Brexit to strip London of its title as tech gateway to Europe

Leaving the single market could cause issues for the capital's tech scene, as well as that in Europe, sceptics claim

London and the UK could lose their reputations in the tech industry as a launch pad into Europe if it leaves the single market thanks to Brexit. That is according to channel experts, some of whom fear it could prompt an overall slump in investment across Europe as a whole.

The UK voted to leave the EU with a majority of 52 per cent last week, which came as a surprise and disappointment to many in the tech space. Companies such as Microsoft, Cisco and EMC had campaigned for the UK to remain, although certain pockets of the channel were pleased by the Brexit result.

Since then fears have been voiced about what a vote to leave the EU will mean for the local tech scene. The UK is widely viewed as the launch pad to Europe by a number of tech vendors, many of which are based in the US.

Stuart Fenton (pictured), CEO of Microsoft partner QuantiQ, fears this may no longer be the case, which could harm both the UK and Europe.

"I think if you're going to start a European business today, you're probably not going to choose London or the UK as the launch pad into Europe in this environment," he said. "The challenge is, the incredible pool of talent the UK has, as well as favourable employment laws, is not mirrored anywhere else in Europe.

"As a result, I think you'll find people will invest less in Europe in general because of that lack of flexibility. Yes, more investment will be directed away from the UK, but I don't think it will be replaced like for like in Europe because of the lack of flexibility, the cost of hiring and employment law flexibility in those markets.

"If you're an American company, it would be unfathomable to understand you can employ a European person, have them work with you for 12 months, decide it's not going to work out and [have] to pay them three years' salary because they are the wrong side of 40 years old. That's an incredibly common occurrence in certain markets. When American companies become familiar with it, they will favour youth over experience and invest less anyway. I am not sure it's terrific for Europe either."

Bob Tarzey, service director of analyst Quocirca, agrees.

"There are broader concerns around foreign direct investment in the UK, but there are also very specific IT industry concerns," he said. "The UK has a fairly vibrant tech industry itself but that has been bolstered by the fact all the US and Asian vendors see this country as the first place to set up.

"That will be less attractive now if we're not part of the single market. The US start-ups looking to get going in Europe may start looking at Ireland or the Netherlands."

While concerns have been raised in the UK about the stability of the local tech scene, Venky Ganesan, chairman of the board at the US-based National Venture Capital Association, said similar concerns are not shared in Silicon Valley.

In a blog post on LinkedIn, he played down the relevance of the UK to tech start-ups.

"What is the actual financial impact of Brexit for early-stage technology companies in Silicon Valley? Zip, zilch, nada," he said. "Nothing has happened yet. The UK has two years to finalise arrangements with the EU on how the split is going to happen. Two years is a lifetime for an early-stage company.

"The UK market is a very small portion of most start-ups' addressable market in the early days. While a few early-stage companies have customers outside the US, most companies focus on the US market."

But he said he would be worried if he were based this side of the pond.

"Now if you are a start-up in London, or a very large tech company, the impact on you can be significant," he said. "Your access to capital might be constrained because of all the uncertainty this move causes. The other significant impact is psychological.

"When you have major geopolitical change, capital flows away from risky assets to 'safe' ones. It is quite possible that the IPO market which just opened with Twilio would close again. Late-stage financings from non-traditional investors might be hampered."