Brexit: Early-stage tech investment shows worrying signs in the UK
The landscape for tech startup funding has shifted significantly since the 2016 Brexit vote.
With ten days to a potential no-deal Brexit UK some tech companies are holding their breath – others are increasingly despairing of the chaotic political process.
“It is messy and confusing to put it mildly,” says Giles Derrington, head of policy at industry body techUK. “Most of them are just increasingly frustrated by the process,” he said of tech companies he talks to.
Large tech companies have spent money preparing for a no-deal Brexit, which could take place on 29 March – at which point the UK would leave the European Union (EU) without any agreement about trade or an ongoing relationship.
These big companies have stockpiled goods in case the UK does crash out of the EU but it now appears likely there may now be an extension of weeks or months to the Brexit process so that the UK might leave the EU later, with or without a deal.
That means companies that have stockpiled goods or components for the end of March deadline may have to think again, Derrington said.
“You might end up having to spend all that money again or a significant chunk of that money again on a rolling basis. Sooner or later businesses run out of patience with that kind of thing,” he said.
Smaller businesses are unlikely to have done much Brexit planning – largely because it’s too hard and too expensive for them to hit such a moving target.
“There’s a lot of holding breath and a lot of increasing anger and despair at the state of the process,” said Derrington.
The UK’s tech industry has grown strongly in recent years, particularly the start-up ecosystem in east London. These highly-skilled and well paid jobs are just the sorts of ones that many cities are trying to snare, and while the UK’s tech start-ups continue to grow there is some evidence that in terms of investment and the number of developers, European rivals are catching up. They are certainly attempting to capitalise on the uncertainty that Brexit is creating.
In addition the impact of a no-deal Brexit on the UK’s tech industry is still very unclear.
Data flows are one key concern. While the UK has said that in the event of a no-deal transfers of data from the UK to EU will be legal, the situation is less clear concerning data transfers the other way, from the EU to UK.
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That potentially means that businesses transferring data from Europe into the UK could be in breach of GDPR because the legal basis for that transfer no longer exists if the UK leaves the EU without a deal. The unresolved question is how would data protection authorities across Europe view those data flows – which would have been perfectly legal the day before – in the case of a no-deal Brexit. While there have been suggestions that data protection authorities would not see these flows as a priority, there’s no guarantee.
“You still, as a business, have to take a big risk that it’s the case, that’s not formalised, that’s not the rules, and do you have to assess that risk?” he said.
Other ongoing concerns for business include what happens with VAT – something which could cause a big cash flow issue for many businesses, and the broader economic impact of an unmanaged departure from the EU.
“The other one is people and what happens in the event of no deal, both [in terms of] the UK’s reputation as a stable place to come and can you get the talent to come here. Also there are still big, big questions marks over what the immigration system looks like if you’ve not got the transition periods to work it all out,” he said.
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