Brexit and the Impact in the London Startup Industry
Editor’s note: Xconomy invited Marcelo Calbucci, a Seattle serial entrepreneur and startup stalwart who just announced plans to move with his family to London, to reflect on the Brexit vote.
No, the skies are not falling. The U.K. vote to exit the European Union has passed, and there is an enormous amount of uncertainty right now to the British people, to the E.U., but also the rest of the world. The next few weeks will be very turbulent with a lot of volatility. I’m an outsider moving to London in the next few weeks, a decision my family and I made months ago. I’ve been following and connecting with investors, entrepreneurs, and super-connectors in London, and for the most part, they are very disappointed and worried about the decision to leave the E.U.
I’m not an economist, a political scientist, or a historian to predict what the future holds for the U.K. and the rest of Europe, but I have a few thoughts on the impact this will have on the startup scene around there.
On my blog post announcing my move to London, I wrote: “[London went] from nowhere four or five years ago to surpassing many US cities and likely to become second only to Silicon Valley in the next five years.”
I take that back.
The glass-half-full people are saying that the critical mass for tech is already in place, and the momentum will only continue. Yes, it will, but it will decelerate. The question is how fast it will decelerate and if it will start moving backward.
Here are the top concerns I have:
1) Talent migration: A competent and ambitious person in the U.S. living in a place that lacks opportunity can just pack their bags and move to San Francisco, New York, or Seattle and be in a place where opportunity abounds. The U.K. had an immense number of E.U. residents migrating there, which included both the ambitious-competent and the unskilled labor. That door is closing. I’m sure they will make it as easy as possible for the tech and entrepreneurial talent to come in (I think), but it won’t be as easy as just packing a bag and moving in.
2) Uncertainty for foreigners: This is not so much a concrete problem as it’s a hypothetical one. If you moved to the U.K. from another E.U. country to give it a shot there, you are probably unsure what the future holds for you. This group of people will be less likely to buy a property, to leave their job to found a startup (in the U.K.), or to make long-term plans until it’s clear what it means for them. Meanwhile, they’ll be “poached” by countries like Germany who’ll promise them a more predictable future.
3) Investors fear: Angel investors and venture capitalists are less susceptible to short economic cycles. However, the public markets do influence the investment decisions of the limited partners who invest in venture funds and VCs themselves, as they weigh whether or not to invest in a given startup. A good (startup) deal is a good deal under most economic circumstances. However, investors might be shy or slow moving, both in the next two to four weeks, and to some extent in the next one to two years until the impact of this outcome is clearer.
4) Trade and Commerce: The U.K. will not do anything stupid like excessive taxation or close its borders, however, there will be new laws, from online privacy to money transfer, from data retention policy to accessibility. As a tech entrepreneur I was already unhappy with some of the burden of doing business in the E.U. (E.U. entrepreneurs could say the same thing about doing business in the U.S.) The compatibility of the laws and regulations isn’t great. With the U.K. leaving we’ll have a “fork,” and this compatibility will get just so slightly worse. The risk here is that it won’t be worth it for a small startup to launch their product in the U.K. until they launch in the U.S., E.U., and China.
5) Openness: No matter how easy and how open the U.K. make its trade, commerce, and immigration policy, it will still be a notch less easy than what it is today. The perception by outsiders is that the U.K. is just building a “wall.” Even that not being true, it will take time for the perception to fade. The long-term result of this perception is still to be seen.
I’m still optimistic about the U.K. tech and startup scene, but not as much as I was before the Brexit vote. I hope lawmakers in the U.K. make progressive choices to avoid an “innovation recession.”