Brexit: the first consequences expected in the world of Tech
The verdict fell last Friday: the United Kingdom must leave the European Union within the next two years. Fears of expatriate French entrepreneurs and investors, impact on markets: the world of tech is also in the uncertainty of the decisions to come. Based on these doubts, CB Insights sought to understand how Brexit would impact the activity of VCs in Europe, interviewing investors, or partners of European venture capital funds to find out their opinion on the issue. The specialist research firm has identified at least four consequences for the sector after Brexit.
An expected decline in UK venture capital investment
The UK has a central place in the European Tech ecosystem. In the past eighteen months, nearly a third of fundraising has indeed been for British companies, according to CB Insights. This proportion remains equivalent if we consider the amounts invested at European level.
The first consequence of Brexit identified by the experts interviewed, the risk of see institutional investors, such as EIF (European Investment Fund, institutional fund which includes among its shareholders the European Investment Bank, the European Union, as well as various banks and public and private financial institutions, editor’s note) turn away from UK venture capital firms. The EIF has indeed expressed its “regret” regarding the results of the vote, and suggested that its investment policy could be reviewed in the medium term. The uncertainty as to how the British economy will react to its exit from the European Union could also deter some foreign investors from investing in the short term. Finally, beyond the purely financial aspects of Brexit, it is the UK’s ability to attract and retain European talent who could suffer.
Another likely consequence of Brexit that worries investors, its impact on the London FinTech ecosystem, now in full expansion. If the capital of the United Kingdom was until then considered the best place to set up a FinTech to attack the European market, its exit from the European Union could significantly change the lines. Other cities, such as Berlin or Dublin, could emerge and become benchmarks in FinTech. Finally, another sector could be strongly impacted by Brexit, that of Biotechs. These companies are looking to establish themselves in countries sharing common regulations.
Read on the subject: Brexit: what impacts for FinTechs in Europe?
Fall in valuations of tech giants
Unsurprisingly, the results of the British vote had a direct impact on the main world stock markets. As an example, the CAC 40 for example fell by 9.4% between Thursday 23 June at 5.30 p.m. and Friday 24 June at 9.30 a.m. On Friday alone, listed companies from Standard & Poor’s 500 lost $ 657 billion in valuation, according to a study by USA Today.
Large global tech companies were particularly affected by this drop in prices. Alphabet, the parent company of Google, which generates 9% of its turnover in the United Kingdom, was the company most affected according to the American media. It has indeed seen its share price fall by 4.2% over the day. This decrease translates into a loss in valuation of around $ 20.4 billion in a single day. Another emblematic tech company, Microsoft saw its share price fall 4%, losing $ 16.3 billion in valuation. The society Apple has meanwhile lost 14.8 billion dollars in valuation (-2.8%), underlines the American daily.
The Tech sector is not the only one to have been strongly impacted by the consequences of Brexit on the markets, the banking sector has also been strongly affected. For example, the bank JP Morgan Chase, which generates 15% of its business in the Europe, Middle East and Africa region, saw its share drop by 6.9%. This resulted in a drop of 16 billion dollars in its valuation according to the newspaper.
Tech entrepreneurs overwhelmingly in favor of staying in the European Union
Nearly three quarters of UK-based tech entrepreneurs were in favor of keeping the country in the European Union, in a survey carried out last March. How do they react to the results of the vote? The Guardian asked several entrepreneurs at the head of companies valued at several billion dollars about the consequences the vote will have for them.
Taavet Hinrikus, CEO of TransferWise, Fintech based in the United Kingdom, expresses its doubts regarding its strategy of setting up in Europe.
The two main advantages of being part of the European Union are access to talent, thanks to the free movement of people, and the fact that you can export regulation, so if you are licensed in the United Kingdom, we are embellished throughout Europe. We don’t know what will happen to these two benefitsHe confides to the Guardian.
Toby Coppel, co-founder of Mosaic, a venture capital firm, states:
Entrepreneurs are very resilient people, I’m not worried about their ability to adapt. I think they are used to evolving in uncertain environments, even if there the fog is particularly dense“. The entrepreneur, however, declares that he has little confidence in London’s ability to continue to attract the European entrepreneurs of tomorrow.
The Guardian finally specifies that none of the interviewed entrepreneurs said that Brexit would have a positive impact on their business.