It’s Right to Remain

As we begin a week that could have significant long-term consequences for all aspects of life in Britain, here in the Catalyst Centre, we are pondering how Thursday’s EU referendum will impact science and technology businesses specifically.

The polls are currently neck and neck and it seems as if the vote really could go either way – despite the many experienced voices from across the financial and business communities warning against Brexit.  Prominent entrepreneurs, including Sir Richard Branson, Dragon’s Den star Kelly Hoppen, Innocent drinks and Jam Jar Investments entrepreneur Richard Reed and lastminute.com founder Martha Lane Fox, all signed an open letter to The Times supporting the UK remaining in the European Union, for example.

Amid claim and counter claim, the UK’s small business leaders can be forgiven for sitting on the fence, unsure which route will offer them, their staff and their business the best road to prosperity. Just a few months ago, the Federation of Small Businesses found that 42% of the UK’s small businesses could still be swayed on the EU vote.

Before coming to our own conclusion, we put ourselves in the position of a small business and considered several key factors that have a direct impact on their likelihood of long-term success. These core components are: funding, skills, market opportunity and the all-so-important but quite intangible drive and determination to do well.

First, let’s consider funding. We all know how hard it is to attract investment in a start-up operation, particularly one that’s operating in unchartered territory like the innovative science and tech concepts that we welcome to the Catalyst programme each year.

The fact is that Europe plays an important part in the UK’s investment landscape. Ernst & Young’s 2015 UK Attractiveness Survey reported that around 72% of investors consider access to the European single market as important to the UK’s attractiveness as a destination for foreign direct investment. In fact, other EU member states accounted for 46% of the stock of foreign direct investment in the UK in 2013.

However, the impact of the impending referendum is already being felt, with many investment decisions being delayed until those with the cash see how markets respond to the British public’s decision. Mark Carney, Governor of the Bank of England has warned repeatedly of a sharp decline in the value of the pound in the event of Brexit, while the IMF suggested that its effect on the British economy ranged from “pretty bad to very, very bad.”

All business investment carries high risk, but it’s clear that this risk is considered much greater in an uncertain post-EU financial landscape. It’s no wonder that investors are keeping their hands in their pockets – and this is a travesty when speed to market in the tech sector is a critical success factor.

Turning to skills and how to attract the best team talent naturally opens up the hot debate on immigration – one that we can’t go into here – but we are concerned about the ease with which businesses can recruit top tech talent as this is a critical milestone in a business lifecycle. Tech City UK  recently reported that, with digital skills shortages in many key areas, growing UK businesses already rely on being able to attract the brightest and best across Europe. Indeed report after report signal business leaders’ concern over a skills shortage if people flow is impeded.

Now, all businesses need a clear and well-defined market to sell to and the EU single market of 505 million consumers would seem a good place to start for most businesses looking to scale up fast. The EU economy is worth about £11.3 trillion (24% of the global economy) – bigger than either the US (£10.5 trillion, 22%) or China (£6.74 trillion, 13%), according to the Bank of England.

Seven out of ten tech founders and investors surveyed by Tech City UK said that they wanted the UK to remain within the EU with a primary reason being concern over the loss of easy access to the EU single market which, they say, would make it harder for new and growing businesses to operate. The EU is the UK’s biggest trading partner, with 44% of everything we sell abroad going there, so, the report highlights, having guaranteed access to this market is clearly important to those working and investing in the digital economy.   Add to that the much discussed global trade agreements which are being finalised with the US, Canada and Japan and we could find ourselves quite isolated from the global business economy if we don’t have a seat at the table for these negotiations.

Businesses in the UK also benefit if their supply chain involves imports from other EU member states, even if they do not export to the rest of the EU, by virtue of a lack of customs duties and procedures.

Ross Mason, the British founder of San Francisco software firm MuleSoft, commented that “companies in the UK may miss out on taking advantage of the free flow and movement of data across Europe, as a result of the EU’s efforts to enhance the interoperability of devices, applications, data repositories, services, and networks,” in a recent interview for ZDNet.

He did go on to suggest a potential benefit for the tech industry, should Britain vote to leave the EU though.  He indicated that Brexit would require businesses to become more innovative in order to make an impact. “There is an argument to be made that the UK technology industry may benefit from Brexit because it will put more pressure on industry and government to innovate in order to compete. It could shake up the status quo and drive new strategic thinking to leverage UK resources as a hub to help develop emerging markets, such as Africa,” he said.

It has been suggested that tech founders and investors worry that the UK’s attractiveness as a location for international tech companies would lessen if we withdrew from the EU. Big commitments to the UK – such as Google’s Kings Cross campus – may not materialise if London is no longer seen as a gateway to the EU market, reported Business Insider. In the aerospace sector, Paul Kahn, president of Airbus UK, has been quoted as saying that a British exit from the EU could cause Airbus to “reconsider future investment in the United Kingdom”.

Finally, let’s consider the intangible, immeasurable, but hugely significant, drive and determination that all entrepreneurs must have in spades. Much is made of the British tendency to be workshy (although it’s fair to say that this is not something that we witness here at the Science Park!). Research, however, suggests that it could be true as immigrants are leading the way when it comes to entrepreneurial spirit. As Henry Williams reports for Startups.co.uk, one in five UK tech start-up founders are immigrants.   He quotes research from DueDil which shows that, of the 27,395 UK tech start-ups founded in 2014 by 35,193 directors, 7,426 of these directors were foreign – a 133% increase in the number of immigrant directors since 2010. DueDil also reported the increasing draw of the country’s tech sector to entrepreneurs from around the world and has stated that this appeal would be diminished if there was a Brexit. Isn’t it interesting that our immigrant entrepreneurs see Britain as the optimum place to realise their dreams?

Britain is currently seen as a global tech hub – and rightly so. It would set us back decades if an exit from the EU caused that hub to move to Paris or Berlin.  Yes, we are proud British people (and we have much to be proud of) but that doesn’t mean we have to go it alone.  Weighing up all the evidence, and speaking to a wide array of entrepreneurial spirits here at the Science Park who are on the verge of amazing discoveries that could set the world, let alone the EU alight, we are convinced that it’s right to remain in the EU.

Do you run a start-up tech business? If so, we’d love to hear your views.