Guest post by Anthony Lieu, Lawyer and Strategist at LegalVision
Three weeks on from arguably one of the most destabilising economic events in recent history, the global economy is still grappling to evaluate the repercussions of Brexit. There will inevitably be flow-on effects from the UK/EU membership referendum on Australia’s economy, including on Australian startups.
Below, we explore the impact of Brexit on Australian startups – in particular, its effect on capital flow, mutual investment and innovation exchange. While there may be short-term uncertainty, Australia’s tech ecosystem can capitalise on Brexit and the opportunities it presents.
Capital Flow
Brexit may have dented Venture Capitalist & Angel Investor optimism in Australia as they wait to see how the situation unfolds. In the interim, VCs and angels may be increasingly risk averse to injecting capital into new and untested businesses, particularly those looking to enter international markets where risk is much higher.
As such, startups may have to put more skin in the game and for a longer time than anticipated before they can raise capital. Alternatively, they may have to completely hold off plans altogether to raise if they are unable to sufficiently bootstrap, hence negatively affecting sector growth.
Investor sentiment is far more positive here than in the UK, where the startup investment industry is making more extensive portfolio reassessments. The overwhelming majority of UK tech startups (87 per cent according to a recent survey) were opposed to Brexit. Ultimately, the weak British Pound will likely result in more foreign investor interest in UK startups. Australian VCs and Angels should not only consider capital flow into startups based in the UK, but also look at the UK as a talent pool for Australia’s ICT skills shortage.
Mutual Investment and Innovation Exchange
Once the dust has settled, the removal of the European Union’s startup regulations and EU funding programmes may be especially conducive to foreign expansion. At present, Britain already has a friendly domestic regulatory environment for startups, with comparatively more funding available than in the United States. If the proponents of the Leave campaign are correct in their predictions, the UK will become a freer market due to greater independence.
Further, if UK startups face bigger hurdles in establishing in the EU, they may look abroad to establish their business – including opening up shop in Australia. As an added benefit, these startups could bring with them British capital and talent which will flow into the Australian economy. Coupled with Australia’s upcoming Entrepreneur Visa, this will further incentivise entrepreneurs to start their businesses in Australia. Indeed, Brexit might deter Australian startups from establishing a central European base in the UK. Australian startups headquartered in the UK may also struggle to hire local talent – most of which is sourced from the EU.
Key Takeaways
Startups are inherently adaptive and will likely weather these disruptive markets. They may, however, fare worse than larger companies with access to greater capital reserves. Moreover, as early stage businesses, they may not yet be sophisticated enough to contend with the complex regulatory scenarios to arise from Brexit. As such, startups should not be hesitant in seeking the external consultancy services and lawyers available to them.
Importantly, the process to leave the EU may take several years. As such, predicting Brexit’s impact on the commercial landscape is mostly speculative until we can accurately gauge its full impact in the coming months.
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Anthony is a lawyer and Strategist at LegalVision. He has a keen interest in startup law, IT law and scaling fast-growing businesses. He has a strong understanding in how startups operate at all stages and navigating the myriad of legal issues surrounding online businesses. He has worked in the public and private legal sector, specialising in disputes and litigation, corporate advisory and tax controversy.