Brexit: Danger signs for UK's early-stage tech startup investments?

The landscape for tech startup funding has shifted significantly since the 2016 Brexit vote.

Brexit: Early-stage tech investment shows worrying signs in the UK The landscape for tech startup funding has shifted significantly since the 2016 Brexit vote.

"Brexit threatens to sever Europe's strongest technology hub from the interconnected European ecosystem of technical talent, investment and expertise," warned last year's report from Tech.eu, online payments company Stripe, and US seed accelerator Techstars, which examined early-stage funding conditions in Europe.

The report said investment in early-stage tech companies across Europe grew from around €875m ($992m) invested in the first six months of 2015 to more than €3.6bn ($4.08m) in the first half of 2018.

Early-stage companies are defined as those at the beginning of their startup journey, which have raised less than €5m ($5.67m). The categories with the most investment include: medtech, semiconductors, fintech, robotics and gaming.

Yet while the UK's tech ecosystem continues to retain pole position as the most financed in Europe, the report noted that "the most remarkable growth in the early-stage bucket was seen in France, where financing is well on its way to surpass the UK".

Its analysis puts France and the UK almost neck and neck in terms of attracting early-stage funding, with 24.04 percent and 24.59 percent respectively. Moreover, France's share is made up from 1,340 investments, compared with the UK's 1,147, showing that 193 more deals were made at this early stage in France than in the UK.

Following the Brexit vote in 2016, the report notes how "several notable funding sources for early-stage companies were put in jeopardy" in the UK.

It refers to the moratorium on new long-term loans to the UK from the European Investment Bank (EIB), which saw the UK lose 70 percent of EIB deals and its top spot of leading European beneficiary, leaving more funding opportunities open for France and Germany.

SEE: IT pro's guide to GDPR compliance (free PDF)

Despite the uncertainty surrounding Brexit, London & Partners data earlier last year showed the UK raised £2.99bn ($3.91bn) in venture capital in 2017. This was four times more than Germany, which made second place with £694m ($907m). Around 80 percent of this figure, £2.45bn ($3.20bn), was raised in London.

Natalie Novick, who researched and wrote that report says success and opportunity are unevenly distributed in the UK.

"When we're talking about the UK startup ecosystem, many speak about it in a homogenous way," she says. "London remains the continent's most successful startup ecosystem, however, things look very different in Manchester or Newcastle, and it's important to consider how Brexit might impact those areas."

Since Brexit, the French Tech marketing campaign has revved up a gear. President Macron announced France as a 'startup nation' and Station F, the largest startup facility in the world, launched in Paris. It has partnered with tech giants such as Microsoft and Facebook, and hosted entrepreneurs and global elites at a stream of events to become an international symbol of entrepreneurialism.

While hiring European talent has become more difficult in the UK following the Brexit referendum in 2016, France is offering a renewable four-year visa program that authorizes spouses and dependent children to live and work there.

Novick says France attracting more early-stage deals overall could point to important identifiers about changing attitudes to entrepreneurship in the country.

But while Brexit is overshadowing the UK startup scene, Novick says many entrepreneurs and investors remain hopeful that the impact of Brexit will be addressed by the government.

"Founders are resilient, smart and shrewd," she says. "If a door closes for them, they will make a window elsewhere."

That "elsewhere" could be one of many European countries. The top 10 for early-stage funding investment includes: France, UK, Germany, Sweden, Spain, Netherlands, Russian, Finland, Switzerland, and Ireland.

screen-shot-2018-11-04-at-22-33-18-893x532.png

Total funding in European early-stage tech startups jumped by 36% from 2016 to 2017 (from €14.3 billion to €19 billion).

Image: Tech.eu

Previous and related coverage

Brexit plans: Four in ten tech companies consider move abroad

Brexit worries are leading companies in information and communications to consider shifting some of their operations, mostly to Europe.

Tech investment falls as Brexit headwinds strengthen

Paris and Berlin gain ground as investments in London drop amidst 'Brexit-induced uncertainty and alarm'.

'A very, very bad thing': This is what a no-deal Brexit means for tech companies and jobs

Tech companies are worried about data flows, staffing and investment in the event of a no-deal departure from Europe.

No-deal Brexit will hurt us and we're not ready, say tech companies

Despite the growing risk of a no-deal Brexit, many tech companies don't know how to prepare themselves -- or even whether they can.

The Brexit dilemma: Will London's start-ups stay or go?

The capital's tech companies are trying to plot a course that will steer them past Brexit. That will mean some difficult decisions ahead.

'No clarity', 'misguided' and 'a huge concern': Brexit minister's pitch to UK tech industry falls flat

Dominic Raab spoke of a "pro-tech" and "global" Brexit - but many in the sector still don't feel as if the government is listening to their concerns.

No-deal Brexit and tech: Jobs, R&D and data remain big worries

Impact of no-deal Brexit is already being felt on recruitment and investment. And uncharted waters lay ahead.

Brexit: A cheat sheet TechRepublic

Brexit throws up a raft of questions for tech companies about how Britain's departure from the EU will change how they do business. Find out how it'll affect you.

Return of roaming charges after Brexit is a possibility, but not a given CNET

There's no need to panic just yet.