It was earlier this summer when Justin Grierson noticed that the number of “hackathons” seemed to be trailing off around “Silicon Roundabout”, the east London area touted as Britain’s answer to the Californian valley that is home to technology giants Google and Facebook.
“Last year there used to be at least two every weekend and now there might be about two a month,” said the freelance programmer who is a regular at the sprint-like design events for coders and others, which often bring him into contact with others in the sector.
There was little doubt in his mind that the decline of the events was a symptom of the Brexit vote. Activity has slowed, and many startups are reining back on spending amid uncertainty about the economic outlook. They also fear that they will not be able to attract the international talent needed to preserve London’s mantle as Europe’s pre-eminent technology hub.
Last week those fears increased with claims that British startups will no longer have access to their single biggest source of investment funding. Venture capital funds have reported that the European Investment Fund (EIF) has “turned off the tap” on new UK commitments. The chill was palpable at a meeting of entrepreneurs on Thursday near Smithfield market, a 10-minute walk from Old Street roundabout. There, young entrepreneurs, startup founders and service providers huddled around mobile phones running embryonic apps.
“I was not expecting Brexit, to be honest, and it has left me wondering: is the UK and London a good place to be?” said Dogan Biyikli. With a professional background in overseas disaster management, he is part of team that is in the early stages of developing a translation app tailored to charity workers. The project should in theory be an ideal fit for a city that has historically been home to many global charities.
“If we set it up as a British project, we’re wondering what will happen a year or two later when we may want EU funding, for example, or if we want to operate across Europe.” Born in Belgium – but of mixed Czech, Turkish and Belgian heritage – Biyikli is also typical of many European workers now feeling much less welcome in Britain. “Right now, I feel that everything from Brexit will be negative,” he said.
Even more than the question of how the EIF’s role as a “cornerstone” investor in tech startups would be replaced, uncertainty about the flow of developers and engineers is the foremost concern of figures from leading investment firms.
“There is probably more money available in venture capital for early-stage tech businesses than there ever has been, but our biggest concern is on the talent front,” said Harry Briggs, a partner at BGF Ventures, a £200m venture fund that focuses on UK tech companies with global ambitions.
“If the UK stops being a magnet for the best talent, and if the top universities stop attracting the best computer science and engineering undergraduates from across Europe, then clearly startups will suffer because they will have a smaller talent pool to fish in.”
He added: “Many of the best and smartest Scandinavians, Germans and so on move to London, and while that has certainly not stopped I think it has probably slowed a little because of the uncertainty. Anecdotally, I know of a few companies that were hiring people that had been planning to come to London but those people decided to take a job in Berlin instead, for example.”
On the money front, while British venture capital firms remain Europe’s richest source of cash when it comes to fuelling tech startups, the EIF’s role has frequently been crucial. Last year it supported 11,000 UK small and medium-sized enterprises and signed agreements that would provide €8bn (£7.3bn) to support British firms.
The fund says there is no moratorium on lending to UK projects, but adds: “It is the case that due diligence on them now needs to be more thorough, and take into account a wider range of factors.”
British venture capital funds that have reportedly been recently rebuffed by the fund include Hoxton Ventures, Seedcamp and Episode 1 Ventures, initial backers in startups such as Deliveroo.
While UK government proposals for a national investment fund that could help fledgling businesses have been welcomed by Tech City UK, the state-backed organisation supporting tens of thousands of digital tech companies, its chief executive, Gerard Grech, has called for clear backup plans. “This is a time-sensitive issue with important consequences for maintaining confidence in the UK tech sector,” he said.
There is concern, too, in Europe – including cities that have been cast as a rivals to London. Florian Heinemann, a founding partner at Project A, a Berlin-based venture capital firm that has been at the cutting edge of investment in early-stage European technology startups, said he had noted a slowdown in EIF commitment to UK-based funds.
“However, the moment that the UK is not part of the EU any more, it will restrict us in our next fund – if the EIF is still a backer – to invest in UK-based startups, as there often is a 20% limit imposed for outside-the-EU activity. There definitely will be a slowdown, even if it is delayed.”
Back at the Smithfield meet-up, Israeli-born Nir Agam emphasised London’s enduring attractions. “It’s a good place, but a hard place to live, especially for someone who has to put everything into a project while also maintaining a family.
“Berlin is very nice and you have already places like Slovenia that are offering benefits to entice people to relocate there, but for me it’s about the pro-business atmosphere here and the links to the US market,” said Agam, whose app, TextPlai, translates text into amusing video.
Nevertheless, he sees Brexit as an “own goal”. The pound’s slump had already dented the value of investment in his company – “it came in as dollars but it’s in the bank account as pounds and so it loses value” – and the app’s future expansion would require a pool of skilled international workers.
“We’re going to want to operate in other places but we will need personnel specifically for those languages – people with Portuguese, Spanish and so on. We need those people.”