Tech City UK Blog

As first post-Brexit survey of the tech sector reveals concerns over recruitment, skills and investment, Tech City UK CEO Gerard Grech and others explain why UK entrepreneurs are still well-placed to succeed

 

METHODOLOGY:

With the support of 31 UK tech ecosystem partners (see below), Tech City UK surveyed 1,205 people working in tech between 27 June and 5 July.  Sixty per cent of respondents were company founders or CEOs. The companies were predominantly emerging startups with 10 or less employees. Two-thirds of the respondents were British citizens, while the top five other nationalities represented were American, French, German, Italian and Irish.

 

COMMUNITY PARTNERS:

The community partners involved in promoting the survey include: 3beards, 500Startups, Accel, Atomico, Balderton Capital, BGF Ventures, Codebase, Collider, Connect Ventures, Entrepreneur First, The Entrepreneurs Network, Erevena, EQT Ventures, F6S, Founders Forum, Founders 4 Schools, Level 39, LocalGlobe, Manchester Digital, Mass Challenge, Octopus Ventures, Optimity, Passion Capital, Point Nine Ventures, Runway East, Seedcamp, Spring Ventures, Tech Hub, Tech London Advocates, TechStars, TMRW Hub, Wayra, White Star Capital.

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SUMMARY POLL FINDINGS:

  • 70% of employers surveyed want to hear a clear message on EU residents’ ability to live and work in the country.
  • 85% want to see Government negotiate to remain part of the European Single Market.
  • Just under a quarter (22%) expect to scale back their planned growth ambitions.

 

SENTIMENT:

  • More than one-third of respondents (36%) are getting on with “business as usual”.
  • Less than one-third of businesses (31%) say they are likely to slow down hiring.
  • Confidence has understandably been knocked by the vote: 74% – believe the business environment may get worse.

 

TALENT:

  • The biggest issue for companies is hiring and retaining non-UK staff –  half of respondents (51%) say they think that it will be more difficult to attract and retain the very best talent.
  • 70% of employers surveyed want to hear a clear message on EU residents’ ability to live and work in the country.
  • 79% want improvements to the visa system, so that the most talented people in the world will be able to live and work here.

 

FINANCIAL SUPPORT AND GROWTH AMBITIONS:

  • Under one-third (31%) said that they would slow down on hiring new staff.
  • Just under a quarter (22%) expect to scale back their planned growth ambitions.
  • 51% say they plan to raise capital outside the UK in the next year

 

COMMENTARY BY GERARD GRECH:

 

Cause for optimism as tech sector rises to Brexit challenge

 

If there’s one thing tech entrepreneurs are good at, it’s holding their nerve. The slings and arrows involved in starting and scaling up a digital business require a thick skin and the ability to hold on to a vision, come what may.

 

It’s these qualities of resilience, as well as risk-taking, that Britain’s tech stars will be drawing on now as they face perhaps one of the bigger bumps in the road yet. And I’m confident that they’ll make it over the hump.

 

With the support of 31 ecosystem partners, Tech City UK’s survey of more than 1,200 people (60% company CEOs/founders) in the tech community across the country was carried out in the immediate aftermath of the referendum result, between 27 June and 5 July. It is no surprise that people working in this sector expressed their disappointment and concern in their responses.

 

Almost three-quarters of those asked said they believed that the business environment would get worse, not better, in the weeks to come. Their biggest worries were around staffing and the ability of UK tech to continue to attract talent. Concerns over investment and access to the single market came close after.

 

Tech City UK’s job is to listen to tech entrepreneurs and to pass on their concerns to Government, to help a vital sector that now employs 1.56 million people in the UK. These results of the Brexit Survey will be discussed today (July 13th) at a meeting with the Department of Culture, Media & Sports and other tech groups, chaired by the British Government’s National Technology Adviser, Liam Maxwell.  

 

Many workers, entrepreneurs and investors in the digital economy wanted to remain in the EU. Now, as the initial shock at the result starts to fade, an air of pragmatism is settling in. I am also detecting cautious optimism as the possibilities of life after Brexit begin to come into focus. No, it wasn’t what we expected. But yes, there are unexpected upsides and very real opportunities.

 

Some major players in tech have already made it clear that they are not letting Brexit get in their way. Heavy-weight investors, such as Atomico, Index Ventures, LocalGlobe, FoundersFactory and Balderton Capital, state firmly that they will carry on seeking out the best companies in the UK to invest in and bring to scale – companies that have global markets and aspirations.

 

Last week, KKR, one of the US’s biggest investors announced it was putting $65 million (£50 million) into Darktrace, a British cyber-security firm. Festicket, the music festival booking site, raised $6.3 million in funding immediately after the referendum; while what3words, the addressing platform which is creating a global alternative to postcodes, raised $8.5 million from investors including Intel Capital, the venture capital arm of chip-maker Intel. Meanwhile, Network Locum, a staffing tool for the NHS, raised £5.3 million last week from BGF Ventures and Revolut, the currency exchange app, raised £7.75 million this week from Balderton.

 

There is solid ground for optimism. The UK digital economy is growing 32% faster than the wider economy and is creating jobs 2.8 times faster. Of Europe’s tech “unicorns” – young companies valued at a billion dollars – almost 40% are based in Britain. They include the London-based FarFetch and Blippar, the Hut Group in the North West, and Edinburgh-based FanDuel and Skyscanner.

 

Nearly one-third of all European venture capital funding consistently comes to the UK. We now have the second highest levels of venture capital invested per capita in the world, after the US.

 

There are also many early-stage investment incentives including SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) and more recently Venture Capital Trusts. SEIS has enabled 3,900 companies to raise £338m in the last two years alone, while 5,950 companies raised £3.23bn under EIS.

 

The UK must continue to be an attractive location for foreign companies and the weaker pound should mean that foreign investors are keener than ever on UK startups. Private equity firms are also eager to snap up new opportunities, especially as interest rates around the world converge on zero.

 

Add to all that the fact that we have some of the strongest universities in the world in London such as Imperial and UCL, Oxford, Cambridge, Manchester and Edinburgh, renowned for pioneering research, and providing a constant pool of talented STEM graduates.

 

Looking further ahead, I firmly believe that tech has a crucial role to play in re-imagining the UK, and building affluence and innovation in cities and regions outside London. Our Tech Nation report found clusters of digital specialism everywhere from Bristol to Leeds and beyond. What’s needed next is to encourage these cities and regions to double down on specific areas of expertise, based on their assets. That way, we can create a national network of digital excellence. Edinburgh, Cambridge and Bristol have already attracted international investment in their tech sectors. Now we need the next wave of tech clusters to shine, in cities across the UK.

 

Some of the best startups and enterprises are born out of adversity and thrive in disruptive times. Whatever happens, I believe British startups have an opportunity to build sustainable businesses for the long-term.

 

As far as investors are concerned, those who understand the true risks and rewards of investing in the tech sector – which has always been considered risky – will be more committed than ever. Those who were fair-weather friends will seek easier ways to make money, and we will be better off without them.

 

FURTHER COMMENTS:

 

“While there is undoubtedly some uncertainty following the vote to leave the EU, I personally feel positive about the future for the tech sector and for the UK as a whole. Entrepreneurs naturally have a positive mindset and are built to find solutions to challenging situations so I’m confident we will overcome any obstacles.” David Buttress, CEO, Just Eat

 

“At BGF Ventures we are working harder than ever with the businesses we have invested in to help them steer a path through the current climate. Our tech community should be proud of what it has achieved in recent years and continue to be bold in its ambitions. Leaving the EU raises lots of challenges for the tech community but they are used to these challenges. It does not distract us from our primary purpose of investing in the most promising companies and individuals with global ambitions that we can find.” Simon Calver, Partner, BGF Ventures

 

“There’s lots of uncertainty around the next few months. However, we are continuing with our plans to start taking Bloom & Wild overseas, in spite of the referendum result. A big factor is that 2 years is a long time in the life of a startup (we’ve only been going 3 years so far) and we just can’t put our plans on ice for that long a period. As we’re continuing to invest for growth, it’s really important to us that any agreements reached with the EU mean that we’re still able to access the best possible talent from all across Europe. Other government policies that would help include cutting business rates and corporation tax cuts.” Aron Gelbard, Co-Founder & CEO, Bloom & Wild

 

“As a technology business leader, my priority is making sure my team is able to navigate this period with positivity and continued collaboration, so we can keep powering pioneering businesses that make products people love and make travel search an enjoyable start to their journeys. We are hiring and growing to ensure we can continue to deliver this, and are confident as ever about the future.” Hugo Burge, CEO, Momondo Group

 

“Although disappointed by the Brexit result, I am optimistic. It is inherent for entrepreneurs to take challenges head on and overcome adversity. The uncertainty we’ll have during this time will no doubt provide many challenges, but with change comes opportunity. London and the UK has some of the world’s most enviable resources and knowledge for startups to access. Determination, focus and hard work will get us through Brexit and continue to attract investment and talent to the country.” Rishi Chowdhury, Co-founder, IncuBus Ventures

 

“As a first round fund of choice, Seedcamp is very bullish on the talent and capital we see coming from the UK. It has never been a better time for a brilliant and committed team to start a business! If you are just getting off the ground, Seedcamp is open for business and we are committed to seeing you succeed!” Reshma Sohoni, Founding Partner, Seedcamp

 

“I voted remain. We lost. But I’m an entrepreneur and professional optimist and still super positive about London and the UK. The UK is one of the world’s largest economies and we have been trading with the world and especially Europe for nearly 1000 years — the relationships are deeper than the last 24 years of integration show and I’m confident that they will mostly remain strong.” Saul Klein, Partner, LocalGlobe

 

“UK businesses, if they want to become unicorns, have to learn how to do business across borders. We are a small island and our immediate market is small, this has always been the case.  The true unicorns of the UK all find ways to break borders (e.g. when going to the US). Post Brexit, UK startups possibly have higher barriers to accessing Europe. But the way I see it, the earlier we start to learn to do this the better. Practice makes perfect.” Melissa Morris, Founder, Network Locum   

 

“Start-up companies need to be adaptable and responsive to survive so they are well placed to make the most out of the UK’s changing relationship with the EU. The best companies will always be invested in and I expect that they will come through this challenge even stronger than before.” Suranga Chandratillake, General Partner, Balderton Capital

 

“We have found the UK and London  in particular to be a vibrant center of entrepreneurial activity in Europe. We do not expect that to change no matter how the next couple of years play out.  Our mandate is to invest in European growth-stage companies that have pan-Europe or global growth ambition.  We are motivated by compelling founders who have achieved critical-mass revenue scale and profitable unit economics on a capital efficient basis.  Whether the company is from Switzerland, Norway, the U.K. – European but non-EU – or Germany, France, Ireland, Spain, Italy or any other EU country is of no relevance in our evaluation.  We look for high quality not club membership and we expect the UK to continue to be a strong source of investment opportunities for Highland Europe.” Fergal Mullen, Founding Partner, Highland Europe

 

“In a really short time-period the UK has established itself as a tech powerhouse. We won’t give up that advantage now. Building on our global leadership in Fintech, we are now leading the way for the next wave of technology companies applying AI and machine learning to old and new sectors of industry with acquisitions of Deepmind to  Google, Swiftkey to Microsoft and recently Magic Pony to Twitter.  London has the best ingredients to start or to scale up a tech business and none of those have changed overnight. In fact, as the desired outcome of the Brexit negotiations becomes clear, the environment may not change significantly from where we started. All investors in our latest cohort of companies at Entrepreneur First have honoured their commitments to invest. Investors globally can be confident that British tech companies still have the talent, the commitment and the drive to turn ideas into businesses that can succeed across the world.” Wendy Tan White, General Partner, Entrepreneur First


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