British technology startups are beginning to stress out over Brexit.
Initially confident their industry wouldn’t be harmed by Britain’s break from the European Union, U.K. tech entrepreneurs are now girding for a bevy of challenges. A poll of 940 startup executives in the U.K. and other nations found that Brexit, which is set to be triggered in March, is sowing anxiety about fundraising, the hiring of non-British employees, and accessing the European market.
Less than half the executives believed 2017 will be a better year than 2016, according to the survey released Tuesday by the London unit of Silicon Valley Bank, a Santa Clara, California-based investment bank. More than a fifth of fledgling U.K. tech ventures expect to open offices in continental Europe, and one out of 10 are considering moving their headquarters across the English Channel.
Still, technology giants remain confident in a post-Brexit U.K. In January, Snap Inc., the Venice, California-based social media powerhouse that’s preparing an initial public offering, announced it will base its international headquarters in London. Apple Inc. and SoftBank Group Corp., the Tokyo-based tech fund, have also settled on the British capital for major new operations.
The U.K. should remain the biggest tech hub in Europe for some time thanks to supportive regulation and London’s vibrant startup scene, said Phil Cox, president of Silicon Valley Bank’s U.K. branch.
“I’m not saying it’s going to be easier but these companies are very disruptive and they will find a way to employ the right people and sell their products and services across borders,” Cox said.
Even so, the survey is another sign that Brexit may exact a toll on an industry that’s been a bright spot in the British economy since the 2008 global financial crash. London has become a hotbed for groundbreaking financial technology that’s reshaping the banking and payments processing industries. But in 2016, venture capital investments in British fintech firms dropped 34 percent, to 625 million pounds ($783 million), according to a report released last week by Innovate Finance, a London-based trade group.
By contrast, German fintech companies received 35 percent more funding than their counterparts in the U.K. in the first three quarters of 2016, according to a separate report from KPMG and CB Insights, a New York research firm. The performance marked the first time German fintech ventures attracted more investment than their British counterparts.
A number of nations are trying to follow Germany’s lead by encouraging fintechs. France, Spain, and the Netherlands are offering government-backed investments, subsidized office space, and tax incentives to startups. Portugal recently unveiled a 200 million-euro ($213 million) fund to invest in local ventures.
Some U.K. based entrepreneurs say Prime Minister Theresa May’s vow to leave the European single market and prioritize immigration was a body blow. Hiring talent is the biggest concern of startups. Even if a visa regime favors highly skilled workers, they’ll be tied to the companies that hire them. That means employees won’t easily be able to hop from one firm to another like they do now, nor quit and start their own enterprises. Such mobility is crucial to fomenting a thriving technology hub.
“Leaving the single market is going to brutalize our startup culture,” said Jennifer Arcuri, the founder of Hacker House Ltd., a Manchester-based firm that consults companies on cyber security. “Running startups is hard enough, we don’t need the extra burden.”