What Brexit means for the startup scene

europe-1456246_1280
europe-1456246_1280

Everyone is shocked by Brexit, including the UK itself. What started as a quiet movement resulted in a referendum with a surprising result. The United Kingdom has chosen to leave the European Union. That much is clear. But what is not clear is far greater. What will the effect be on Europeans living in the UK and Brits who are living in Europe? Will London lose its claim as a financial capital? Will startups leave London en masse? Questions like these that were once only passing speculations have to be confronted now. Most remain unanswered.

Here’s what we know: Brexit’s effect on startups

Startups have already spoken up. Many rely on key EU policies to set their ideas in motion. Take Revolution, a payment app. “We are seriously considering leaving the UK,” a spokeswoman said. Though the wheels to withdraw from the EU have not been formally set in motion, London risks becoming a less attractive startup hub. Partnerships will be harder to form and markets less easy to access. Fintech expert, Rafael Otero said “New fintech startups are now better off in Europe than in London”. His words echo the sentiment that London will head for a talent and investment drain.

London was often used as a foothold for gaining access to Europe. It was always expensive but talent was relatively easy to attract and investment was large. A week following Brexit it is clear the markets have destabilized and the Sterling has dropped. Investors will be more cautious. Risky ideas will get less funding. But on the other hand, there may be less regulatory hurdles for London-based companies in the long-run. And the dropping Sterling could lower costs for startups. However, at this time young companies are worried about the complexity and cost of meeting regulations in the UK and EU separately. As Business Insider reports, “Having two separate regulatory regimes in Britain and Europe would double the number of hoops that British businesses have to jump through to operate on the Continent (and vice versa), increasing the financial burden on them.”

Further, European subsidiaries could be eliminated from British companies. Key funding by the European Investment Fund might also be cut off. As Jon Moulton of Better Capital told the FT, the EIF is currently the biggest funder of young British companies. Without it, London startups may have trouble getting off the ground.

What will happen in the German markets?

While London has been hit hard financially, the FT reports that German officials are confident the country can withstand the shocks of the market. The UK is the third largest export market of Germany. Others, including those in the startup scene like venture capital firm German Startups Group are similarly assured Germany will be fine.

“The Brexit is good news for the German startup scene. Only since 2015 was Berlin able to surpass London, the previously dominant hub of Europe, in the number of and overall volume of financial transactions from startups. This development will now accelerate…” says CEO of GSG, Christophe Gerlinger in a press release.

Nick Hopper, founder and CEO of Crozdesk (a London based startup) has also forecasted the outcome to be good for Berlin, saying “London was able to defend it’s spearhead position as Europe’s startup capital for many years, Berlin is now set to take over.”

Matters of immigration

At least 100,000 Brits live in Germany. Almost 300,000 Germans live in the UK. The process of changing immigration will not be fast and so, luckily, there’s time. At this point, it is especially unclear how the next years will look for freedom of movement (one of the most important rights afforded by the EU). But there are a number of different possibilities.

The UK could hold to its “Leave” campaign and make stricter immigration policies. Germany could in turn do the same. Britons could enjoy special freedom of movement privileges, like Switzerland and other members of the European Economic Union. Unfortunately, as seems to be the theme of Brexit, the changes are wholly uncertain.

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