Brexit one month on: currency lows and talent fear

In late June a referendum vote in the UK delivered the shock verdict that a small majority of the British public wanted the country to leave the European Union.

Next came the resignation of the Prime Minister and a precipitous drop in the value of the pound, which remains languishing far below its former heights. Various economic indicators now suggest the country is heading back towards recession.

So how are UK startups coping with the unraveling of the old world order? In the immediate aftermath of the Brexit vote, TechCrunch spoke to several founders who expressed shock, disappointment and concern for the future. A month on, what — if anything — has changed for them and their businesses?

Business as usual-ish

It’s clear that Brexit remains a massive question mark over the future direction of the UK and its digital economy, with no plan for leaving the European Union yet set out, nor firm timetable for the government to trigger Article 50 — which would start the up to two-year process of disentanglement from the European project. So the current ‘post-referendum, pre-actual-Brexit’ period might well turn out to be “the quiet before the storm”, as one founder puts it.

In the meantime, business in the UK isn’t grinding to a halt. And, generally speaking, things have returned to normal-ish for the startups we spoke to a month+ after the referendum vote — with some even reporting record summers. Although others have seen a small drop in demand. One, a currency exchange startup, attributed its dip to Brexit-based uncertainty, given the wild swings of pound sterling.

For others there are also some potentially more disquieting signs, with evidence of a slowdown in decision-making with overseas partners and investors, as entities outside the UK grapple with what Brexit means for them, and assess possible risks — figuring out whether they need to rethink their own UK-market strategy. The strength and depth of any impact there — if hesitation turns into out-and-out rejection — is clearly going to take more time to shake out.

Currency swings and roundabouts

The post-Brexit value of sterling has caused some of the most immediate knocks on the UK startups we spoke to, with founders generally having to be more “currency aware”, as one put it. Another founder notes having to absorb a rising salary bill on account of paying some of their staff in Euros. Another recounts having to help one of their suppliers, who they pay in GBP, by covering 75 per cent of sterling’s value drop after their supplier’s margin was all but wiped out overnight.

The same business also tells us it lost out on a potential hire, after being outbid by a starup in another European country — which was able to offer a higher salary level because of the pound being so low.

On the flip side of a fallen pound, UK startups are now cheaper to foreign investors, as we’ve seen with the Softbank ARM acquisition. And, if the UK economy heads for recession — with the accompanying knock-on effect on rents and house prices — the cost of living in London might become more affordable, in theory boosting its attractiveness to lower waged startup workers. But the same founder who suggested this went on to emphasize that the huge negatives of recession will obviously weigh very heavily in that scenario too.

Another longer term concern on the money and currency front is what will happen to early stage investment in the UK, given how large a chunk comes from European VC funds. While, in the short term, funds have closed and still have that money to invest, and investments have continued to be made in UK startups since the referendum result, the question is what will happen when the time comes to close the next fund? Where will that money be ending up? In the UK, or elsewhere in Europe?

The human cost

The biggest and most pressing concern for UK startups in the wake of the Brexit referendum result remains what will happen with free movement, with many worried about the impact on existing non-UK EU staff and whether they will have easy access to a Europe-wide talent pool in future or not.

There’s also anecdotal evidence from UK startups that some EU workers are questioning whether they should now accept a job in London or the UK, given the uncertainty over their future status in the country.

One founder also recounted several instances of non-British EU workers being made to feel unwelcome in the UK after the referendum vote, and expressed concern about the UK’s social cohesiveness and the future trajectory of ‘Britishness’ — suggesting the UK could see a brain-drain if entrepreneurs feel compelled to look elsewhere for a social structure that matches their expectations for tolerance and liberal values.

A swift political reboot

Perhaps the brightest point as UK startups perceive it in the gloomy summer after the Brexit vote, is that the country already has a new government in place, under Prime Minister Theresa May — who triumphed earlier than expected in the Tory leadership race after her last rival voluntarily stepped aside. One founder pointed out that if this coronation had not happened the government would still be leaderless even now — thankful of one small mercy in a time of vast uncertainty.

Another founder expressed awe at the speed with which the Tory factions had regrouped around a new leader. While, on the flip side, several bemoaned the lack of a unified official opposition at such a crucial juncture for UK Plc. The official opposition Labour party remains riven with splits and embroiled in a self-induced leadership contest.

Clearly not all the founders that TechCrunch spoke to are politically affiliated with the Conservative party but many expressed relief at a new Prime Minister who is perceived to be experienced and detail-oriented — a sense of partial relief doubtless encouraged by the fact she was a Remainer (if only a weak one).

Technocratic, stable political leadership might not be able to save the UK from the fast-accelerating economic ravages of Brexit but for UK entrepreneurs — who overwhelmingly voted to Remain — it beats the alternative: the party’s hardline Brexiteer wing. Aka the “headbangers” as one founder dubbed them — noting that his biggest fear at this point is that “the full, totally cut-the-cord, independent UK [politicians] start getting listened to”.

May’s reputation for political caution is therefore being (mostly) welcomed as a salve for self-inflicted Brexit harm at this early point on the post-referendum timeline. Not rushing blindly ahead is generally seen as prudent. Although some founders were eager for a little more business certainty, especially on key points like freedom of movement.

The (relative) blessing of an experience Remainer as the least worse Tory leader for horribly uncertain times definitely only goes so far — and may prove to be a short lived honeymoon for May in time, as Brexit’s complexities pile up.

Plentiful political concerns persist for startups about the sustained uncertainty of the UK’s future — from fears about looming recession, to the lack of a concrete Brexit plan, to worries about immigration and borders, and concerns about losing beneficial EU regulatory frameworks, like financial passporting. All topped off by founders’ underlying ideological objections to the UK divorcing itself from the EU.

Make more connections is the sentiment you’d expect from the startup scene. So for many UK entrepreneurs, the Brexit vote clearly feels very personal indeed.

NB: The below interviews have been lightly edited for clarity

Read the prior article in the sequence: What UK startups make of the shocking Brexit vote

Azimo
Michael Kent, founder and CEO

On a micro level my firm, I guess my sector, the immediate economic impact — I’m more bullish. Customers keep coming. We had our strongest ever month last month. But as we should do — we’re growing fast. But at a macro level if you look at a lot of the leading economic indicators I’m a little bit worried because I think it’s probably going to be slack growth next year. In the UK. That’s not great for anyone… Recessions suck.

We haven’t seen any fundamental weakness in customer demand. We’ve seen people continuing to transact, pretty much at normal rates. I think it’s more of a reflection of the kind of people that we serve — they tend to be people who are sending a good chunk of their monthly salary home and they’ve got to do that regardless of what the pound’s doing or whether Brexit’s happening or what the politicians are saying. So I’m not surprised. I think [business has] probably been a…

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