Brexit: Is London Losing Its Start-up Crown?

London is a titan of the tech world and home to 40% of Europe’s “Unicorns”, start-up firms that have gone on to be worth more than $1bn. Silicon Roundabout in Shoreditch is modelling itself on Silicon Valley in California as a wannabe tech entrepreneurs’ nirvana and now enjoys two of the crucial elements of success for start-ups; finance and talent. But both of those assets are at risk of being seriously diminished when the UK leaves the EU.

The venture capital funds that provide much of the investment for London’s start-ups have been faced with a huge problem since last year’s referendum vote in favour of Brexit.

They risk being ineligible for the European Investment Fund, which uses money from governments and banks to channel funding to small and medium enterprises through venture capital funds.

That matters because the EIF accounts for more than a third of investment in UK venture capital funds, committing €2.3bn to UK businesses between 2011 and 2015. If the venture capital industry loses that funding it will have less capacity to invest in the latest London-based start-up. The impact on confidence is already being felt, with France overtaking the UK for levels of venture funding for the first 6 months of 2017.

Loss of Talent

Brexit also threatens to drain the talent pool that London relies on to create innovative firms. Until now one in five start-up founders have been born outside the UK, with more than one in 20 being EU nationals.

That means the likelihood of new immigration restrictions after Brexit poses serious problems for an industry that relies so heavily on the skills of foreign workers, with 18% of the tech industry’s total workforce being born overseas.

The importance of maintaining access to that foreign talent has been highlighted by Romilly Dennys, the chief executive of COADEC, the Coalition for a Digital Economy. “The Conservatives’ commitment to an immigration target of below 100,000 is a huge and damaging blow to our entrepreneurial, outward-facing country,” she said. If Brexit results in the increasingly restrictive immigration rules that many Brexiteers want to see then there may be irreversible damage to London’s status as Europe’s start-up city.

Rivals Pouncing

Other European cities were quick to see Brexit as an opportunity to challenge London’s lead in tech start-ups.

France was quick to make a pitch and President Emmanuel Macron is trying hard to charm international start-ups into choosing Paris, aggressively deploying a range of programmes. Those projects include the French Tech Ticket competition, which awards 70 international startups €45,000 each, residents’ permits for the founders and a relocation package for each firm.

That is backed by the growing level of investment available for tech firms in France, where investment nearly quadrupled between 2013 and 2016. All of that makes life beside the Seine a seductive proposition for many of the start-ups that now occupy office space in London.

Another potent contender for London’s start-up crown is Berlin. The start-up scene in the German capital is booming with 1,908 startup jobs created in the first six months of 2017, a 70% increase from the same period a year earlier. Office and housing rents in Berlin are a fraction of London’s and Germany offers a sophisticated finance industry and the reassurance of a deep national commitment to the European Union and its shared market and and regulatory framework and continent-wide research and investment programmes.

The fear is that London start-ups may seek alternative cities as many of the larger businesses they work with continue their own continental drift towards cities that offer the cherished trio of finance, European talent and continued access to the Single Market.

 

by Thomas Chambers

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