If I could vote for Britain’s EU status from an eight hour time zone away, I would vote to keep the UK in Europe for many reasons. However, as an American and an investor in startup tech companies in the UK and throughout Europe, I must deal with the reality of the situation and assess: Is this going to make London and UK-based businesses less attractive to me?
The answer: unlikely.
The UK and London technology scene is robust, and companies and entrepreneurs are resilient. There may even be some long-term advantages to Brexit.
In the short-term, however, there is likely to be a lot of pain. Brexit is throwing up hurdles everywhere – uncertainty among employees on their immigration status and uncertainty about customs, trading rules, and data policies. Yes, it is chaos. All of this is making it difficult for businesses to plan being based in the UK, with some of the most worrisome issues centring around the immigration status of some of their EU employees. Businesses deal with challenges all the time and, in many ways, solving problems is the core of business. Brexit just happens to be another challenge that turns up the heat on everyone.
London the Technology Capital
Most people would consider London to be the technology capital of Europe, and Paris a close second. This week, a report by Innovate Finance showed that investment in the UK fin-tech (financial technology) sector rose to a record-breaking $3.3 billion – an increase of 18% from the prior year. London and Partners, which is closely affiliated with the City of London, also put out a report that London attracted more foreign tech professionals than any other major European city including both EU and non-EU individuals, making the point that EU membership aside, London undoubtedly is a tech destination.
I believe that the biggest issue with Brexit by far is the potential impact on immigration. Living in Silicon Valley, I can tell you that immigration here has been a major contributor to our region’s success. Silicon Valley would not have existed and would not continue to exist without the individuals who have immigrated into the community. How immigration will be treated under Brexit is still a mystery – and I am hopeful for the UK that they find a path forward that does not shut down immigration and worker visas.
Investment flows to where the talent is
Ultimately, investment and capital will flow to where opportunity exists. We have heard of big businesses like Sony and Bloomberg packing their head office boxes and heading to Amsterdam. While the taxman may be panicking, investors are eagerly watching the fallout. Not every employee wants to unroot their families and head abroad. Many talented IT professionals could set up their own startups. The UK makes it easy for US businesses to move to Europe – not only because of its EU status but also because of the shared English language. Considering the UK’s economic size and significance, businesses looking to Europe might still make the UK their first stop even if the UK leaves the EU.
Data laws won’t change
There are some potential issues for tech companies if Brexit happens. One example is GDPR, the broad data privacy standards the EU has put in place to protect consumers. In theory, if the UK leaves the EU, they will no longer need to follow the same standards. Many claim this will be confusing; I do not think so. In fact, in January the Minister for Data Protection, Pat Breen, said that “GDPR explicitly provides for mechanisms to facilitate the transfer of personal data in the event of the UK becoming a third country.” The reality is that even here in the US, we are adopting standards that are very similar to GDPR if not using GDPR as a defacto guideline (for reasons maybe outside the scope of this article).
For the service sector, tariffs and trading rules are small matters
Additionally, most of the businesses that we invest in are software or SaaS (software as a service) businesses. Selling software is subject to VAT and there will possibly be some impact within the EU, but in the long run – against the backdrop of world markets – it is not going to change the course of technology in the UK. Since there is little manufacturing involved with most technology companies, all of the complications concerning matters such as tariffs, customs bureaucracy, and long lines at the border will not nearly have the same impact. For other businesses, such as agriculture and automotive services, the impact will be much more severe, but the UK’s GDP comes predominantly from the service sector.
I can’t imagine that the tax benefits of staying in the EU would deliver any long term sustainable benefit anyway. As the saying goes, death and taxes are unavoidable – regardless of country. In the long term, the UK will have more control over policy. There will undoubtedly be benefits to the technology sector – they just might be hard to see right now in all the chaos.
Businesses are resilient. Digital Shadows, one of Storm Ventures’s investments which is based in the UK, has gone through a tumultuous time planning for the uncertainty of Brexit, but like all successful startups, they’re riding it out and already have set up operations outside of the EU including the US. In the broader scheme, technology companies have the potential to become global business whether they are in the EU or not. It just might be a little bumpy along the way.
Originally published in The UK Newspaper