The Brits aren’t the only ones trying to see the bright side of Brexit. Ever since the dust settled from the referendum result, there have been those in Europe who see opportunity in the UK’s predicament.
The French are, naturellement, at the front of this queue. Paris is especially keen on stealing London’s thunder in the financial and tech sectors.
The latter is both the more surprising and the more plausible. Paris has always had a banking sector, albeit one a fraction of the size of London’s. Only three years ago it was a tech minnow too, but since 2013 VC funding in France has increased fivefold, while the UK’s has less than doubled.
In 2016, French start-ups raised over $2.5bn in equity funding; the UK’s figure for the first nine months of last year was $2.9bn according to CB Insights, with a likely full-year total of between $3.5bn and $4bn. Bigger, yes, but hardly out of reach in the circumstances.
Indeed, look across the Atlantic at that great start-up showcase, CES 2017, and it’s the French who have stolen the limelight, with nearly five times as many exhibitors. Organiser Gary Shapiro went as far as to call the UK’s lack of support for its entrepreneurs ‘a source of embarrassment’.
Will Brexit hurt the British start-up scene?
Of course, the rise of Paris (and indeed Berlin, Barcelona and Dublin) as a contender for Europe’s top tech hub has nothing at all to do with Brexit. In part, it’s just because the UK (especially London and its satellites, Oxford and Cambridge) had a head start from the days of the dot.com boom, and the others are merely catching up. The French government’s multibillion euro investment in its start-up ecosystem won’t have hurt either.
The obvious fear, however, is that Brexit will give these European hubs the boost they need to depose London, by siphoning off investment and, above all, talent from the British capital.
Access to the best people, from the founder down to the humble coder, is critical. At the moment, Britain draws on the talents of many countries, European and otherwise. If this were to change for any reason, the country’s start-up scene would undeniably suffer.
There’s also the matter of Europe’s single digital market, which is designed to make it easier for tech firms to operate across borders. If Britain’s outside, the worry goes, then maybe entrepreneurs from smaller countries (think Denmark’s Jesper Buch, who took Just Eat to London in 2006) will take their ideas to Paris or Berlin instead.
The less attractive the country is to entrepreneurs, the less attractive it will be to investors, who will also begin to take their money and advice elsewhere. The prospect? A death spiral that would make even Nigel Farage feel queasy.
Let’s not be too hasty
Matters aren’t really as bleak as all that though – at least not yet. The British start-up scene is in relatively rude health, with VC funding actually rising in the third quarter last year. It’s hardly a vote of no confidence, indeed, that Masayoshi Son chose Mayfair as the HQ for SoftBank’s $100bn tech investment fund in October, not the Plateau de Saclay.
Any trepidation you will find among VCs will have little to do with the digital single market, either. It’s currently more of an aspiration than a reality, having been instituted a couple of years ago in response to the fact that only 4% of the European digital economy comprises cross-border services, the rest going through US multinationals or country-level businesses.
It’s optimistic to think this will change in a significant way. The policies behind the digital single market primarily concern harmonising data privacy and digital copyright laws, and cutting the regulatory and tax costs of establishing trading entities in other European countries (currently standing at a few thousand euro a pop). That could be a game changer for someone exporting from their living room, but it’s unlikely to make a big difference to a deep-pocketed unicorn in full charge.
Even if the UK does miss out on the single digital market, it’s not the end of the world: ecommerce is one of the few areas where the UK has sufficient scale for entrepreneurs to grow to a decent size on domestic sales alone, constituting over a third of the EU’s total online spend according to eMarketer data, some $90bn.
The real danger is that a hard Brexit could cost Britain access to vital talent. Right now it’s too far off in prospect for fast-paced entrepreneurs to be all that worried, but the story could easily be different in a year or two.
Britain sits at the head of Europe’s tech table because it has a winning combination of talent, experience and investment infrastructure, but it is no longer the only place on the continent where these three things are found. In these uncertain times, the cost of complacency could be high indeed.
Europe’s tech unicorns
The UK has nine start-ups valued at over $1bn, according to CB Insights, more than any other country save China (39) and the USA (100). The rest of Europe has 12, but their valuations are relatively higher.
- Spotify (Sweden: valuation $8.5bn)
- Global Switch (UK: $6bn)
- Delivery Hero (Germany: $3.1bn)
- Adyen (Netherlands: $2.3bn)
- Klarna (Sweden: $2.25bn)
- Hellofresh (Germany: $2.1bn)
- CureVac (Germany: $1.65bn)
- BlaBlaCar (France: $1.6bn)
- Oxford Nanopore Technologies (UK: $1.55bn)
- Farfetch (UK: $1.5bn)
- Auto1 Group (Germany: $1.2bn)
- Global Fashion Group (Luxembourg: $1.1bn)
- TransferWise (UK: $1.1bn)
- OVH (France: $1.1bn)
- Shazam (UK: $1bn)
- Funding Circle (UK: $1bn)
- AVAST Software (Czech Republic: $1bn)
- MindMaze (Switzerland: $1bn)
- Benevolent.ai (UK: $1bn)
- Deliveroo (UK: $1bn)
'The biggest difference between Silicon Valley and the tech hubs of Europe is not access to capital, it's not really talent, it's access to great advice' - Sebastian Siemiatkowski, co-founder of Klarna (number 5 on the list)
Image credit: XtoF/Wikipedia