We are convinced UK remains the best place in Europe to build a global B2B software business and are determined to support our founders build great, iconic businesses. However, we know many people have questions they want answered after the UK voted to leave the EU so we have gathered speakers from across our network of Strategic Partners and Notion Experts for a Brexit Briefing to address key topics.
Introduction – Chris Tottman, Partner, Notion Capital
Many of us have lived, worked and survived through difficult times. Indeed, we sold MessageLabs to Symantec the week after the collapse of Lehman Brothers and got a good price (£397M) – even a price hike down – based on the fact that we’d built a good business, strong recurring, growing revenues and a desirable asset. Personally I’ve worked through the stock market crash of 87, the exit from ERM, 9/11 and the financial crisis. Many of you have been through similar challenges. Macro level or home-grown issues.
While there is a lot of understandable anxiety amongst all stakeholders – employees, partners, investors, customers – the one thing we can control is our response, which depends on our ability to think through issues and do something or nothing.
The one thing you can be sure of at times like these is that great leaders will come to the fore and extend their advantages over their competitors. That’s what excites me the most. – Chris Tottman, Notion Capital.
So what we are doing as Notion Capital is acting as a conduit to bring together experts from across our network to help, advise and guide us, our portfolio and the wider tech community.
We have assembled six advisors who will address some of the key issues and considerations we all face:-
- Stephen Lowery, MD Global Markets, SVB. Stephen will discuss implications for future investment;
- Gavin Jones, Head of Immigration, Osborne Clarke. Gavin will outline a couple of key actions and a few thoughts on how the immigration will play out;
- Chris Coughlan, Data Protection lead at Ashfords, will discuss the implications for data protection legislation;
- Daniel Glazer, Partner at Wilson Sonsini Goodrich & Rosati will give us his a view from the US, discussing ‘funding and flipping’; and
- Jim Selman, MD, Allison+Partners, a communications experts, will share a few thoughts on if / how to communicate to your employees and customers in light of strategy changes.
Stephen Lowery, MD Global Markets, SVB
Over 70% of the clients we surveyed in November 2015 said that Brexit would negatively impact their business. When we asked again in March 2016, 85% wanted to stay in the EU. Despite that, what strikes me most when talking to investors and clients is the resolve and resilience across the industry. Put simply, there is a determination to move forward and build for the future, and speaking personally I’ve never had more belief in the UK innovation economy.
Echoing Chris’s point above, we need to remember that the tech startup ecosystem thrives on disruption and change. And when there is change, the best companies are well placed to capitalise.
The message I would give to venture-backed companies is that performance will be even more crucial. Expect more focus on margins, unit economics and business execution. This is the time to double down on execution.
This is the time to double down on execution. – Stephen Lowery, Silicon Valley Bank.
There is a lot of ‘dry powder’ in the investment markets. Capital is there to be deployed – don’t forget that the Limited Partners (LPs) at venture capital firms need to be investing too.
Last week, we brought 15 top US VCs over to Dublin – some amazing conversations took place and the VCs were very much looking to deploy capital.
But, do start conversations earlier than before. Give yourself more time, expect more scrutiny and expect more focus on performance and results. Emphasis will be on building big businesses, in big markets, with strong underlying economics.
Gavin Jones, Head of Immigration, Osborne Clarke
The points I would want companies to be aware of and prepare for, would be that full freedom of movement is politically difficult to secure on the basis that immigration was a highly emotive subject prior to voting.
With that in mind, the first response to this is that as things stand nothing has changed. It is business as usual. However, in order to plan for Brexit, there are steps that can be taken now.
Current Employees: Look at your current non UK staff and consider who can now remain in UK as a matter of English law and can qualify for a UK residence permit. Typically, this accrues after five years in the UK as a “qualified” person. Find out when they first started working in the UK so that they can qualify their status as soon as possible. At present, applications of this type take 6 months to be processed. The closer we come to exit, more applications will be submitted and the longer applications will take.
Sponsors licence: Make sure you are in position to secure overseas workers with a sponsor’s licence. We have a points based system already and that process will be modified and expanded. It is therefore important to identify if there is a business case for securing a “Sponsor Licence” straight away. The number of licence applications will spike dramatically the closer we get to the exit and the Government is not good at dealing with those kinds of surges, so apply for a Sponsors Licence now and to make whatever applications are necessary to be in a good place.
Looking further ahead, we all believe government allow current residents to stay – it is very difficult to take away rights – and will make work permits readily available and not just for the highly skilled. We also expect them to open areas of the work permit for lower skilled / manual work.
Take action now. Create a register of all non-UK employees and apply for your Sponsors Licence. Gavin Jones, Osborne Clarke.
Chris Coughlan, Data Protection Lead, Ashfords LLP
The Information Commissioner’s Office (ICO) has always taken a pragmatic approach to data protection balancing the rights of individuals with the needs of business and we hope that will continue under any new post Brexit regime, especially with so much at stake and so much potential for confusion.
It’s important to start with the fact that the General Data Protection Regulation (GDPR) has been agreed and we now have two years to prepare for a completely new data protection regime which will be enforced across all member states from 25th May 2018. So no matter what, at that date the GDPR will apply organisations within the UK, either because the UK is still part of the EU or because those organisations are selling to EU citizens or monitoring the behaviour or EU citizens .
We have heard from various perspectives on different trading models:-
Norwegian model: We could adopt the Norwegian model, which is a member of the European Economic Area (EEA). We would most likely be required to implement the GDPR as is..
Swiss approach: Switzerland are part of the European Free Trade Area but they not members of the EEA, with a more remote partnership, relying on numerous bilateral agreements. Switzerland has not implemented the current European data protection regime and operates under its own data protection laws. Switzerland is however one of very few jurisdictions the European Commission has found to have an adequate level of data protection, and as a result data can flow freely between the EU and Switzerland. Many EU regulators are already of the view that the UK has implemented the current data protection regime, so it is likely that a Swiss approach would be troublesome for data flows.
Going it alone: We could implement our own data protection legislation which deviates from the GDPR, however in order to ensure that data continues to flow between the UK and EU this would need to reflect the GDPR otherwise we could find ourselves having similar difficulties to the “Safe Harbor”/”Privacy Shield” issues that the US is dealing with at the moment.
The ICO has stated that data protection reform remains necessary and is concerned that the necessary focus on Data Protection will be lost in the rush for the exit.- Chris Coughlan, Ashfords.
Clear laws are more critical than ever with the growing digital economy. No matter what happens we are working within the current data protection regime for the next two years and most likely under a version of the GDPR thereafter. It is essential that we use the next 2 years to prepare for what is a complete overhaul of data protection.
Daniel Glazer, Partner, Wilson Sonsini Goodrich & Rosati
Dan specialises in commercial, IP and technology matters, advising UK and European business on US matters.
Brexit vote doesn’t change the fact that UK is great place to start a tech company and US is a great place to expand. But, making irreversible HQ changes now – relocating to the US, doing the Delaware Flip – make less sense now than before.
However, if there was a rationale for US expansion before it is even stronger now. Not just because of a weaker currency. US investors and acquires make bets on long term changes – just think of DeepMind, SwiftKey and Magic Pony – but there are three things they always wanted and will want even more now:
- US traction
- US presence
- US plan
UK companies can do these three things well, while maintaining an efficient tax structure, which will be reducing to 17% or even 15% in the coming few years. Combined with a good regulatory environment, means that – at least for the time being, UK companies should remain UK companies. If need be you can flip the business further down the line, but like Brexit, you can never go back.
Go big or go home. – Daniel Glazer, Wilson Sonsini Goodrich & Rosati.
Think hard about going big or going home. That is the key takeaway from all this disruption. Good companies go global. So build your strong domestic core business, but build even stronger relationships to US or other large markets such as China, India or Japan. Global expansion is tougher. But the upside is huge.
Jim Selman, MD Allison+Partners, Communications specialists
The agenda has been run by the news media and that has taken the agenda in all sorts of direction, so be cautious and consider and show you can be a safe pair of hands by showing resolve, resilience, and credibility.
A clear narrative. Your stakeholders want to be reassured about the nature of you and your business. This is more about what you do and behave than what you say in the media.
Beware of the danger of being a ‘thought leader’ for the sake of a few headlines. – Jim Selman, Allison+Partners.
Be careful about jumping on the bandwagon. Sometimes it’s tempting to jump on stories and position yourself as a thought leader, but in the current situation that can be challenging so be careful and considered. Stick to common sense, rather than being outspoken or opinionated for the sake of it.
- What are the implications for R&D tax credits?
“The UK’s R&D tax credit scheme is funded by UK money and is not supported by financial contributions from the European Union – the incentive is still very much open for business and so, despite fluctuations in the financial markets, our message is still a positive one. Companies should still be claiming – in case businesses envisage cash flow difficulties in the next few months they should definitely consider R&D tax credits as a relatively quick source of funding. Looking further ahead, we’re confident that the government will continue to acknowledge the important role that R&D tax credits play in boosting innovation in the UK. And if we’re innovating, it means we are competitive in the global marketplace and a great place to do business.” Adam Kotas, R&D tax credit specialist, ForrestBrown.
- Implications for legal entities across Europe?
“We’re a deep learning start-up building teams in London and in the Netherlands. How does Brexit change recommendations, if at all, for structuring legal entities between the UK and Europe?”
In terms of structuring companies between NL and UK, nothing really changes. The same ramifications apply. Chris Dyson, Ashfords LLP.
US companies are more comfortable with UK and IE top cos than anywhere else in Europe – or rest of the world for that matter. The laws are perceived to be favourable. The tax is more efficient. And there are more lawyers to assist. Daniel Glazer, Wilson Sonsini.
- What about the rights of people who are currently residing in UK?
The Government has had an horrendous time back tracking on previously given rights, so we expect any EU citizen working in the UK will be able to stay without any problems. Gavin Jones, Osborne Clarke.
- Implications for Fintech?
“Should an FCA-authorised tech firm become dual-regulated in another member state? How long should we wait to see whether the UK government successfully negotiates the continuance of passporting, before we do look to other regulators to ensure we can continue providing services in Europe?”
This is clearly a major issue and concern for London and fintech as a whole, ranking alongside talent visas. We will identify some specialists to advise on this in our next Brexit Briefing.
Posted by Stephen Millard, Chief Platform Officer, Notion Capital.