particularly cosmopolitan.

· If, as seems likely, freedom of movement is not possible, demonstrate a straightforward visa policy that enables companies to easily and quickly attract the best talent globally.


D. Perception as a Global Hub: On many measures London is the global city and this has enabled businesses to attract executives from across the globe; however Brexit threatens to create a perception that there is a xenophobic under-current in the UK and that will make London a less compelling destination for many international executives.

· As a citizen of the city I would start by saying London remains a highly welcoming international city. London has already readily proclaimed its desire to attract global companies and executives and this should be reiterated.


Despite these concerns the UK still holds a unique position in Europe; alongside Ireland, it has provided the natural stepping-stone for North American investors and companies entering the European market, given a common language, perceived close cultural parallels and business practices. Further as a global city, London’s history and culture has contributed to its reputation as a highly attractive home for many executives. In addition, the broader eco-system of innovation, technical and creative talent, world-class professional services and access to ready capital continues to mark London out as the European technology leader.


At Kobolt, we still have great confidence in London’s tech-sector given these core advantages, however in order to maintain its premier position in the European tech sector we feel the government should aim to provide increased certainty to the technology community to support the ongoing growth and development of our ecosystem.