How Brexit Will Renegotiate Relationships Between Startups Across Europe and the Rest of the World
In the wake of Brexit, it's not just startups in the U.K. that will need to renegotiate their relationships.
Toward the end of the 20th century, it was widely assumed that greater economic dependence between countries, bolstered by liberal democratic institutions, would ensure some form of stability well into the 21st century. Today's global context has shifted dramatically and unpredictably, with Brexit bringing both fiscal and social uncertainty. With more than two years having passed since Britain voted to leave the European Union in June 2016, clarity is still scarce for the U.K.'s community of entrepreneurs and investors -- and, in turn, their European counterparts.
In the wake of Brexit, whichever form it may take, startups not just in the U.K. but across Europe must renegotiate their relationships. Notably, this newly fragmented geopolitical landscape creates both opportunities and challenges for entrepreneurs and venture capitalists (VCs) alike. Scaling successfully requires a strong understanding of different markets. As such, Brexit will force entrepreneurs to look further afield long-term when it comes to building and harnessing key relationships.
On the one hand, the economic uncertainty of Brexit has made some VCs reluctant to part with their cash for new ventures in Europe. On the other, recent data from KPMG Enterprise has revealed that the U.K. remained at the top of the European charts for VC funding for another quarter. At £1.4 billion in Q3 compared to £1.31 billion in the same quarter last year, the U.K. raked in more than double the VC funding of Germany, which secured £634 million in VC funding during Q3 2018; France came third, at £344 million.
Now, amid Brexit uncertainty, there's also an opportunity for more specialist hubs. London is already known for fintech and AI, Helsinki for gaming, Stockholm for music, as some examples, but seismic shifts in technology are occurring across numerous industries -- everything from health care to artificial intelligence and virtual reality. This disruption is spurring on innovation and there's fresh scope for technology pioneers and communities to come together and help create a new generation of innovators.
By nature, small businesses are often able to react more swiftly to changes in legislation; consequently, British startups and scale-ups will be less pressured than enterprises to commit to relocating or setting up a base in the EU. However, agility alone is not enough. In an age where innovation is borderless and technology is transforming countless industries, the best emerging companies will be those that are global by default . As such, British startups and scale-ups that balance a worldwide mindset with agility will reap the most rewards from the post-Brexit landscape and, in turn, secure the best partnerships with their European counterparts. Although fragmented, Europe is well connected and it's possible for U.S.-style, city-by-city rollouts to be successful. European founders should have the confidence to expand across Europe faster.
For pan-European success, British businesses must recalibrate their customs procedures and study their supply chains in order to establish where taxes and handling costs may have an impact. On top of this, startups and scale-ups must monitor any international contracts that will need to be renegotiated. This is where a VC's collective expertise can really count: VCs can act as consultants, either directly or through their cultivated network, to help companies formalize agreements swiftly in a way that adheres to new legal requirements.
Having renegotiated relationships across Europe, founders' thoughts should turn to the U.S. The nation is famed for an approach to entrepreneurship that encourages rules to be broken, so that entire industries can be disrupted by individuals. This results in companies that are bigger than countries: Amazon has more users than the population of Brazil; Apple's economic output surpassed that of Oman; Facebook's energy use outstrips that of Bermuda.
By contrast, Europe is arguably renowned for a more socially inclusive model, which aims to support communities as a whole rather than the individual. For example, Techfugees -- a non-profit social enterprise -- aims to coordinate the international tech community's response to the needs of refugees fleeing war, famine and persecution. A more commercial example is PSD2, designed to break down the monopoly held by banks on user data.
Amid the ambiguity of Brexit, the power of social entrepreneurship cannot be overstated; as such, for entrepreneurs and VCs across Europe to succeed across the pond in a post-Brexit world, a hybrid approach combining the best of both U.S. and European traits is key. Now, the time is right to come together and forge new approaches to both entrepreneurship and VC investment -- to create a collective future in a fragmented world. In our increasingly globalized world, the most successful businesses are those that operate globally; entrepreneurs across Europe must bear this in mind at all times.
At the same time, based purely on geography, it makes clear business sense to trade in Europe before looking elsewhere. Innovation is difficult enough; transforming it into a global technology company is even harder. Focus and stamina are fundamental, in addition to resources and teamwork. Again, this is where the value of the right VCs can really shine through, as (ideally) they'll have firsthand experience from starting up their own companies. By providing the resources, skills and experience to help partnering companies deliver sustainable, profitable growth, VCs can also help startups across Europe renegotiate their relationships with each other and the rest of the world.
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