Hard Brexit. The hard startup challenge

18.02.2020.Bloomio Team.0 Likes.0 Comments

London has been the undisputed startup hub in Europe for many years. Startup unicorns like Revolut, BrewDog and Deliveroo have chosen the United Kingdom as the siege for their headquarter. Around 30% of European Venture Capitalist are based in the UK and around 10B$ are invested every year in startups in Great Britain.

International, smart, innovative, cosmopolitan. This is London. This is the reason why it is always been the startup epicenter on the east side of the Atlantic.

The June 2016 Brexit referendum, the long discussion between “deal” or “no deal”, the “hard” Brexit positioning which emerged in the last months, could drastically change all this.

For Tech entrepreneurs Brexit represents the axial opposite of the world they have been building. They worked to lower barriers and to create wider communities beyond languages and national borders and they are now foreseeing limitation on talents mobility and an increase in regulatory complexity. In this contest, it is not a surprise that 87% of tech entrepreneurs see negatively the Brexit impact and believe that it has already damaged London’s international reputation, as reported by the research commissioned by tech entrepreneur network Tech London Advocates[1].

One out of four startups in the United Kingdom is currently considering leaving the country and while some are contemplating this option[2], others are putting this in place. It is of the last hours the news that the German based neo bank, N26, has decided to quit UK two years after the launch in the country[3]. Beyond company leaving, the birth rate of new companies, is another valuable indicator of the Brexit consequences and, already in 2018, the number of new startups fell by 12.8%[4].

But what are the key issues for startups when it comes to Brexit? While the details of how it will materialize are still being shaped, some key issues are already clear.

  • People

New immigration law, restricting the mobility of EU residents, will impact one of the key assets of startups: their people. By limiting the possibility to attract and hire talents outside the country, the new reality will hamper the competitive advantage of having the right people to transform a great business idea into a solid commercial reality.

  • Regulation

The country regulation will evolve independently from the European’s one. This will have a direct effect on the legal commitments with employees, customers, suppliers and partners. UK based businesses might end up dealing with two different set of regulations: one to sell in the UK, one to sell in Europe. It will also be harder to claim back VAT for EU trades adding complexity, in the best case, and bottom line impact, in the worst.

  • Data Protection Rules

May 25, 2018 represented a scaring date for many business. GDPR became effective in Europe and it required several operational and structural adjustments for all the business collecting data of their customers. The effort to put in place by business to comply with the new regulation – and to avoid the astronomical fines in case of data breach – has often been defined as a “nightmare” from many tech entrepreneurs. For the UK based companies all this could happen again to transit from GDPR to UK-GDPR.

[1] https://www.techlondonadvocates.org.uk/

[2] https://workplaceinsight.net/a-quarter-of-london-start-ups-have-considered-relocating-to-deal-with-brexit-uncertainty/

[3] https://thefintechtimes.com/following-brexit-n26-is-leaving-the-uk/

[4] https://www.ft.com/content/94af0024-d004-11e9-99a4-b5ded7a7fe3f

Categories: VC Industry
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