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Brexit: Are startups the biggest losers?

Brexit: Are startups the biggest losers?
Image Courtesy: Business Post

With Brexit shaking market sentiments towards the British economy, speculations are that the some of the induced effects may trouble British and EU startups who now see more risk and lesser opportunities for growth in and out of the nation.

The emotions and perceptions are mixed. While some believe that startups might be the biggest losers here, others are of the view that the effects will be on the negative side but may not be fatal.

Some speculate that London may lose its favoured startup status to its counterparts in the European continent, still others feel that European startups may possibly leave Europe for tech centers in Asia such as Singapore and Sydney.

But until these effects are realised which will only be in the medium term, let’s consider what does it mean for the startups in the immediate future? Well, nothing but uncertainty. The final effect will depend on the structure of UK immigration laws post Brexit, what trade deals it strikes, and how the UK responds to potentially aggressive regulatory competition from other EU nations designed to attract startups.

According to Buckworths, a law firm based out of London, nothing has changed for startups in the short term as the negotiations and structural procedures for separation are likely to take almost two years. Until then, ‘the legal, taxation and accounting position for startups remains unchanged’, it states in a Brexit note on its website.

Notably, some of the startups in the country have started have already started experiencing ill effects of the decision, while others have started developing restructuring plans to cope with the situation.

London based technology startup Netz saw five investors suspending their investment plans within 24 hours of the Britain’s decision. On the other hand, London-based software startup helping nonprofits with fundraising efforts, Hubbub has decided to switch marketing resources away from the UK.

“We have decided (this morning) that our sales and marketing focus will focus away from the U.K. market, as the volatility and uncertainty here will mean our customers will be less inclined to invest in new solutions,” founder and CEO of Hubbub Jonathan May told Tech Crunch.

According to Out-law, a UK legal advisory portal,  a number of M&A and property transactions have been aborted and others put on hold immediately post the decision.

The biggest uncertainties undoubtedly are around staffing and talent acquisition from bloc’s other 27 nations, expansion of operations and serving existing customer base in other EU nations. According to the reputed London law firm, Allen & Overy, the high impact areas for the UK corporates are around Britain’s trade position with other EU nations, EU funding sources for Britain businesses, staffing and hiring talent from the EU and vice-versa, and uncertain tax position for Britain businesses including customs and EU VAT.

The current visa costs and related fees to hire a person from the US or another country outside the EU is GBP 5000 (USD 6,650), according to Pat Saini, the head of the immigration team at law firm Pennington Manches. Apparently, companies in the UK may now need to bear similar cost to hire EU labour and may have to wait for longer periods and end up paying extra amount to hire them.

And the troubles are not just for British startups. According to experts, Europe derives 50% venture funding from London which is mostly concentrated around later-stage funding. They predict a 20% or greater drop in total funding for European startups after Brexit, Investopedia reports.

While the market reels under the fear of realising some of its worst dreams, the road ahead for startups is certainly murky. Survival of the fittest demands getting the timing right in attracting investment, hiring workers, and spending on infrastructure and equipment for expansion in both parts of the continent.

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