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Why tech startups should not feel threatened by a Brexit

brexit

Chirag Shah, CEO of Nucleus Commercial Finance, explains why tech startups in the UK will not be affected by a Brexit.

In the years before the turn of the millennium, there was widespread panic over something the media called the “Y2K bug”.

Computers would fail, electricity grids would shut down, and the world would be plunged into uncertainty and chaos.

Then the clock struck midnight on New Year’s Day – and precisely none of that happened. The bug was, for the most part, fixed rather easily: there were no power outages, no food shortages, and life went on more or less as it did before.

In Britain, we are currently facing a similar situation – albeit on a much smaller scale.

Each side of the upcoming EU referendum has become frenzied, and dominated by controversial, outsize figures: Leave’s Boris Johnson and Remain’s Peter Mandelson being only two examples.

Naturally, both sides believe that voting their way will be better for small businesses and the UK’s burgeoning tech sector, and that voting the other way will lead to unmitigated disaster.

They can’t both be right – so what’s an undecided SME owner to think?

The Brexit business dispute

The first priority for an SME owner should be to sift through the arguments and weigh them on their relative merits.

The Remain campaigns believe Brexit will be a catastrophe for UK enterprise.

It’s often argued, for example, that it will stifle trade. It’s not entirely baseless – around 45% of British exports are to EU nations – but nor is it as bad as all that.

Even if we do leave the Free Trade Zone, there is no suggestion that we will cease dealing with EU countries, and there are ample trade opportunities elsewhere that we may be neglecting: we do not, for example, have any significant arrangement with China at the present moment.

Meanwhile, the various Leave campaigns talk loudly and vociferously about “fat cats in Brussels” imposing “red tape”, and they’re also not wholly wrong.

Nineteen finance ministers across Europe, our very own George Osborne included, have written to the European Commission to complain about the EU’s business regulations, and Google’s Eric Schmidt has openly claimed that they harm innovation.

But Husayn Kussai is not wrong when he claims that leaving would cause administrative and regulatory difficulties for the considerable number of companies which import European talent.

Where tech is concerned, the fact that none of the UK’s 14 “unicorn” startups have come out in support of Brexit (most are neutral; five back remain) and some have threatened to move their headquarters would indicate that EU membership has some perceived value to one of our most valuable markets.

Some entrepreneurs even describe it as “killing the golden goose”.

Why small businesses needn’t panic

Both Remain and Leave make salient points about the impact of Brexit on business, but they couch them in overcooked political rhetoric that is largely divorced from the day-to-day realities of your average entrepreneur.

The EU can be, in some respects, an expensive regulatory maze, but it also offers some undeniable benefits; equally, while trade will most likely be affected by Brexit, it’s absurd to suggest that it will cripple UK enterprise.

The blunt truth of the matter is that it’s not actually a choice between utopia or dystopia.

No matter the referendum’s outcome, it will be business as usual for the country’s tech companies.

In the event of a renewed relationship with the European Union, or in the event of a Brexit, the song will remain the same.

Why? Well, put simply, businesses only ever fail when they run out of money – and whether we leave or remain, their lines of credit will remain wide open.

British businesses rely heavily on finance, and plenty of it will still be available.

European banks have limited influence on SME lending: most opt to use local retail banks or government funding.

Where the former are concerned, tech entrepreneurs need not be unduly anxious.

Amidst this uncertainty, one bank has already committed to lend £10bn in small business loans, and even if others do not follow suit, alternative finance providers will be more than happy to bridge the gap – they provide £5bn of funding to UK SMEs as it is.

Finance is naturally not the only thing that afflicts small businesses, but when both the Leave and Remain camps talk about things like the potential impact on sterling and growth, they act as though they are permanent and irreversible.

The economy is affected by a great many things – geopolitical tension, the housing market, even the weather – and any downturn will be temporary, and hard to attribute to Brexit exclusively.

The more things change…

It may not be particularly interesting to say that things are likely to continue as they always have, but it’s the truth.

“It’s a nil-sum game”, says hedge fund manager Neil Woodford. “Whether we stay or leave, the fundamentals of the economy will be relatively unmoved.”

He’s not wrong. British enterprise had a long and proud history before there was a European Union, and it has coped quite capably since it joined the economic community.

What’s your take on Brexit? Let us know in the comments section below:

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