For all the talk and speculation that Brexit would have severe ramifications for the tech sector, to date we have seen continually strong signs that tech companies in the UK can weather the storm. Yet today, new research from Tech London Advocates reveals the early warning signs that the political chaos in Britain is undeniably damaging the tech community.
In the last quarter of 2018 we witnessed a dip in the levels of inbound investment that tech companies were attracting. It was the first time in over half a decade that the sector had not expanded its draw of funding. Now however data from across the community of tech leaders, entrepreneurs and investors that make up TLA, demonstrates that one in four tech firms feel that they have actively lost out in investment as a direct result of Brexit and over 87 per cent report that the political situation in Westminster has damaged London’s global reputation on the international stage.
These are worrying signs. UK tech has been on an upwards trajectory that has defied all of the odds and shown unprecedented resilience in the face of a deeply unfavourable climate. What we now see are the adverse effects of yet more uncertainty and the prolonging of the Brexit process. Investors and entrepreneurs have had three years of this – perhaps patience is simply wearing thin.
The most concerning part of the reduced access to growth capital is that it hits the UK’s innovative collective of early stage and start-up businesses the hardest. For Britain’s largest tech firms, who raise cash in the later rounds, they have the resources, contingency plans, international reach and allure to view Brexit as a short-term variable to be navigated. Yet, for Britain’s fledgling tech companies, with a higher risk profile, investors are simply deferring their investment decisions.
Investors are hitting pause on British startups until they get clarity on what Brexit is going to mean for business in the UK. These firms will be the life blood of the tech sector in the future. It is absolutely vital that the ecosystem here has the capital requirements to allow them to seed and scale and realise the potential that will propel the national tech sector to the next stage – a community whose activity is going to be ever more critical for the performance of the wider economy.
The good news is that the sector has not halted or fallen short on its ability to produce globally significant innovation and deploy entrepreneurial creativity to develop advancements across the tech verticals – in fintech, retailtech, artificial intelligence, machine learning and so on. We have arrived at a situation of significant pent up demand from investors looking at Britain’s tech community. These are funds that understand the power of tech to dominate global markets. You need only look at this year’s string of IPOs – from Uber to Slack and Pinterest – to see that tech firms are stealing the show and on the way to becoming the world’s biggest businesses.
Investors simply want us to get through this. They want clarity on a deal (or not) with the European Union and to know how this entire political storm will land in the coming months. If we can provide certainty, we can expect to see an upsurge, a return to the status quo, where capital continues to flow into the UK in increasingly large amounts to accelerate the growth of businesses with the potential to secure the lofty, billion dollar valuations that we have recently witnessed.
When it comes to investors deferring decision making, a deal with the EU is not the only variable currently on the table delaying progress. A core component is access to talent and the ability of businesses to recruit the world’s brightest and best. On the ground, I frequently hear from tech companies that are finding it harder and harder to attract both home-grown and overseas digital workers and even examples of EU nationals returning home as a result of Brexit. For investors, one of the first conversations with an early stage venture will be on talent and what skills are required to scale the company. If firms cannot find the supply of skills to meet the demand, the issues of raising capital are only compounded.
There are immediate actions that can be taken to help support entrepreneurs whilst we wait on the politicians. It is incumbent on the private sector to provide leadership in such uncertain times, to celebrate the strength and success of the industry to continue to work together as a community to address these challenges. I encourage early stage companies to address diversity from the get-go – the skilled talent is there if we stop looking only in the traditional recruitment pools that have served the industry to date and ensure that the whole of society is represented in the tech community.
The future is bright for Britain’s digital economy but here are the early warning signs that must inspire action across the ecosystem, if we are to open the flood gates of capital poised to get behind UK tech.
Russ Shaw is the founder of Tech London Advocates and Global Tech Advocates