Is The Techxit The Logical Outcome Of The Brexit?

While a variety of opinions about the U.K.'s vote to leave the European Union are possible, there is something that almost everyone on the planet earth can now attest as truth: That old stereotype about the British being dull is officially obsolete.  

The U.K. has been arguably the most watched and scrutinized island in the world for the last 72 hours or so — and it seems likely that this trend will persist, barring the surfacing of Atlantis in the next few days.  

In the short span of time since the U.K. shocked the world and commandingly decided to say "see you later" to the E.U. and the open of business today, an almost insane variety of things have happened.

International stock markets have plunged into chaos and the pound sterling has tanked so hard that the U.K. has lost more money to currency devaluation in the last three days than it has paid into the E.U. over the last 15 years.  

Prime Minister David Cameron has resigned, the Leader of Opposition Jeremy Corbyn is accused of gas-lighting his party's "Remain" campaign, four cabinet ministers have been sacked and the Labour party is primed to tear itself to ribbons. 

Which is still less interesting than the Scottish contingent to Parliament's response.  

SNP First Minister Nicola Sturgeon has made it pretty clear that Scotland is going to vote to cede from the U.K. to rejoin the E.U., if Parliament doesn’t review the petition and say, "sorry peeps, this was all a bad dream and call the whole thing off."

Which doesn’t seem all that farfetched. And as of yesterday, it seemed the U.K. en masse had come down with bad a case of buyer's remorse. “Regretxit” is the new word of the day.

The situation is, in short, a mess.  

And the fun is just getting started, and we're not talking about the coming pogroms amongst Tory and Labour leadership about who will actually have to manage the coming bureaucratic nightmare that is the unwinding of its E.U. membership. 

Because it is looking increasingly likely that before the U.K. ever manages to exit anything, it will first see a mass exodus of its own.  

Of all those E.U. innovators who no longer want to work in London. 

The Techxit (we couldn’t resist our own –xit label), it seems, is on and soon to be up and running.  

What does it mean — and can it be stopped?

London's Big FinTech Troubles

While innovators in tech are reportedly a disruption loving group, it probably bears mentioning that they love being the disruptors. They are less than wholly interested in being disrupted, especially if the disruption has the ability to weigh too hard on their bottom line.

"The people we deal with are petrified about Brexit," said Mike Laven, chief executive officer of Currency Cloud Ltd., a London-based firm that processes cross-border payments.

And they are wrong to be worried, Lavin notes, as tech — and particularly FinTech — has become a very, very big business in London. 

In the last year alone, investment in British FinTech firms has leapt up 660 million pounds ($974 million), making it the biggest investor nation in the E.U. as British banks are becoming increasingly interested in those young firms.  

Barclays Plc, Banco Santander SA’s U.K. unit and other British commercial banks have all made big U.K.-based FinTech investments in the last 18 months. As recently as last week Bank of England Governor Mark Carney announced the 322-year-old institution was launching an accelerator to work with FinTech startups.

And while FinTech tends to be the focus in the U.K. (unsurprising given its current global prominence in finance), the chill is being felt across tech in general. The British government has spent considerable time and money to expand London's tech sector, hoping it will collectively grow to be a meaningful supplement to the city's powerful finance industry — and part of that effort has included attracting the best and brightest in coding and software development from around the E.U. 

The E.U. has been a boon to that effort as freedom of motion and relaxed immigration rules allow coders and other workers to move to London from throughout the E.U. at little expense. According to Tech London Advocates, 20 percent of London's technology workers came from another E.U. country.

And, note: Entrepreneurs' inability to attract talent has a tendency to kick off vicious cycles that lead to it becoming tougher to raise necessary capital. 

"I'm devastated, I think this is a complete disaster," said Rich Pleeth, the founder of the friend-finding application Sup, told Bloomberg. "Capital raising just moved from tough to impossible. The older generation voted with their hearts and not their brains and they've taken us back 30 years." 

And the projections in that regard are pretty ugly, according to a recent report from research firm William Garrity Associates. U.K.-based tech firms collectively face the loss of $5 billion in investment over the next five years, the report states.

And that doesn't scratch the surface of all the raised costs of doing business, which, according to tech firms across Europe, are about to go through the roof .  

In FinTech the big worry is passporting, or the process by which a financial services firm can get certified and licensed in on EU country and then operate across the entire 28-nation bloc. The practice is both a massive time and cost saver, and the U.K. is particularly desirable as a home base since licensing compared with other E.U. countries is comparatively fast.  

But the speed is irrelevant if the U.K. leaves the E.U. since the passporting privilege will go with it.

"I'm just really disappointed not to have the freedom of movement in the E.U. that I took for granted," noted John Hindley, who works remotely for an Israeli tech company, Personetics.

What's Next 

Well you know what they say: When the going gets tough, the tough get going. 

In this case, however, the concern is that innovators will be looking to "get going" right out of the U.K.

"The startup community is extremely depressed," said Frans van Eersel, the founder of dopay, a London-based payment processing firm that works with Barclays. "The U.K. has been a good platform for FinTechs, but now that platform may have to move somewhere else. That's the next fight. Amsterdam will start attracting them, or Barcelona or Paris or Berlin."

And said Jan Hammer, a partner at Index Ventures in London, a venture capital firm that has invested in the sector, the U.K. should be feeling pretty depressed about that too. 

“Following Brexit, FinTech startups may realize it makes more sense to set up an office within the E.U., and existing companies may relocate some of their staff to the E.U. Splitting with the E.U. would diminish London’s role as a leading FinTech hub."

Others put a much finer — and clearly angrier — point on it. 

“Why would I pour resources into building a company in the U.K., when I can have a tougher time hiring, a higher cost of living and have a smaller applicant pool?" asked Damian Kimmelman, the founder of London-based DueDil Inc., a startup that provides data about private companies.

Of course, at this point, much remains unknown about the Brexit, including whether it will ever see the light of day. A second referendum has been demanded — and even the leaders of the Leave movement look a bit befuddled at what comes next.

PYMNTS will keep you posted of course. Check with us throughout the day for the latest out of the U.K., and throughout the week as we bring you reports live on the ground from innovators as they develop their new plans in real time. 



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