Our very own Features Editor Rajan Soni explores what the seismic shifts in the global order mean for startups in Europe today
Technological progress is often considered an inevitable and unstoppable force, immune to the effects of the outside world. It is constantly evolving, but as it does, so do the rules of the game – either with the tide, or against it.
On the surface, European tech is thriving. Last year saw a record $19 billion invested in European start-ups, up from $14.5 billion in 2016. Ventures such as Rovio and Purple Bricks have gone public, while at the upper end more tech companies than ever before are entering unicorn territory. In terms of employment, the European tech industry is forecasted to see a 2.7% year-on-year growth in new hires, compared to an average of 2.1% growth in employment across other EU industries.
But the spectre of Brexit continues to loom over the industry. According to Atomico’s ‘State of European Tech’ report in November, 52% of European tech companies cited the UK’s triggering of Article 50 as the most concerning macro-event to have taken place over 2017. The most common reason given was reduced investment, followed closely by obstacles to attracting and hiring talent. 27% of tech start-up founders in the UK were found to be less confident about the future of European tech, compared to just 10% across the rest of Europe.
As negotiations between the UK and the EU trudge along secretly behind closed doors, uncertainty over factors such as access to European Single Market make it increasingly difficult for entrepreneurs to predict what kind of economic environment the future will hold for their ventures. Given both this political uncertainty and the prospect of restrictions on migrant labour, Britain saw the number of start-ups fall by 5.5% from 2016 to 2017, according to DueDil research – the first year-on-year decline in over a decade. As a result, there is speculation that the prevalence of London’s ‘tech-hub’ status in Europe may be challenged, with Germany seeing an 88% rise in the number of start-ups pioneered across the same period. Political developments in the UK are likely to have considerable ramifications on the rest of Europe, given its status as both the dominant destination and dominant source of migratory tech talent.
There are many, however, who argue that Britain’s withdrawal is not as consequential as industry professionals fear. EY partner Peter Lennartz told the Financial Times that he believed Brexit was yet to have a ‘notable impact’ on recent German prosperity – something that, he perceives, has been driven by factors such as already businesses like HelloFresh and DeliveryHero deciding to go public. Moreover, in spite of political uncertainty, the Eurozone economy grew at its fastest pace for a decade in 2017, indicating a healthy environment for new start-ups to enter the market in the rest of Europe with confidence.
Last year also appeared to bring good news for European tech in the form of Emmanuel Macron. The President of France, who saw off nationalist Marine Le Pen in the elections in May, has committed to investing heavily in the technology sector. Indeed, France accounted for 20% of all European investment in tech start-ups last year, up from 13% to equal Germany’s share, both of who trail only the UK. This has injected a burst of optimism into the veins of French entrepreneurs, with President Macron’s liberalising market reforms combined with evidence of increased investment on the instability that the UK faces from its political endeavours.
For all the investment that has been channelled into tech entrepreneurship in Europe over the last year, however, there have been some notable legislative blows. TfL’s refusal to renew Uber’s contract in London in October 2017 represents a common threat to the emergence of new tech start-ups in major European cities. This is partly self-inflicted; with tools such as ride-sharing apps enabling for increased individual liberty and autonomy, there arise questions of safety and security as a result of reduced regulation. This is something that budding start-ups must take into consideration if they are to be welcomed with open arms.
Moreover, this hostility to tech entrepreneurship may also damage the industry in repelling that same future generation who will pioneer the Skypes, Spotifys and Zalandos of the future. A society that embraces innovative companies such as Uber contributes to a vibrancy and dynamism that makes cities such as Berlin, Paris and London so attractive for young entrepreneurs to live in, and can help counteract the tech world’s struggles in attracting top talent, particularly in the wake of Brexit.
While the ecosystem of European tech is undoubtedly healthy in spite of the political earthquakes of the past year, the industry is certainly no more immune than any other – it depends crucially on the free movement of labour across the continent. A mass rebalancing of the power dynamic may certainly be on the cards, shifting dramatically away from a UK and towards the fronts posed by Germany, France and an increasingly prosperous Eurozone, hungry for what the future holds.