Brexit from a UK VC Perspective – Keep Calm and Carry On
None of us thought Brexit would ever really happen. Sure, we thought it might come down to the wire. But rationality would prevail. With the exception of a handful of British entrepreneurs like Dyson, nearly all of us in the UK tech community remained advocates of Remain.
What happens now?
Despite all the brouhaha, I don’t think much changes. As an early stage fund in London, with a Bay Area approach to venture investing in Europe, Hoxton is as bullish on its thesis today as it was yesterday.
Fortunately for us, the startup market is not correlated with the mood swings of governments. The market for building global winning technology companies from the UK and Europe is robust, and growing rapidly. This is secular growth, driven by a multitude of factors.
Sure, governments can do their best to muck things up and add friction to the market. But it’s hard to prevent the spread of ideas or software. The internet erases borders and turns governments into a technicality. The web, after all, is worldwide.
“We will create more wealth and more jobs by being outside the EU. We will be in control of our destiny. And control, I think, is the most important thing in life and business.” — Sir James Dyson
Control, as we all know from venture capital, is overrated. Backing great teams is far more important.
The tech industry is now like a gifted young child who’s caught in a divorce between his or her parents. Sure, the divorce may leave some scars, but the kid may also grow up and do just fine.
The longer and messier the divorce, however, the more chances for lasting damage. Let’s hope that this poorly planned exit is quick. Startups have enough uncertainty to worry about. We would prefer for them not to have to worry about a volatile and depreciating currency, trade treaties and uncertain immigration policies.
The most immediate uncertainty is around immigration. We need great employees from all over the world to come to the United Kingdom. It was scary that so much of the rhetoric leading to Brexit was around the implied dangers of immigration. Both Rob and myself are immigrants to the UK, and we have contributed to the economy by funding a number of leading UK tech companies, including Algomi, Babylon Health, Darktrace, Deliveroo, GoCardless, SuperAwesome and Yieldify.
Britain needs open borders for high value immigrants, who are critical in building and scaling out companies in the technology industry. It is time for the government to step up and put the issue of immigration to bed. Reverting back to the former Highly Skilled Migrant Programme (HSMP) would be a good start, and probably ease a lot of anxiety in the industry.
Brexit may also put London’s leading position in the European tech industry in jeopardy. London is home to both many of the venture funds and larger tech companies. As a result, London has become the European capital for tech. Depending on how things resolve with the EU, we may now see the nexus move from London to somewhere else like Berlin, or fragment across Berlin, Dublin and Paris. As Silicon Valley demonstrates, there is a strength in having an industry that is in close geographic proximity.
What today reinforces more than ever is you cannot build companies for local scale (neither nationally nor regionally). The companies that will scale into the outliers of tomorrow must target a global market. That means prioritizing the United States (or China).
We’ve always advocated that European and UK startups need to establish strong links with Silicon Valley. Without the distraction of an accessible regional market, this is even more important than ever. There aren’t many venture firms with deep links to CA in Europe, and it’s important that more exist.
We are about to close a new deal, in fintech, in London, today, and wiring funds Monday. We also just made an investment decision to close another deal in Europe today (that we were introduced to Wednesday), with a closing to follow the week after next.
We’re also not GBP denominated, so things just got a bit cheaper for us. Thank goodness for that decision. And we’re actively investing.
The biggest risk now is around funding for venture firms in Europe. Some 30–50% of the capital comes from the European Investment Fund, which is owned by the EU (European Commission) and European Investment Bank. No EU may mean no EIF, although they say it’s business as usual. The EIF backs Atomico, Balderton, Cherry, Connect, Dawn, DN Capital, Draper Esprit, Felix, Notion, among others. We’re among the minority of firms with no EIF investment at present, but we need more investors to have confidence in the UK and European opportunity set, not less.
But other than that, life goes on.
Let’s remember good companies scale globally. Local politics can hinder them, but only by so much.
And if anyone can adapt to change, it’s the tech industry.
