Small window for UK start-ups to capitalise on investment opportunities
17 February 2020
Despite rising investment, Brexit and growing interest from tech giants could cut off start-ups’ opportunities in 2020.
Investment in UK tech start-ups grew at 44 percent to £10.1bn in 2019. 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. But businesses need to be aware that they may only have a short window to attract investors.
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 grow they become more attractive for technology giants such as Apple or Facebook to invest in. This means that 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 legal firm 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."
Segal adds: "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.”
It's becoming harder to differentiate products and services. As a result, attracting investment to new ideas means that start ups need to demonstrate value through talent, professionalism, and showing a clear path to profitability. This means having skilled personnel in place and being able to point to an experienced management team. It also means making certain that workforces 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. They can do this by ensuring they apply for settled status and providing advice on obtaining endorsement by Tech Nation under the Global Talent visa route. UK based companies must 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 understand 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 not the time for complacency, however. While investment is increasing, it is not infinite. Start ups need to show that they have prepared themselves to succeed with the talent, the professionalism, and the right attitude to advice. If they don't then they will soon find themselves losing out to better prepared competitors.
Employment is a key area. Organisations such as industry bodies need to lobby to ensure clear and favourable post-Brexit immigration and employment laws are in place. Without these planning becomes impossible. Segal puts it like this: “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 a flow of talent in a seamless and orderly way."
The UK Government is keen to attract highly skilled tech talent to the UK. In light of Brexit and the new immigration system being introduced in the UK, it is critical that companies seek the right advice to ensure that talent mobility is not an issue.
Independent City law firm Fox Williams LLP was founded in 1989. The firm’s lawyers provide commercial legal advice to clients in a number of sectors, including fintech, technology, financial services, professional partnerships, travel, fashion and natural resources.