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Brexit And Its Effect On The European Start-Up Market

15/02/2017 15:47 GMT | Updated 15/02/2017 15:47 GMT

Whichever way you voted on the 23rd of June, Brexit has left us all, particularly business-owners, with a string of unanswered questions. Will your business thrive with the pound fluctuating? Should you launch your startup in London, especially now? Will your company continue to receive government funding in these uncertain times? Many of the answers to these questions are still up in the air as the government continues to debate the process of leaving the European Union, but the effect of Brexit can already be felt.

Here is how I see Brexit affecting the entrepreneurial scene, particularly on business development, finance, education and immigration.

Business Development

To begin with, I think it's important to note that while London is a pioneer city in technology, it's likely to begin to lose its exclusive status of "Tech Capital" as knowledge becomes decentralised. This has been a long time coming, and Brexit has only served to exacerbate it. It's my belief that as a result, Paris, Barcelona and Berlin will take over and become the next main tech hubs in the coming years.

In fact, according to the Financial Times, since the Brexit vote, five London-based companies have already moved to Berlin, and 39 are considering relocating. Moreover, outside of the entrepreneurship sphere, companies like Lloyd's of London have also begun to relocate.

Whilst London's position as a hub for regimented capital is likely to remain strong in the near future, with companies continuing to see the positives of a financial hub with powerful connections and venture capitalists, this won't be enough to make all parts of a business stay.

So what does this mean and how will it work? With Brexit putting overseas firms off UK commercial properties, companies are likely to want to move their developer teams to other European cities for a better quality of life and cheaper labour costs, saving them money and helping them overcome important bottlenecks. On the other hand, their C-level executive teams are likely to remain in London to make the most of the still-very-appealing networking opportunities, management schemes and tax advantages available.

For companies that are already fully settled in the UK however, there will still be incentives to remain. London is a financial hub after all, with strong connections to the US, and which still attracts large amounts of capital. Moreover, particularly in the FinTech industry, it's highly regimented, making it easy for new companies to set up.

The UK government should focus on initiatives such as providing more grants, incentivising R&D and lowering taxes to make living easier, better and cheaper in the city to incentivise smaller businesses not to leave. With schemes already available such as Tech City UK, these should continue to operate and amplify their reach. For small companies after all, the cost of setting up in the UK can often be prohibitive.

Finance

Due to Brexit, it is now cheaper to raise money in euros and then spend it in the UK. The fluctuations in the pound sterling have made this possible. The problem I see is that no matter what the fluctuations are, salaries will adjust. If the pound goes down, engineers get paid more pounds, and vice versa. It's always going to be a unified challenge of euro versus pound. Right now, the euro is safer, and this currency will continue to be the focus of attention for entrepreneurs, it seems.

With this in mind, start-ups will likely begin to search for institutional funding elsewhere other than the UK, with Barcelona, Paris and Berlin high up on the list. This could either be positive - the creation of a stronger start-up community in other leading European cities, or negative - demand for funding could become excessive. As with many things Brexit-related, it's difficult and too early to tell right now.

Education & Immigration

Until now, London has been particularly good at attracting the vast majority of prospective engineers, but I don't think people will necessarily choose the UK to study anymore. Whilst the educational focus on banking and finance students will remain strong in the city of London, engineering talent will become attracted to other top universities such as the Humboldt-Universität in Berlin and the École Normale Supérieure in Paris. Once again, decentralisation of knowledge will hit the UK hard in this area.

Immigration on the other hand, is a massive concern for those in business, and with Brexit meaning more difficulties, the challenges are likely to heighten. Whilst people used to pick the UK and Europe as a whole because of freedom of movement, that's no longer a given. US companies buying into the UK market once only had to worry about getting EU visas and now they'll need to worry about much more.

As a result, US companies trying to set up European offices will no longer pick London as their hub and countries like Estonia will become an easy alternative. The reason? They make paperwork and hiring people easy, as everything is online.

All in all, what is clear is that the Brexit vote has changed the business environment. However, whether for the best, or for the worst, we are yet to know. Business development, finance, education and immigration are all areas that have been affected, and will continue to develop with time. Whilst we can predict what will happen in the near future, only time will tell how Brexit will affect European entrepreneurship in the long term.