One in four tech companies in London fear they may not survive the impact of a no-deal Brexit, a new survey by Tech London Advocates suggests.
The results of the survey, which polled 238 tech leaders and investors in London, suggest most concerns lie around the availability of capital, particularly for early stage startups, as well as concerns around supply chains and hiring.
The warnings come during an already turbulent economic situation in the UK. The economy is predicted to contract by 11.3% in 2020 and September saw the highest number of startups going into administration for the last ten years.
Access to capital
75% of the tech leaders surveyed said their concerns are over how the combination of coronavirus and Brexit will reduce access to investment capital, which is a particular lifeline for earlier-stage startups which are generally not profitable.
Andrew Roughan, managing director of Plexal, an innovation centre in London, says it is these cash burning early stage startups that will be under the most pressure.
“In the last 12 months, we’ve been tracking equity investments this year compared to prior years and we’ve found investors are keen to follow existing investments but first time investments are really slowing,” Roughan said. “With Brexit, that could be compounded.”
British startups will start to face more competition for investment from European markets too, Roughan predicts, with hubs like Berlin and Lisbon starting to look increasingly attractive. “This will particularly be the case for VCs and private investors coming from the US and Asia,” he says.
Access to talent also ranked high as a concern, with 60% of tech leaders saying they fear losing skilled international employees when the UK leaves the EU.
"The greatest challenge facing early stage businesses will be access to talent," says Stuart Veale, managing director of London-based VC firm Beringea.
"Expertise and experience drive the success of startups, and the UK has faced persistent shortages of specialist startup and tech talent even before taking into account the impact of Brexit."
Although it’s launched initiatives like the Tech Nation Visa — offering five year residency for tech employees — the country needs to bolster its domestic talent too, Veale says.
"There must be greater emphasis upon harnessing domestic talent and improving digital skills throughout the UK," he says, "this should encompass providing regional businesses with support on training and education."
Supply chains could be another point of tension for startups too.
“We have the complexity of what happens at the border in the first instance,” Roughan says. “And then we have some particular materials that we need to secure supply chains for. For example, rare earth materials like lithium for use in batteries at scale. It’s critical to the electric vehicle movement — securing that supply chain is very important.”
Issues with supply chains and the border could, however, also prove a huge opportunity for British tech.
“There’s potential for Brexit to be a coming-of-age moment for our trade technology,” Roughan says. “For example, I think we’ll probably see an increasing use of blockchain that will make trade transactions very efficient, so Brexit will stimulate a focus on those technologies.”