Emmanuel Lumineau loves London. When the French entrepreneur launched his startup in 2014, he would not have picked any other place. He runs Brickvest, an online financial platform for investing in real estate across the world.
But following Britain’s vote to leave the European Union, he decided to expand his business outside the UK – in the German capital, Berlin.
“London unfortunately is very ‘up in the air’ and we needed a place where we can carry on being very agile. We have opened an office in Berlin and we have stopped hiring in London. We made the decision of Berlin within three weeks of Brexit,” Lumineau said.
The dynamic growth of the digital and tech industries has been one of the UK’s economic success stories over the last decade, with London branding itself as Europe’s answer to America’s Silicon Valley.
But the Brexit vote has delivered a shock to the system, and from Dublin to Paris and Lisbon, rival European cities are now hoping it’s their turn to be the continent’s tech capital.
Berlin, London’s closest tech rival, has been making the biggest play. The city’s government approached both British startups and larger corporations in the wake of the Brexit vote.
Berlin’s Senator for Economics and Technology Cornelia Yzer says she’s held “serious talks” with around 60 British companies:
“Uncertainty is always the enemy of investment. I’m convinced that there are many companies that will decide to keep their London roots, but to have an office in continental Europe as well – something that would not have happened without Brexit.”
Britain’s got talent – but for how long?
For Emmanuel Lumineau, the main reason for opening up in Berlin was “talent” – he was concerned about not being able to continue to hire, in London, the best people from across Europe.
And he’s far from alone. According to a survey of UK tech companies after the Brexit vote, 51 percent believe it will now be more difficult to attract and retain the best employees. And 70 percent want a clear message from the government on EU residents’ ability to work in the UK.
Pedro Oliveira, who runs a recruitment service for tech professionals across Europe, says the Brexit vote had an immediate impact on candidates’ desire to move to Britain.
“People actually removed themselves from hiring processes. They actually had two, three interviews – they were probably getting hired. And they just removed themselves, saying, ‘I’m not interested in the UK anymore because of all this political instability. There are other countries that are more stable and I want to go to (one of) them.’ That’s it. It’s simple.”
Gerard Grech, CEO of the state-backed consultancy Tech City UK, says the government is committed to safeguarding the sector.
The digital economy accounts for over 10 percent of Britain’s GDP, compared to around 5.5 percent on average across the EU.
“I don’t see why we would anticipate a slowdown given the fact that we have led the way in digital tech policy, there’s a critical mass of expertise (in the UK)- The conditions for starting and growing a digital business (in the UK) are unrivaled, in my opinion, in Europe. I think that unless there are any major blunders, I don’t see anything stopping us continuing to be on that growth trajectory.”
Venture funds struggling
British companies attracted $1.3 billion in venture capital funding in the first half of 2016, matching the same period last year. It seems investment in UK tech remains strong, with more than 40 deals signed in the month following the Brexit vote.
But scratch beneath the surface of those impressive headline figures, and a less rosy picture emerges. A lot has changed since the Brexit vote, but we are just not fully seeing the impact yet, says venture capitalist Andre de Haes.
“I’m astonished that government officials and other experts are claiming that there will be no long-term impact,” he said.
“Venture funds have been struggling to raise funds. I know of five funds that were poised to launch in July and August and only one of them was able to launch,” de Haes explained.
“And on the companies side, raising (investment) from venture funds, there’s been an almost 50 percent decrease in capital deployed so far in Q3 (Quarter 3: July, August, September), relative to the same period in 2015.”
One big question mark is whether the European Investment Fund – which provided more than a third of all UK venture capital funding last year – will continue to invest heavily in the country once it breaks away from the bloc.
Despite the challenges, fund managers agree that nimble startups, far more than large corporations, will find ways to innovate and thrive.
Emmanuel Lumineau is proud that his company took action swiftly after the June 23 vote.
“Brexit is going to add another complexity. We need to be more agile, but we don’t think London will disappear. I think we are one of the few firms who already (took action), we acted within a month and a half – future-proofing our business model. While others are still waiting for Article 50 to be activated and see what happens. And that one year, two years, three years will play to our strengths.”
Live updates from our Insiders team