The Brexit and Entrepreneurship (Report)
|Title||The Brexit and Entrepreneurship (Report)|
|© edegan.com, 2016|
800 words on the Brexit and its affect on entrepreneurship.
High-tech, high-growth small businesses represent both the moidern sterotype financial powerhouse of entrepreneurship. In order to best promote the development and growth of these nascent firms, a healthy "entrepreneurship ecosystem" must be maintained. This ecosystem, a unique combination of various institutions, cultures, and trends largely relies on four major factors to impower and drive entrepreneurship. Cutting edge research, large pools of venture capital, an established post-entreprenuer tech industry, and entreprenuerial institutions such as accelerators and incubators round off the four pillars of a healthy entreprenuership ecosysetm(1).
With such a diverse range of sectors from finance to start-ups, and academia to high tech, rarely do all four pillars fall at once. Usually, if one component of the ecosystem falters, the environment will stutter rather than collapsing. On June 23rd just past 10:00 p.m., this all may have changed. In a vote from 16,141,241 to 17,410,742, the United Kingdom voted to leave the European Union in a historic referendum(2). While the future for the U.K., and the world, seems to be cloudy, the immidiately measurable effects seem to spell out doom for a healthy british entreprenuerhsip ecosystem.
The opinions of English entreprenuers appear vary dramatically. From Husayn Kassai, CEO and co-founder of Onfido, stating, “there is a lot of uncertainty around but one thing for sure is that this is bad news for the tech industry," to Nena Chaletzos, founder of Luxtripper, who claims “The leave vote gives us more flexibility in a global economy, and I think that we will get better deals and be more competitive globally," the almost 50/50 split in the U.K. constitutency seems tio have carried over to its entreprenuers(3). Retuning to the four pillars of entrepreneurship ecosystems however, how will the Brexit likely effect the future of British ingenuity?
Starting with the key factor of acadmeic research, the "leave decision" appears to be a loss. Stephen Hawking and around 150 other members of the Royal Society at Cambridge University have called to decision a "disaster for UK science and universities." The disaster largely stems from research funding. While overall the U.K. experienced a net loss in funds contributed to the E.U. versus funds recieved, it has actually experienced a net gain of about 3.4 billion pounds in research, development and innovation funds contributed to the E.U. versus funds recieved. In the area of scientific research, the U.K. waas a major benificiary of E.U. redistribution. Further detriments of a Brexit arrise from a potential falling out with the European Space Agency and drop in collaboration with the larger European scientific community(4).
The second pillar of availible venture capital appears to also be suffering in light of the leave decision. The IMF used its annual report on the British economy to say Brexit would plunge the UK into recession next year and that it could see no economic advantage in leaving the EU(5). This is a critical assment not only in its ominous nature, but also in its potential implications for venture capital. Regression-based analysis from the finanical journal Venture Capital conducted on the 2008 recession shows that "financial crisis is associated with a 20% decrease in the average amount of funds raised per funding round" in a destructive blow to venture capital(6).
The bad news doesn't seem to stop there. Chugging right along to the third aspect of entreprneurship ecosystems, an established post-entreprenuer tech industry, this too seems to be in danger due to Brexit fallout. As the Guardian reports, the well established FinTech, or financial technology industry in London is heavily considering relocation after the decision(7). "Headquartering elsewhere is now a possibility", says Taavet Hinrikus, the chief executive and co-founder of TransferWise, "as loss of talent and regulatory uncertainty rear their heads, we will probably not grow the team based here [in London] much more." With the Brexit causing immediate damages in scientific research, venture capital, and the tech industry, the final pillar of entreprneurship crumbles as well.
Entreprenuership institutions such as accelerators, incubators and hubs cannot exist, let alone thirve without well, entreprenuers. With research stagnating, venture capital dropping, and tech firms searching for new grounds, the decision to leave has seemingly brought all four pillars of entreprenuership to a crumble. This fallout is one of the many effects which compelled 10 Nobel prize in economics winners to declare "We believe that the UK would be better off economically inside the EU." in a pleading open letter published the Sunday before the vote. Perhaps Toby Coppel, the co-founder of British venture capital firm Mosaic, expresses the concerns for the future best; "The next entrepreneur who’s 22 years old, graduating from a technical university may, instead of moving to London to do their tech startup, decide to go elsewhere instead. I think that’s one of the biggest concerns I have about the trajectory of the London ecosystem."
(6)What is the effect of the financial crisis on venture capital financing? Empirical evidence from US Internet start-ups