What Brexit could mean for Bri­tish tech — and Bay Area

San Francisco Chronicle - - BUSINESS REPORT - By Jeremy Kahn and Adam Satar­i­ano

The last­ing im­pact of the United Kingdom’s vote to break with the Euro­pean Union won’t be known for years, but the shift has im­me­di­ate ram­i­fi­ca­tions for the global tech­nol­ogy in­dus­try, in­clud­ing Bay Area firms like Ap­ple, Face­book and Al­pha­bet that have large of­fices in Bri­tain. There are a few is­sues to be par­tic­u­larly mind­ful of.

Hir­ing work­ers: Tech­nol­ogy companies in Bri­tain may no longer ben­e­fit from the free flow of peo­ple be­tween EU coun­tries.

Al­pha­bet, Ama­zon.com, Ap­ple, Face­book and other tech giants have built large of­fices in Bri­tain, in part as Euro­pean hubs to re­cruit en­gi­neers and other em­ploy­ees from through­out the re­gion. Young tech­nol­ogy companies also have re­lied on the re­gion’s im­mi­gra­tion poli­cies.

Ac­cord­ing to Tech London Ad­vo­cates, an in­dus­try group for the area’s tech­nol­ogy sec­tor, roughly 1 in 5 London tech work­ers is an EU na­tional and roughly a third are from over­seas. Tech companies might con­sider mov­ing their head­quar­ters to some­where in the EU if im­mi­gra­tion rules be-

come too dif­fi­cult.

Son­ali De Ry­cker, a part­ner at Ac­cel Part­ners, a global ven­ture cap­i­tal firm with a large Euro­pean port­fo­lio, said that the abil­ity of Bri­tish star­tups to “hire di­verse tal­ent lo­cally” was in ques­tion fol­low­ing the Leave vote. She said though that for young companies, their abil­ity to in­no­vate and ex­e­cute was more im­por­tant than where they are based.

ARM Hold­ings Plc., a chip­maker whose de­signs are used in the vast ma­jor­ity of the world’s smart­phones, has said that it’s watch­ing care­fully to see what sort of rules Bri­tain ul­ti­mately en­acts con­cern­ing visas for EU work­ers “as we em­ploy ap­prox­i­mately 200 non-Bri­tish, EU cit­i­zens at our Cam­bridge head­quar­ters.” No longer a tech hub? One ma­jor sell­ing point for London tech companies is that they can sell to the 550 mil­lion con­sumers through­out Europe, an ad­dress­able mar­ket larger than the U.S. It is no longer clear whether Bri­tain will con­tinue to be the right place from which to ac­cess the Euro­pean mar­ket. In­vestors may start won­der­ing if it makes more sense to put money into other Euro­pean startup hubs.

“The un­cer­tainty may push more money into other ma­jor hubs like Germany and Tel Aviv,” said Mark Tluszcz, the co-founder and chief ex­ec­u­tive of­fi­cer of Man­grove Cap­i­tal, a London ven­ture cap­i­tal firm with $750 mil­lion un­der man­age­ment. Tluszcz said, how­ever, that he thought London would con­tinue to pull top tech tal­ent from Europe and be­yond be­cause it’s “one of the hippest and most di­verse cities in the world.”

Star­tups have al­ready said that the un­cer­tainty lead­ing up to the Brexit vote was mak­ing it harder to raise money from in­vestors. Mean­while, promis­ing Bri­tish star­tups in­clud­ing mon­ey­trans­fer­ring com­pany Trans­fer­Wise and dataser­vice DueDil have said they will ex­pand in other E.U. coun­tries if Bri­tain de­cided to break away.

“There’s a risk that some of these busi­nesses will leave,” said Russ Shaw, the founder of Tech London Ad­vo­cates. “Things are go­ing to be in flux for a while try­ing to un­der­stand what all this means.”

IPOs: Chaos in the global mar­kets is not an en­vi­ron­ment that makes in­vestors ea­ger to buy shares in an ini­tial pub­lic of­fer­ing. Any tech­nol­ogy startup con­sid­er­ing an IPO will likely wait to see how the tur­moil fol­low­ing the Brexit vote shakes out.

There has al­ready been a dearth of list­ings this year and the Bri­tish vote will only ex­tend the lull. Euro­pean telecom­mu­ni­ca­tions com­pany Tele­fon­ica SA is said to be post­pon­ing plans to sell shares of its in­fras­truc­ture unit Telx­ius and Bri­tish wire­less unit O2.

Im­pacts have been felt else­where in the world, with Line Corp., Ja­pan’s most pop­u­lar mes­sag­ing ser­vice, plan­ing to de­lay the set­ting of a price range for its ini­tial pub­lic of­fer­ing as a re­sult of the Brexit vote.

Data pro­tec­tion: The Leave vote opens up po­ten­tial headaches for any­one con­cerned with data pro­tec­tion. Bri­tain will need to ne­go­ti­ate new data shar­ing ar­range­ments with both the Euro­pean Union and the United States.

Right now, Bri­tain’s data pro­tec­tion rules are in line with the Euro­pean Union’s Data Pro­tec­tion Direc­tive, but that reg­u­la­tion is likely to be re­placed with a much more strin­gent Gen­eral Data Pro­tec­tion Direc­tive by 2018. In or­der to con­tinue to move data freely be­tween Bri­tain and Europe, Bri­tain will have to prove it of­fers equiv­a­lent lev­els of pro­tec­tion. This will re­quire changes to Bri­tish law, said Jane Fin­layson-Brown, a part­ner spe­cial­iz­ing in data pro­tec­tion is­sues at the law firm Allen & Overy.

Mean­while, the U.S. and Euro­pean Union just ne­go­ti­ated a new Pri­vacy Shield Agree­ment to gov­ern data trans­fers be­tween the EU and the U.S. This was nec­es­sary to re­place the so-called Safe Har­bor Agree­ment, which Europe’s top court struck down last year. Bri­tain will no longer be cov­ered by Pri­vacy Shield and so will have to ne­go­ti­ate its own data shar­ing treaty with the U.S.

Many companies, Fin­layson-Brown said, may opt to shift their data pro­cess­ing cen­ters to the EU since companies must choose an EU coun­try as their “main es­tab­lish­ment” to com­ply with the new EU data pro­tec­tion di­rec­tives. She said companies that might have opted to main­tain Bri­tain as their main data pro­cess­ing cen­ter for Europe will no longer have that op­tion.

Fi­nan­cial ser­vices: The sec­tor’s star­tups have been the crown jewel of Bri­tain’s tech­nol­ogy scene. Many of their growth strate­gies counted on their abil­ity to use reg­u­la­tory ap­proval in Bri­tain to sell ser­vices through­out the EU. This abil­ity to “pass­port” reg­u­la­tory ap­proval from Bri­tain to any EU coun­try will no longer be the case af­ter Brexit, so Bri­tish fin­tech companies will have to get reg­u­la­tory ap­proval from an EU ju­ris­dic­tion as well as from Bri­tish reg­u­la­tors.

Mike Laven, chief ex­ec­u­tive of­fi­cer of cloud­based pay­ments plat­form Cur­ren­cy­cloud, said ahead of the ref­er­en­dum vote that it was al­ready tak­ing steps to be­come reg­u­lated in an­other EU coun­try as a hedge against Bri­tain leav­ing the 28-na­tion bloc. Be­cause this can be a time­con­sum­ing and ex­pen­sive process, it may put Bri­tish fin­tech firms at a sub­stan­tial dis­ad­van­tage com­pared to ri­vals based within the EU.

“The har­mo­niza­tion of fi­nan­cial reg­u­la­tion is a huge, huge as­set to Bri­tish fi­nan­cial ser­vices firms,” said Tom Blom­field, co-founder of Mondo, a startup fi­nan­cial ser­vices com­pany cur­rently ap­ply­ing for a bank­ing li­cense in Bri­tain, in an in­ter­view just ahead of the ref­er­en­dum vote.

Brick­Vest, a 10-per­son London startup that of­fers re­tail in­vestors the abil­ity to ac­cess com­mer­cial real estate deals, said that it will move its head­quar­ters to ei­ther Paris or Ber­lin.

“Con­ti­nen­tal Europe is our key mar­ket,” said Thomas Sch­nei­der, Brick­Vest’s chief in­vest­ment of­fi­cer and one of three co-founders. “We need to be in Con­ti­nen­tal Europe from a reg­u­la­tory per­spec­tive.”

Sch­nei­der said he and his co-founders were look­ing at Ber­lin, be­cause it of­fers cheaper costs and many of Brick­Vest’s real estate deals are in Germany, or Paris, be­cause France may of­fer an eas­ier li­cens­ing process and reg­u­la­tory frame­work than Germany.

Sch­nei­der said that Brick­Vest would likely keep a small satel­lite of­fice in Bri­tain to serve Bri­tish and Asian in­vestors.

Bri­tain’s govern­ment has in­vested time and money to de­velop a tech­nol­ogy scene to sup­ple­ment the coun­try’s fi­nance sec­tor. The vote threat­ens the re­sults of that ef­fort, as companies and in­vestors ques­tion whether the coun­try is the global hub its lead­ers have tried to es­tab­lish.

Frank Augstein / As­so­ci­ated Press 2015

A London Ap­ple Store cus­tomers takes a selfie with the staff. The stores will still be around, but other things may change.

Vir­ginia Mayo / As­so­ci­ated Press 2012

Companies like Google’s par­ent, Al­pha­bet, are still pro­cess­ing the im­pact of the Bri­tish vote.

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