Far from being an economic disaster, a British exit from Europe could be the best thing that's ever happened to UK fintech, says Michael Jackson, partner at Mangrove Capital and former COO at Skype.
Great entrepreneurs feed off of disruption - whether geopolitical or technological.
As a venture capital investor, I back entrepreneurs who take advantage of change to create transformational businesses. So I was struck by how vocal London’s tech investors and entrepreneurs were in backing the Remain camp in the referendum. I was also surprised by their reaction to the outcome - one of disbelief and fear. It seemed remarkably risk averse for a group of people that are praised and rewarded for their dynamism. After all it’s the same people that preach about the unstoppable force of change and that profit from disruption. Why aren’t they embracing change and seeing the incredible opportunity that it presents?
Let’s examine their concerns. First is the belief that a Brexit hinders investment and hold companies back. Now it’s possible that an investor is worried about the uncertainty but to think that a risk investor will decline the opportunity to have a stake in a great business in a turbulent environment is absurd. Berlin or Tel Aviv may come into focus but come with their own issues. They may of course be less inclined to gamble on a mediocre business whose path to profitability depends entirely on EU membership but these are surely the exception. I also struggle to comprehend why a bank with fewer employees in London would be less likely to invest in or acquire a meaningful London fintech business - another theory I’ve seen touted - or why a listing on the London Stock exchange is less likely this week than last. Great businesses will always get the funding they need; Skype, Google and others were created in the midst of the dotcom crash. Indeed from my company’s perspective (our office is in Luxembourg), UK businesses just got 15 per cent cheaper.
Regulatory and legal hurdles are cited as another major concern - the theory being that our access to European markets will diminish and startups will be faced with an additional or more fragmented regulatory framework to overcome. But regulation is just one of a myriad of problems that a founder will have to solve in order to be successful. If you are truly worried about regulation then you probably wouldn’t have set up a business in the first place. Founders focus on developing great products that customers will enjoy and assume that regulatory hurdles can be overcome. History has shown that they can be, even when you’re taking on the telecoms industry.
In fact, the FCA and PRA have already reacted. Last year, they created the Bank Startup Unit - a differential system that already distorts the single market concept by implementing a UK specific regulatory environment giving local companies a head start. The Regulatory Sandbox and Project Innovate can now thrive without reference to European rules. The rhetoric of the fintech lobbyists in London is particularly parochial so it seems odd that they’re not celebrating the opportunity to further distance themselves from the regulatory regime of Europe. Without constraints from EU legislation, presumably the UK can make it’s own economic policy, incentives and even state aid where needed and build regulatory bridges to the largest financial market in the world - the United States.
Entrepreneurs have also argued that Brexit could impact their ability to hire talent. Yet greater control over migration may help the Government pick and choose who is able to enter the country. A new immigration policy could favour employment from the Far East and the United States - allowing specialists from these markets to help fill skills gaps in the UK. Once again, an initiative already created under the Exceptional Talent Visa scheme can now easily be extended without regard to the EU.
I have every faith that the UK can adapt to this historic change. It is after all one of the strongest economies in Europe. Let’s not forget that English is a global language and London is a cultural powerhouse. It is a world leader in finance and remains in a prime geographical position - midway between Singapore and New York. It is also the largest capital city in Europe, providing opportunities not just for entrepreneurs and their employees, but also their families and children. It now has the ability to create its own policies, align its own passporting rules with the largest financial economies, avoid financial transaction taxes, access worldwide labour markets and import from anywhere.
An attractive and differentiated UK environment may just be the medicine the doctor ordered for fintech startups. Meanwhile incumbents now face the considerable task, and enormous distraction, of unpicking the implications of a Brexit and planning their businesses accordingly. Indeed, from where I’m standing it looks like this new paradigm could be the best thing ever to happen for UK fintech.