The impact of Brexit on tech startups in the UK
It’s been over three years since the UK voted to leave Europe in the 2016 European Union membership referendum and after a long wait, it’s now less than two weeks before Blighty will part ways with its continental neighbours on the 31 January.
A final deal is yet to be made so there is still a lot of uncertainty about what Brexit will bring. For entrepreneurs, investors and CEOs in this space, this lack of clarity means that we are still asking ourselves: what will the UK look like post-Brexit for the burgeoning British tech sector?
However, many analysts and experts have made insights based on calculations and estimations and it seems there’s definitely many changes ahead and much to be concerned about. Here are five ways that Brexit could impact current tech startups residing in the UK…
End of free movement
At the moment, it is estimated that approximately 20% of staff in London-based start-ups are from the EU, something the core EU principle of free movement of labour has encouraged.
Under the temporary permission regime, European companies are currently allowed to operate in Britain after Brexit but they will eventually need to seek full authorisation to remain past a certain point. However, if the UK government end this perk, Britain could lose many highly skilled workers thanks to Brexit although for this reason, it’s unlikely ministers will allow this to happen. Still, it hasn’t been set in stone yet
Higher prices for imported goods
According to a report by Acuity Analysis for the GMB, costs of imports and exports will increase post-Brexit, although the extent to which these costs are passed onto businesses – specifically startups – remains uncertain. Regardless, whatever deal is concluded – anything short of an agreement for a continuation of the UK’s access to the single market and customs union will increase the cost of trade for all businesses, especially startups. Worst still, these costs could mean companies try to cut costs elsewhere, such as in staffing.
An unwelcoming perception
While the UK capital has long been a city that prides itself on its diversity and endless opportunities, especially for startups, its lure to new businesses could easily fade thanks to the message that the Referendum vote sends out to its European neighbours. If the UK is portrayed as not such a friendly place to live and work due to the way in which the majority of people have voted in terms of immigration, for instance, then it could impact the number of potential new businesses wanting to start up in London – or other British cities.
Decline in funding
Already, investment finding is seeing a decline thanks to the result of the referendum, even before Brexit has happened. According to UK investment-tracking company Beauhurst, overall investment funding plunged by £1.27 billion in just one year, from 2017 to 2018. The firm’s report also states that there’s been a 15% fall in seed stage funding during that time, which is perhaps more worrying for startups. Declines in this area could deeply affect the UK innovation landscape for years to come due to the importance of seed funding in kickstarting new businesses.
Drop in EU research funding
Tumbling out of the EU could mean that generating EU funding for London-based startups will become increasingly difficult. Currently, EU funding for academic research at UK universities is a very important income source, with the current Horizon 2020 programme awarding a whopping €5 billion to the UK so far. If this continues will all depend on what type of Brexit deal is struck. A no-deal scenario, for instance, would likely have a detrimental impact on a range of important research projects in Britain, which are a vital source of expertise for tech startups – especially in their early stages.