As the CEO of a FinTech start-up, I’m used to dealing with threats to the existence of my company. It’s the nature of the business that you have to fight for survival. - Factors are out of your control, whether that’s incumbents trying to eat your lunch, or VCs pulling funding.
Clearly, we have no control of the outcome to the EU referendum either. Fretting about the UK's decision is futile, but there will be implications for London’s FinTech scene, which experienced huge growth in 2015.
Venture capital funding is the lifeblood of small FinTech start-ups. VCs want to fund a business with significant growth potential. Inevitably, this implies international expansion at some stage. The UK has attracted significant outside investment in recent years from its position as a gateway to Europe. A number of prominent VCs have already weighed in on the decision, many advocating a “business as usual” approach for entrepreneurs. That said, an elephant in the room with the proportions of Brexit will at the very least need to be acknowledged by any founder currently in a fundraising cycle.
The free movement of people is a huge benefit for fintech firms. We want to hire the best people, regardless of geography and movement between EU states is a huge enabler of this. Our accelerator, Entrepreneur First, has 25% of its candidates coming from the EU. I’ve experienced the pain of trying to get a H1-B visa in the U.S. – something Silicon Valley firms have to grapple with. Now we’re on the other side of the table, having access to the wider pool of talent has been a huge advantage. Hiring could be getting tougher.
In the UK, the financial regulator has been a friend of FinTech start-ups. The FCA has unveiled growth initiatives like Project Innovate and, more recently, the Regulatory Sandbox. In the last year alone we’ve seen banking licences issued for digital-only banks and even regulatory bridges established to new markets like Singapore.
Since the 2008 financial crisis much of EU regulation has moved from directives (implemented directly by member states) to EU-wide laws. In a recent talk, Catriona Lothian, formerly of the FCA and an expert in financial regulation pointed to the potential “vacuum” that could result should the UK leave the EU. Filling this vacuum will not only take significant time, but may also bring an end to the interoperability of authorisations between EU member states. New and existing beneficiaries of such “passporting” may see the UK as a less attractive basecamp as a result. Taavet Hinrikus, co-founder and CEO of TransferWise has already hinted at their intention to leave the capital for precisely this reason.
Uncertainty is the overriding state now. However, there's no material change for us immediately. We can continue to hire, raise funds and collaborate with our neighbours in Europe.
In many respects, being a start-up helps. We have the flexibility of being, 'agile, lean, disruptive' (and any other adjective in the start-up lexicon). This makes well equipped to deal with a rapidly changing environment. This could be an advantage post-referendum - larger firms will struggle to innovate under the burden of the changes. I still believe that the entrepreneurial community will adapt to whatever changes the Brexit will bring and it will be a test of our ability to really innovate.
Freddy Kelly is co-founder and CEO of Credit Kudos, an alternative data platform for the credit industry. After completing a B.Sc. in Computer Science at the University of Manchester, Freddy moved to San Francisco to join the engineering team at Bitnami (YC W13). Prior to founding Credit Kudos, He was the first engineer at A16z-backed TXN, developing their transaction analytics platform.
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