Europe’s Startups Reassess Britain After ‘Brexit’

By SAM SCHECHNER for WSJ
Britain’s vote to leave the European Union is already forcing Europe’s nimble, tech startup community to reassess operations there—a potential early warning for the kind of dramatic action bigger companies may have to take.

Dozens of global corporations and executives from multinationals reacted with alarm after the vote, calling for a quick road map for a split, to minimize the sort of uncertainty that can delay or curb investment and hiring. But it could be smaller companies—including Europe’s more flexible vibrant startups—that make the first concrete steps to insulate themselves from the ramifications of a so-called Brexit.

Across Europe, many executives had last week dismissed the idea that the U.K. would actually vote to leave. Now that it has happened, they are already taking or weighing steps to maintain their access to talent, capital and the rest of the EU market.

Patrik Arnesson, chief executive of Sweden-based Football Addicts, said Sunday that he has scrapped plans to open a second office in London where he had planned to hire as many as 30 people over the next two years. The problem: not being guaranteed to be able freely move staff from Sweden, or hire more from anywhere in the EU.

“The U.K. will be less attractive for startups,” Mr. Arnesson said. “One of the most important things is to be able to hire people easily.”
Simon Black, chief executive of PPRO Group, a U.K.-based online payments company, said he is now considering whether he will have to move his legal headquarters to Dublin, Luxembourg or elsewhere. He said that the uncertainty over whether U.K. financial regulations will still allow access to the EU will discourage other financial technology—or fintech—startups from setting up shop in London.

“This throws up a big cloud of uncertainty for the next several years,” Mr. Black said.

Glyn Edwards, chief executive of Summit Therapeutics PLC, a 37-employee biotech company near Oxford, England, said the vote’s outcome “will probably accelerate our investment more in the U.S. as we wait for the uncertainty here to sort itself out.” The company also may eventually lose access to some pan-European biotech investments, he said, with no certainty U.K. funding will replace that source of capital.

London has in recent years grown to become a major hub for European startups, and particularly fintech businesses. Venture capitalists and entrepreneurs say that stems from the city’s status as Europe’s financial capital. But that could change if investors get cold feet about the city’s future.

Rich Pleeth, chief executive of London-based friend-finder app, Sup, said the result could torpedo his efforts to raise a round of capital. Before the vote, investors had told Mr. Pleeth they were going to wait for the result.

“Now I can’t imagine any capital is going to flow into the U.K. for the next several months,” Mr. Pleeth said. “It’s a complete disaster. For lots of British startups, this could be the end of the road.”

To be sure, some investors say they will continue investing in U.K. startups, even if there is a temporary slowdown.

Martin Mignot, a partner at London-based venture-capital firm Index Ventures, acknowledged that uncertainty could create a short-term “challenge to find investors” for some U.K. startups.

But he argued that such an effect would hit early-stage and growth startups in the tech business less hard than it would more mature companies seeking capital.

“If you lose 20% on foreign exchange, yeah it’s painful,” Mr. Mignot said. But with tech startups he added, “your goal is not to make a 20% return. It’s to make 100x return.”

Another regulatory uncertainty relates to privacy laws. A strict new EU privacy law is set to go into force in 2018, but it remains unclear if the U.K. will enact a matching law. If it doesn’t, there is the danger that EU privacy regulators will block companies from storing personal information about Europeans in the U.K.—complicating life for any U.K. company serving Europe.

“The more the U.K. tries to distance itself from EU standards, the harder it will be for U.K. companies to prove that they are safe,” said Eduardo Ustaran, a London-based privacy attorney at Hogan Lovells.

—Robert Wall contributed to this article.

Write to Sam Schechner at sam.schechner@wsj.com

First appeared at WSJ