Although I still believe that venture investing is more about the micro than the macro, I admit that I’m nervous about the fallout Brexit may have, both on my European venture portfolio, and on the European tech ecosystem as a whole, not to mention the grander European project for which I’ve been a supporter.
My first reaction this morning (after the initial shock) was to take a mental inventory of my portfolio’s exposure to the UK market. Fortunately, the Sterling plays a limited direct role in most of my current investments. There are no UK companies in our present portfolio; albeit a handful do have operations in London.
However, I am quite wary of potential indirect effects. In the immediate term, the vote for Brexit has ushered in an environment of tremendous uncertainty. In times of uncertainty, decision-making slows and people become more risk-averse. Longer decision cycles from potential customers hamper revenue which can wreak havoc on startups without an excess cash buffer. Entrepreneurs currently engaged in fundraising in Europe (and VCs, for that matter) will likely be treading water for a while. I expect the window for technology IPOs will also close for the time being.
The short-time volatility will eventually pass for those who can ride it out. The long-term impact on the European tech ecosystem concerns me more.
Take for instance one of the most popular areas for venture capital over the past half decade: Fintech. London is arguably the Fintech hub of Europe, and Europe arguably leads the world in Fintech innovation. One of the perks of EU membership enables UK-based Fintech innovators to employ their financial regulatory accreditations in any other EU country by way of “passporting.” An accreditation process of a few months in the UK can take a couple years in other EU countries. Forfeiting this feature of expediency by leaving the EU will undoubtedly dilute the appeal of London as a Fintech base.
Almost simultaneously this morning, while I was assessing the damage, I received two emails from business contacts in Japan: one a Fintech entrepreneur, the other a manager of a large investment fund. Both were planning to attend the VivaTech conference in Paris next week. Both informed me they were canceling their travels due to this new climate of uncertainty.
As I had declared with conviction in 2016 Will Be The Year Of The European entrepreneur, one of Europe’s greatest strengths is its common market of richly diverse cultures, a wealth of talent for tech startups building complementary, multicultural teams. Now, with one of its largest partners pulling up the drawbridges, Europe’s credibility to come together comes into question.