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Startup Report

For European Startups, Brexit Is An Ugly Divorce Where Each Side Gets Half The House

Experts say Britain will be left with most of the venture capital, while the continent will keep a surplus of talent.

For European Startups, Brexit Is An Ugly Divorce Where Each Side Gets Half The House
[Photo: Flickr user Canan Çengel]

Even for hardy startup entrepreneurs known for their ability to make lemonade out of lemons, those in Europe were in for a particularly sour surprise on Friday when they woke up to a cascade of shocks following the Brexit referendum in the U.K. Many of them reacted with a mixture of resilience and uncertainty.

Immediately after the results were announced, financial markets went into a tailspin and the British pound fell the most it ever has in a single day, hitting a 31-year low. Prime Minister David Cameron resigned and Britain itself faced the possibility of a breakup, with Scottish politicians suggesting a new referendum in Scotland on leaving the United Kingdom and staying inside the EU.

"No one knows what’s going to happen next," Taavet Hinrikus, CEO of the peer-to-peer money transferring network TransferWise, told Fast Company in an email. "Nothing’s changed yet but everything’s changed…Our focus is on business as usual as much as possible, providing the best service we can to our customers."

Many in the entrepreneurial world seemed stunned. Two prominent British startups recently profiled by Fast Company refused to comment on the projected consequences for them, while several others did not immediately respond to requests for comment.

"I travel throughout Europe frequently (at least 10 times per year)," said Leon Doyle, CEO of WIFIPLUG, a startup that makes smart plugs in Leeds, in an email. "So I really hope we don't have to start getting Visas each time we cross the border."

Apart from the likely loss of duty-free access to the EU market, where almost half of British exports went in 2015, British entrepreneurs face the potential loss of EU business and research grants.

"The EU funding is something I hope we keep as it means research and future proofing new ideas can continue," added Doyle. "All our print for WIFIPLUG is imported from Italy and we currently benefit from zero tariffs or import tax."

Experts say that European grants notwithstanding, it will be startups on the continent that will be more affected by reduced access to London-based venture capital.

"In France, entrepreneurs fear that it will become more difficult for them to raise money…what they expect is capital shortage and more legal fees if you want to do business between Britain and the continent," said Nicolas Colin, a professor of business strategy and entrepreneurship at Université Paris-Dauphine in France and cofounder of startup accelerator TheFamily.

"In the last few years the European venture capital has really regrouped, mostly in London where all the major players are, be they European venture capitalists or American venture capitalists opening an office in Europe," he explained.

"They always choose London because this is a city where they speak English, this is a city where it’s a common law system, so it’s more familiar to American investors. And also, there is the City, the financial sector, which is here, which is quite reassuring…"

British startups, on the other hand, are more likely to face "a talent shortage," Colin assessed.

That was reflected also in the words of TransferWise’s CEO.

"The two main benefits of being part of the EU [for British tech startups] are access to talent because of the free movement of labour and the fact that you can ‘passport’ regulation so if you’re regulated in the U.K., you’re regulated across the EU," Hinrikus added. "We don’t know what’s going to happen with either of those. "

Yet despite the significant setback, there is no room for despair: Startup entrepreneurs are known for their resilience and their rebellious irreverence for roadblocks and obstacles, Colin and others assert.

"There are always opportunities and I am sure we will see some great companies emerge as a direct result of leaving the EU," said Doyle.

Serial British-Bulgarian entrepreneur Boyan Benev, currently chief marketing officer at MammothDB (a big-data analytics company based in tiny Bulgaria in the opposite southeastern corner of Europe from the U.K.), says that the debates surrounding the referendum have already given him an idea.

"No one expected this result [in the referendum]. Why? Because we live in bubbles, isolated from views and opinions which contradict our own."

Benev points a finger to social media like Facebook that create social bubbles by "pushing content which we will engage with."

He says he sees in this not only a problem, but also an opportunity.

"I really don't think there's too much of an immediate impact on the tech community other than helping us recognize the opportunity to create technology which bridges these growing social schisms," he added.

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