Fintech Town Hall Swings From Hope to Fear as Brexit Sinks Inby
London firms worried investment will dry up amid uncertainty
Industry to lobby for single market access and free movement
"It sucks," said Mike Laven, when asked to express his feelings about Brexit in one word.
Laven, the chief executive officer of Currency Cloud Ltd., a London-based firm that processes online cross-border payments, was speaking alongside other entrepreneurs Thursday afternoon inside the meeting hall on the 39th floor of One Canada Square in London. More than 100 fintech entrepreneurs, venture capitalists and government officials had gathered to discuss how Britain’s decision on June 23 to quit the European Union would impact their industry. Asked to express their feelings about Brexit in one word, a panel of startup founders that included Laven let it rip.
"Opportunity," said one. "Sadness," said another. "Uncertainty," added a third.
Laven’s quip got a laugh but this is a nervy time for the U.K.’s fledgling fintech sector. Buoyed by its role as the world’s top international banking center and a freewheeling vibe that attracts talent from everywhere, London has become Europe’s hothouse for financial technology startups. Investors pumped $962 million into British fintech firms last year, which dwarfed the sum in other European nations, according to New York-based research firm CB Insights. Lenders that used to dismiss fintech players as too marginal are now joining forces with them in places like Level39, the financial technology accelerator in London’s Canary Wharf banking citadel where yesterday’s meeting took place.
Fintech leaders have been scrambling to understand what losing their connection to the EU will mean for their growth plans, and what they should be doing about it. Lawrence Wintermeyer, the CEO of Innovate Finance, a trade group that sponsored the gathering, said the industry’s top priority was lobbying the government to preserve two crucial measures: unfettered access to Europe’s single market through a process called "passporting," and the ability of EU citizens to easily come to work in the U.K. With a new prime minister not expected to take control until September, and months of negotiations with Brussels to follow after that, Wintermeyer is concerned that a long period of limbo will prompt angel investors and VCs to look elsewhere for opportunities.
"People are looking at us and saying, ‘this doesn’t look like a great place to invest,’" he said. "That’s the sentiment we have to address."
London’s rivals agree, and some have wasted little time trying to lure tech firms away. On Tuesday, a van sporting a billboard reading, "Dear start-ups, keep calm and move to Berlin," was seen driving around the streets of London’s financial districts. Germany’s liberal Free Democratic Party was behind the stunt.
Startup chiefs, for their part, shared at the meeting Thursday how they are suddenly weighing decisions they never thought they’d have to make, such as whether to move operations to the Continent.
Taavet Hinrikus, the co-founder and CEO of TransferWise Ltd., tweeted last week that Swiss and Irish officials have made overtures to the startup. Clare Flynn Levy, the founder and CEO of Essentia Analytics Ltd., which makes behavioral analysis software for investors, said most of her team don’t hold U.K. passports. "If EU citizens are no longer free to work in the U.K., there’s a good argument for us to move somewhere where talent can move more freely," she said.
Some, such as Currency Cloud, are even contemplating potential strategic shifts to the U.S. and Asia.
Jeff Lynn, the co-founder and CEO of Seedrs Ltd., a crowd-funding platform, said he’d spent the last couple of weeks huddling with employees, customers and investors. While he’s relieved that Seedrs applied for a license in an EU country before the vote, he’s irked at being forced to put his short-term growth strategy on the back burner.
"We’re going to do everything that is necessary to sort everything out the best we can," Lynn told the session. "But the fact is that I’ve gone from playing offense to playing defense."
"I couldn’t agree with that more," said Damian Kimmelman, the co-founder and CEO of DueDil Ltd., a London firm that provides online access to company data. "Brexit has affected every single part of my business."
Others cautioned against giving into the gloom. Rachel Kent, a lawyer at Hogan Lovells in London who represents major banks, told the gathering that it wasn’t hard to set up an authorized subsidiary in Germany that would bestow passporting rights. A firm would have to do more than rent a mailbox and a brass nameplate, Kent said. It must establish a board and a management team. But it could then outsource its daily operations back to headquarters in London. "There’s no need to panic," Kent said.
Entrepreneurs shouldn’t fret that British banks are going to slash their fintech investments because they’re so whipsawed by Brexit, said John Egan, a senior director with Anthemis Group, a venture capital firm. Lenders are under enormous pressure to cut costs by upgrading their aging information technology systems. "There is a flood of corporate capital coming into fintech, and Brexit will not stall it," Egan told the meeting.
While many London fintech enterprises may weather the coming tumult just fine, Seedrs’ Lynn said Brexit jeopardizes something deeper -- the matrix of relationships between entrepreneurs, investors, bankers and regulators that’s made London a prime destination for creating innovative businesses.
"These last few years we’ve been building an ecosystem," Lynn said. "But now we are in for a long and choppy period, and it’s just sort of sad that something we’ve all worked so hard to build is going to be deflated."