While a burgeoning tech industry, education and the value of the pound have made UK tech start-ups an attractive target for investors outside the UK – with investment in UK tech start-ups growing 44 percent to £10.1bn in 2019 – businesses need to be aware that they may only have a short window to attract investors, city law firm Fox Williams LLP has warned. With a large proportion of investment dependent on the talent in place at start-ups, an inability to attract and keep the best and brightest talent post-Brexit could turn away investors. At the same time, as markets such as FinTech grow, they become more attractive areas for technology giants such as Apple or Facebook to invest in – meaning start-ups may only have a limited time to grow before their market is taken over.
“London’s position as the number one destination for tech investment in Europe isn’t guaranteed for ever,” said Jonathan Segal, Partner at Fox Williams. “While the value of the pound and the fact that businesses, talent, regulators and investors are all clustered in a single city help make London start-ups attractive for investment, it is quite possible that this will change. At present, UK start-ups are seen as a low-risk investment. Yet changes to the sterling exchange rate, or to immigration and employment laws that make it harder to attract and keep talent, could change this. Start-ups and growth companies will need to ensure they are doing all they can to attract investment; understand where their funding is coming from; and have both a clear final goal and a route mapped out.”
As it becomes harder to differentiate and attract investment by creating a never-before-seen product or service, so start-ups need to demonstrate their value through their talent, their professionalism, and by showing a clear path to profitability. This means not only having skilled personnel in place and being able to point to an experienced management team, but making certain that they will not be negatively affected by any changes in immigration law.
Fintechs will want to help EU citizens already present in the UK and arriving in 2020 to stay long term by ensuring they apply for settled status, providing advice on obtaining endorsement by Tech Nation under the Global Talent visa route and ensuring that UK based companies apply for a sponsor licence if they plan to recruit from overseas from 2021.
At the same time, start-ups need to demonstrate that they are taking the right advice. For example, most law firms will have a tech practice that can advise start-ups. However, for those in specialised sectors such as FinTech it is essential to employ advisers that also have financial services expertise.
As well as demonstrating their value and professionalism, start-ups need to know who is funding them, and ensure they have done relevant due diligence. The right advice will again be critical here, to ensure that regulators do not veto any investment in, or takeover of, any regulated business in the financial services sector, in particular FinTechs. Yet even if everything is clear from a regulatory perspective, start-ups need to be confident that they are completely happy to be funded by an investor, and have not missed any factors that might damage their reputation.
“This is no time for complacency,” continued Jonathan Segal. “While investment is increasing, it is not infinite. FinTechs and other start-ups that cannot show that they have prepared themselves to succeed with the talent, the professionalism, and the right attitude to advice will soon find themselves losing out to better prepared competitors. At the same time, organisations need to lobby for the support they need – such as ensuring clear and favourable post-Brexit immigration and employment laws are in place so they can plan as appropriate.”
“Businesses should consider seeking strategic immigration advice at an early stage, to help ensure they can recruit the talent they need into the UK,” added Segal. “It’s vital that employers in the tech space are aware of and adhere to the correct processes and systems to ensure that the business is able to manage flow of talent in a seamless and orderly way. The UK Government is keen to attract highly skilled tech talent to the UK and in light of Brexit and the new immigration system being introduced in the UK, it is critical that companies seek advice to ensure that talent mobility is not an issue.”