Brexit one month on: currency lows and talent fear
In late June a referendum vote in the UK delivered the shock verdict that a small majority of the British public wanted the country to leave the European Union.
Next came the resignation of the Prime Minister and a precipitous drop in the value of the pound, which remains languishing far below its former heights. Various economic indicators now suggest the country is heading back towards recession.
So how are UK startups coping with the unraveling of the old world order? In the immediate aftermath of the Brexit vote, TechCrunch spoke to several founders who expressed shock, disappointment and concern for the future. A month on, what — if anything — has changed for them and their businesses?
Business as usual-ish
It’s clear that Brexit remains a massive question mark over the future direction of the UK and its digital economy, with no plan for leaving the European Union yet set out, nor firm timetable for the government to trigger Article 50 — which would start the up to two-year process of disentanglement from the European project. So the current ‘post-referendum, pre-actual-Brexit’ period might well turn out to be “the quiet before the storm”, as one founder puts it.
In the meantime, business in the UK isn’t grinding to a halt. And, generally speaking, things have returned to normal-ish for the startups we spoke to a month+ after the referendum vote — with some even reporting record summers. Although others have seen a small drop in demand. One, a currency exchange startup, attributed its dip to Brexit-based uncertainty, given the wild swings of pound sterling.
For others there are also some potentially more disquieting signs, with evidence of a slowdown in decision-making with overseas partners and investors, as entities outside the UK grapple with what Brexit means for them, and assess possible risks — figuring out whether they need to rethink their own UK-market strategy. The strength and depth of any impact there — if hesitation turns into out-and-out rejection — is clearly going to take more time to shake out.
Currency swings and roundabouts
The post-Brexit value of sterling has caused some of the most immediate knocks on the UK startups we spoke to, with founders generally having to be more “currency aware”, as one put it. Another founder notes having to absorb a rising salary bill on account of paying some of their staff in Euros. Another recounts having to help one of their suppliers, who they pay in GBP, by covering 75 per cent of sterling’s value drop after their supplier’s margin was all but wiped out overnight.
The same business also tells us it lost out on a potential hire, after being outbid by a starup in another European country — which was able to offer a higher salary level because of the pound being so low.
On the flip side of a fallen pound, UK startups are now cheaper to foreign investors, as we’ve seen with the Softbank ARM acquisition. And, if the UK economy heads for recession — with the accompanying knock-on effect on rents and house prices — the cost of living in London might become more affordable, in theory boosting its attractiveness to lower waged startup workers. But the same founder who suggested this went on to emphasize that the huge negatives of recession will obviously weigh very heavily in that scenario too.
Another longer term concern on the money and currency front is what will happen to early stage investment in the UK, given how large a chunk comes from European VC funds. While, in the short term, funds have closed and still have that money to invest, and investments have continued to be made in UK startups since the referendum result, the question is what will happen when the time comes to close the next fund? Where will that money be ending up? In the UK, or elsewhere in Europe?
The human cost
The biggest and most pressing concern for UK startups in the wake of the Brexit referendum result remains what will happen with free movement, with many worried about the impact on existing non-UK EU staff and whether they will have easy access to a Europe-wide talent pool in future or not.
There’s also anecdotal evidence from UK startups that some EU workers are questioning whether they should now accept a job in London or the UK, given the uncertainty over their future status in the country.
One founder also recounted several instances of non-British EU workers being made to feel unwelcome in the UK after the referendum vote, and expressed concern about the UK’s social cohesiveness and the future trajectory of ‘Britishness’ — suggesting the UK could see a brain-drain if entrepreneurs feel compelled to look elsewhere for a social structure that matches their expectations for tolerance and liberal values.
A swift political reboot
Perhaps the brightest point as UK startups perceive it in the gloomy summer after the Brexit vote, is that the country already has a new government in place, under Prime Minister Theresa May — who triumphed earlier than expected in the Tory leadership race after her last rival voluntarily stepped aside. One founder pointed out that if this coronation had not happened the government would still be leaderless even now — thankful of one small mercy in a time of vast uncertainty.
Another founder expressed awe at the speed with which the Tory factions had regrouped around a new leader. While, on the flip side, several bemoaned the lack of a unified official opposition at such a crucial juncture for UK Plc. The official opposition Labour party remains riven with splits and embroiled in a self-induced leadership contest.
Clearly not all the founders that TechCrunch spoke to are politically affiliated with the Conservative party but many expressed relief at a new Prime Minister who is perceived to be experienced and detail-oriented — a sense of partial relief doubtless encouraged by the fact she was a Remainer (if only a weak one).
Technocratic, stable political leadership might not be able to save the UK from the fast-accelerating economic ravages of Brexit but for UK entrepreneurs — who overwhelmingly voted to Remain — it beats the alternative: the party’s hardline Brexiteer wing. Aka the “headbangers” as one founder dubbed them — noting that his biggest fear at this point is that “the full, totally cut-the-cord, independent UK [politicians] start getting listened to”.
May’s reputation for political caution is therefore being (mostly) welcomed as a salve for self-inflicted Brexit harm at this early point on the post-referendum timeline. Not rushing blindly ahead is generally seen as prudent. Although some founders were eager for a little more business certainty, especially on key points like freedom of movement.
The (relative) blessing of an experience Remainer as the least worse Tory leader for horribly uncertain times definitely only goes so far — and may prove to be a short lived honeymoon for May in time, as Brexit’s complexities pile up.
Plentiful political concerns persist for startups about the sustained uncertainty of the UK’s future — from fears about looming recession, to the lack of a concrete Brexit plan, to worries about immigration and borders, and concerns about losing beneficial EU regulatory frameworks, like financial passporting. All topped off by founders’ underlying ideological objections to the UK divorcing itself from the EU.
Make more connections is the sentiment you’d expect from the startup scene. So for many UK entrepreneurs, the Brexit vote clearly feels very personal indeed.
NB: The below interviews have been lightly edited for clarity
Read the prior article in the sequence: What UK startups make of the shocking Brexit vote
Brexit — one month on…
Michael Kent, founder and CEO
On a micro level my firm, I guess my sector, the immediate economic impact — I’m more bullish. Customers keep coming. We had our strongest ever month last month. But as we should do — we’re growing fast. But at a macro level if you look at a lot of the leading economic indicators I’m a little bit worried because I think it’s probably going to be slack growth next year. In the UK. That’s not great for anyone… Recessions suck.
We haven’t seen any fundamental weakness in customer demand. We’ve seen people continuing to transact, pretty much at normal rates. I think it’s more of a reflection of the kind of people that we serve — they tend to be people who are sending a good chunk of their monthly salary home and they’ve got to do that regardless of what the pound’s doing or whether Brexit’s happening or what the politicians are saying. So I’m not surprised. I think [business has] probably been a little bit weaker — we’ve seen a bit of a dip in large transactions. Because we handle anything from £10 to £1 million, in terms of the transaction size, so there is a big range. And I think we’ve seen less of the larger transactions, a little bit. But that’s kind of what you’d expect. The pound’s in the toilet, the Euro’s not doing much better…
Wait and see doesn’t really work for fast growing businesses. So we have to have a plan.
[On the political front] everything points to it being quite positive and having a pragmatic Prime Minister and Chancellor. And various hands in the government. But that could change… I’ve been broadly pretty impressed by how fast the new government has pulled itself together and seemed to be getting on with stuff. I don’t comment on political affiliations but I think having a full strength government that’s in place and is getting on with stuff is a major thing that you want — it limits the uncertainty. I would like to see them come out in support of tech, and I think there’s a new industrial policy that looks like it’s being formulated at the moment, and I think it’s important that technology and early stage businesses in the tech sector are fully supported as part of that.
I haven’t changed my view. I think Brexit is a bad thing for the UK. And a bad thing for Europe. It’s fundamentally completely against the philosophy that underlies our business — which is bringing people together, and people moving around and sharing ideas is very powerful. And Brexit’s a reaction against that. So I think anything that says well actually we’re going to temper what we’re doing here and we’re going to take a conservative approach is great. I’d like to see the Prime Minister go farther and really consider whether it’s still the right thing to do for the country. I don’t think it is, and the closer we get to a ‘Brexit lite’ or no Brexit at all much better it will be for both the UK startup scene and our economic prospects in general.
Geographic expansion was always on our roadmap but I think there’s a renewed urgency to where we need to locate ourselves. Like most tech companies we’re not just in one place. We’re in a whole bunch of places to make sure that we’re fully protecting our customers’ interests in what might be a situation where [financial] passporting isn’t universally accepted by the EU. At its essence, if the UK’s part of the EU you can get a license in the UK and you can service the 500 million or 600 million consumers who are all over the EU with your particular financial service, that you’re regulated to offer. If the UK is not part of the EU and there’s nothing that’s been put in place to keep that passporting process in force whilst the UK is outside of the EU then you have get a license somewhere else in Europe in order to service all those customers. That’s just fact.
There’s not many facts in this debate but that’s one of them. Because we don’t know how that’s going to play out right now it would be remiss of us to just wait and see… Wait and see doesn’t really work for fast growing businesses. So we have to have a plan.
Rahul Parekh, CEO and founder
There’s still no clarity on [free movement] and it’s still my number one concern. There’s been plenty of headlines out about this kind of thing… but it still seems very much up in the air so it’s still our biggest concern.
Certainly from a business perspective we haven’t seen any impact — since the Brexit vote we’ve grown the most we’ve ever grown… and usually we see a bit of a drop off in summer, so we’re seeing the contrary to any drop off in impact… But as we’re growing and expanding we’re also hiring a lot and all across the board from developers to operations staff, which are engineering background to kitchen staff with the chefs, our entire team is full of European, non-British nationals, especially in the kitchen. Most of the top chefs in the UK come from Italian, French background. So this is definitely our biggest concern still and it’s a bit frustrating that there’s been no progress, or no information about how free movement would be affected even a month later.
I haven’t seen a drop off in applications [from EU job seekers] but I’ve definitely had, anecdotally, a lot of questions and concerns from Europeans about the future — Europeans that we’ve interviewed for positions obviously concerned about the future. If they move to London now are they going to be able to stay for many years to come? They don’t know. There seems to be no clear cut-off point, because there was definitely a call for a cut-off point, some sort of date beyond which [their leave to remain status] was not guaranteed. And that hasn’t been cleared up at all. We’ve not seen a drop off in applications but I think there is a lot of concern about it.
My main concern is staffing as we grow the business. Making sure we can still attract top talent.
We’re going through a lot of expansion as the business grows, and as a result of that — and the uncertainty about the future — it’s very difficult for us to plan entering new markets. Because we don’t know what the impact will be even about Brits being able to go and work abroad. So people from our team here being able to go and lead new businesses abroad… Free movement obviously works both ways and for us there’s a big benefit from being able to send our key business leaders from here over into new markets. And it’s hard for us to plan that before we know what’s going to happen. But we haven’t made any changes in business strategy [since the Brexit vote]. We’re still focused on growing the business in London and the UK. And so far the business has been growing really well. The main concern I have is from a hiring perspective as we grow.
We’ve not seen really any major new policies from the new Prime Minister or chancellor yet. Obviously we’ve had a lot of speeches about what’s potentially coming, and we’ve got a new cabinet, but we’ve not seen anything really in terms of concrete policies that affect our business so it’s not clear exactly yet. The only concern I have is that there’s been some talk about how the new Prime Minister sees corporate governance and wants to have much more influence on corporate governance.
In our market there has been a lot of positive impact from EU regulation in the food market so for example the EU legislation on allergen labeling was actually a very positive thing for the food business because it was much less clear for consumers before what allergens were going into their food. And I think that that directive, which came from Europe, was actually a very positive thing. So you potentially lose a lot of that — so the UK will have to do it on its own. But my main concern is staffing as we grow the business. Making sure we can still attract top talent into the roles that we have, especially the chef roles, engineering roles, development roles. Because traditionally, up until now, we’re hired actively — in the UK as well — but very actively in Europe.
I think the biggest impact will potentially be fintech. At this stage it’s far too early to tell — and no one has been specifically affected because there’s been no change… But there is some risk for fintech businesses depending on the rules around passporting of financial securities from the UK to Europe. The risk is much bigger for banks that are based here in the UK. That’s probably going to be the biggest impact but we’ll see. I’d hope that we’re able to negotiate keeping that.
Hiroki Takeuchi, CEO and founder
One thing that startups are pretty good at is dealing with uncertainty. We’re always operating in an environment of uncertainty by the very nature of what we’re doing — so increased uncertainty doesn’t phase us too much. I think where it is painful is where other businesses, potential customers, where it makes it harder for them to make decisions that makes it more challenging for us. But we haven’t seen too big an impact on that yet.
Not much has changed in many ways. In many ways business carries on as usual. The biggest thing I’m worried about is that whole issue of open access to employees across Europe. That’s the one area where we have seen people questioning whether they should move to London, seeing a drop in the kind of activity around applicants from other European countries. There’s definitely a bit more hesitancy and obviously from our perspective we’re saying please come and join us, we will support you no matter what happens, we really believe this will be okay. But that’s probably the biggest impact that we’re seeing. And the one I’m most worried about.
We have seen people questioning whether they should move to London.
[Brexit’s impact on the economy] doesn’t make me worry about the prospects for our business too much. Our business isn’t hugely tied to the economy in many ways anyway — it’s not like we’re really feeling the heat of that. We definitely have seen a bit of a slowdown in terms of people making decisions and there’s a lot more umming and ahhing but it’s not something I’m worried about the long term effects of.
For me, [Brexit] underlines the need for businesses like us even more. A lot of what we’re doing is building bridges between the different banking systems around the world. That’s the vision that we want to pursue and one of the ways I think about it is the more borders there are, the more bridges there are to build. And that’s a challenge but also an opportunity. And whilst on a personal level I feel the fewer borders the better, the reality is somewhat different and so we are trying to embrace that.
Given that we’ve committed as a country to going down this path I think definitely the right approach is to say let’s not rush it, let’s get it right. The big question for me in my mind goes back to the labour point… this question of open access to labour is hugely important. The bit I still feel a little unsure on is it’s unclear to me how wedded Theresa May and her party are to the idea of closing off our borders. If that happens then I worry a lot. That will have a huge, long term negative impact on our country. It’s also one of the most contentious issues of the whole vote — one of the biggest reasons why Brexit happened was precisely because of this issue. So obviously it’s a very, very complicated issues with a lot of arguments on both sides. So who knows what’s going to happen there.
Jonathan May, founder and CEO
We have been forced to be more currency movement aware. Almost our entire cost base is in GBP but increasingly our revenues are in USD or EUR, so we have needed to spend a bit more time making sure we’re not wasting money invoicing in the wrong currencies, and given the long sales cycles in our space, we’ve been careful to make sure quotes or price estimates are in the right currencies and have expiry dates on them.
That’s the kind of stuff larger companies worry about all the time; I just hadn’t expected it to demand so much attention for us yet.
I remain mostly concerned about the impact on growth and staffing — it’s the impact on people that is the hardest to do anything about. With the uncertainty around what will now happen and when — and the likelihood that this uncertainty isn’t going anyway any time soon — it’s really hard to assess the long term impact on the business.
[Brexit] has influenced our short term strategy and — if it goes ahead — it will likely impact whether we grow our London team or focus hiring overseas to match our new business focus.
Hard — and unpopular — decisions now need to be taken, in either direction, to resolve the uncertainty.
Until there’s more clarity on exactly what is going to happen when we won’t be moving, but we are currently looking at taking advantage of the Estonian e-residency programme to ensure we’ll have no problems subsequently incorporating within the EU if the UK does leave.
Until there is any degree of certainty on whether Brexit will definitely happen, and on what timescale, it’s not worth making other plans.
It has put a spanner in the works of several EU projects we were thinking of partnering on.
Our new business focus has shifted to the US… We think it was the right call. The market in the UK is a lot more uncertain and uncertainty leads to tightening budgets.
I’ll be honest — I have no idea what Theresa May’s policy on Brexit actually is. It seems that the political expediency of saying “Brexit means Brexit” so as not to alienate a voter pool is almost all we have been given so far. Hard — and unpopular — decisions now need to be taken, in either direction, to resolve the uncertainty. That is all that matters from a business point of view. From a personal point of view, I would like the UK to find a way to stay in the EU and stay together as a union.
I am concerned that stories travel faster than facts, and populism seems to be taking over as a result — whilst many of the socially liberal/left are interested only in facts. As Martin Luther King Jr said: “Those who love peace must learn to organize as effectively as those who love war” — and I think those words resonate really strongly with the Brexit vote, and the current political malestrom in the US surrounding Trump’s repeated and appalling soundbites.
Richard Mabey, founder and CEO
For us Brexit was particularly hard felt. 75 per cent of my team are from EU countries outside of the UK, we are backed by Seedcamp (whose biggest limited partner is the European Investment Fund) and 30 per cent of our customers are in continental Europe.
In the short term, we have seen a small impact. Fortunately we drew down a large convertible note in Euros just before Brexit, but our salary bill has increased, as we pay some of our developer salaries in Euros. We have also had to issue emergency guidance to our customers on how Brexit may impact their legal contracts (we are a contracts platform).
In terms of the future, we are feeling a bit more positive than we were. Anecdotally, we have not seen our ability to hire impacted, nor have we seen lower investment appetite from funders or a decrease in our customer acquisition rate.
If we can’t hire who we want to, we head for Berlin.
We are broadly adherent to the Saul Klein philosophy of ‘when Brexit gives you lemons, it’s time to make lemonade’. The fundamentals in London are good and we are bullish on its potential in the future. Where we still have concerns however is around certainty, and the government is not giving us the confidence we need to commit to stay in London.
We have two main concerns.
The first is that in the short term EU nationals currently residing in the UK may not be able to stay without applying for a visa. We are not so much bothered by the outcome of that decision – we can move very easily to Berlin if we have to — but it is the government’s sluggish decision-making that is most frustrating. What the UK tech industry needs is certainty and we are not getting it quickly enough.
The second is that in the medium term there may not be sufficient appetite among the best developers, designers and marketers in the EU to come to live and work in London. London’s reputation as a leader in tech has to date been sufficient to draw talent to our business in spite of high rents and cost of living. Without that reputation, we may see our ability to hire the best people impacted. This is the line in the sand for us — if we can’t hire who we want to, we head for Berlin.
Graham Parker, founder and CEO
A month on the main thing is uncertainty.
You hear stories from people all the time because right now anything is possible post Brexit, e.g borders and free movement.
We sit at the intersection between tech and shipping, two areas that are seen as being potential big losers in Brexit.
They have put it on hold for six months in order to survey the fallout from Brexit.
We are very worried about the fallout and have already seen foreign companies ask us about duty rates for British goods post-Brexit to see if they will increase, meaning they could potentially source elsewhere and hurt exports.
Also speaking to US VC we can see a serious slowdown in the speed of talks with them, as well as a large global ecommerce group we were talking about a partnership. They have put it on hold for six months in order to survey the fallout from Brexit.
Finally as a company we are live in the US as well as UK and are considering putting greater resource into the US market at the expense of UK development.
Tom Adeyoola, founder and CEO
A month has gone by since Brexit but in just the two weeks that followed we saw more resignations and sackings than the history of the whole Upscale group put together and more political instability than a banana republic.
Startups are made to handle uncertainty and map a course through it, but I still feel intensely angry at having to deal with completely unnecessary obstacles: a nation knowingly inflicting self-harm.
After all the parlour game manoeuvrings we at least have a technocrat now in charge who will stay on top of the job in hand, regain stability and be sensible. In impact terms for us that means at least no formal Brexit for two years. No real actual change and recession won’t be felt for another quarter yet.
Government has a huge amount to do to rebuild and create a new tangible inclusive and attractive vision for this country.
However, the mindset is forever changed and businesses have already reacted to the expectations: e.g. our trademark lawyers have already opened and beefed up their offices abroad in Germany and France.
We ourselves have explicitly doubled down on international business development. We’ve also had to support one of our key suppliers who we pay in GBP by covering 75 per cent of the currency drop since Brexit which wiped out their margin overnight. The flip side of course is that we have become cheaper and more attractive to external investors. You’ve already seen a huge example of this impact with the two week deal by SoftBank to buy ARM post Brexit.
But the biggest impact so far has been felt by our staff and potential talent. Significant destabilisation for our international contingent who feel that this country no longer wants them here. One employee’s French wife was told to pack up and go home on the tube, another’s Spanish boyfriend was left in the office of his architecture firm with another international colleague as his firm went out to celebrate Brexit on the 24th, with his bosses later boasting about how he was good value for money and couldn’t possible ask for a pay rise now. Another was shouted at and abused as he cycled home in Cambridge. A potential hire has failed to commit, seeking more time to evaluate whether Berlin should now be her focus instead. And finally a non-EU but international colleague has felt destabilised enough to seek out a particular academic opportunity and leave now because they feel the door might be closing because of what is coming in terms of immigration policy and academic research funding.
For me and most of my friends be they Brits, EU or international citizens the vote on 23rd has had a fundamental impact on what we had taken for granted in British values meaning that we no longer see ourselves living here forever. That certain bond has been broken. Talent emigration is now more likely and more certain and government has a huge amount to do to rebuild and create a new tangible inclusive and attractive vision for this country.
My most immediate front and centre issues are talent, talent, talent. Stuff related to laws, tariffs, trade — will take much longer to come to life and are outside of my immediate time horizon. Because I am focusing outside of UK in the main for business and investment, despite me not liking it, all the negative domestic economy issues will probably be monetarily beneficial apart from rising prices, i.e. we become cheaper through GBP collapse abroad; economic recession will depress office rents, house price fall or stagnation will mean more of my staff will be able to get onto ladder. But don’t get me wrong recession is BAD, BAD, BAD, full stop. I don’t want it.
On a different note — journalists might now actually care about businesses like mine growing outside the UK for a change! We launched in Vietnam last week.