In 2015, 500 Startups Partner Matt Lerner joined the firm so he could lead the London-based Distro Dojo, a growth marketing boot camp/think tank that helps early-stage startups scale up for their next round. When he took the reins, Lerner had many expectations, but the notion that 51% of British voters would soon vote to leave the European Union was not one of them.
The UK’s relationship to the EU has been ambivalent for decades, but that hasn’t stopped London from becoming a hub for European startups, said Lerner. Like Silicon Valley, London has access to sufficient money, talent and experience to sustain a startup ecosystem. Brits haven’t imported California’s sunny optimism, Lerner said, but “they have always embraced and celebrated failure.”
The UK and the EU have a couple of years to figure out the political and economic ramifications of Brexiting, which leaves plenty of room for fear, doubt and speculation. Gloom-and-doom headlines forecast recession, thousands of immigrants (like US-born Lerner and his German wife) are wondering about their legal status, and some pundits have started to wonder about the pound’s status as a reserve currency.
Is it accurate to say that uncertainty over Brexit also comes with a fair amount of hype?
Do you have a clear sense of what’s going to change for you?
Short term, investors don’t like uncertainty. You saw how the stock market got rattled, and I have seen a few people sort of trimming their exposure. I say that anecdotally. A few founders have told me that someone has dropped out of a round here or there, or that they’re unable to close a round because of Brexit.
Your Distro Dojo portfolio is tied to the almighty dollar, which bodes well, I presume.
As an investor, I believe that saying, ‘you should be greedy when others are fearful, and fearful when others are greedy.’ My attitude is, we’re investing out of a US fund, so if the pound gets weaker, then we get more company for our dollar.
— Matt Lerner (@matthlerner) November 12, 2015
Any other upsides from Brexit and the disruptions it’s creating?
If there are fewer VC at my stage in London, then I’ll get access to more and better investments at lower prices, so for me, this makes me optimistic. At this point, nothing’s changed that would make these companies less investable.
For startup founders who are deciding whether to launch in London or Dublin, what would tip a person towards the UK?
That’s the long-term question. You need talent, you need money, and you need customers. In terms of talent, UK immigration policies are a big unknown. Right now, any European can move to the UK, no problem. What they could do is move to a merit-based system like the US has, where you can move from anywhere to the UK, but you need to be talented, you need to be successful.
That might be better for startups, in the sense that you have more of the best and brightest from China, India, and from all over the world. That could mean more of the highest caliber talent, which would be good. You’d get less cheap labor, but startups don’t tend to use cheap labor in the UK anyway.
What’s the impact on startup funding in the UK, post-Brexit?
It’s much easier for startups to get funding than anywhere else I know of in Europe. There’s truly a lot of money in the UK, and people move their money into sterling because it’s a bit of a reserve currency. A lot of it is made available to startups through some very generous tax incentives for early-stage startups. Right now, the easiest place to raise money is the UK.
Is it just a language and culture issue? Why is the UK so startup-friendly?
The legalities of incorporating and raising money is very easy to do in the UK; I’ve invested in Irish, French and German companies, and it’s a lot harder. As a VC, all things being equal, you’d rather put your money in a place where everyone’s going to spend less money on legal fees. Things will happen there.
What about access to customers post-Brexit? How will leaving the EU impact startup growth and customer acquisition?
That’s a bit more concerning. Today, as part of the EU, the UK’s got instant, automatic access to all of the European markets, as well as any markets it’s negotiated trade agreements with. If they leave the EU, they’l have to find and negotiate new trade agreements.
Where else might a European startup founder go besides London and Dublin?
You’ve got startup hubs in Stockholm, Lisbon and Berlin. It’s not like Silicon Valley, where if you want to leave, there are no viable alternatives for thousands of miles. Get on a flight in Dublin, and you can be in Berlin in an hour. Talent is super mobile these days.
One company we’ve invested in, they’re British incorporated, but they’re based in Berlin, because you can get better, cheaper talent there. It’s a fairly trivial thing at an early stage to move a company.
When you talk to other UK tech investors, what’s the mood?
Everything is wait and see. People are watching their customers and their numbers to see how things go. We don’t have too many companies at this level that depend on trade agreements at the moment. And talent is very pragmatic day to day; a lot of times, they’ll just hire someone who’s remote in another country, anyway.
You haven’t made any long-term predictions.
Long term, I am pessimistic. The UK is a net exporter, and like most countries, they generally tend to benefit economically from immigration. Brexit can hurt both of those things; it weakens the pound and reduces its appeal as a reserve currency, which will lead to a net outflow.
We’re getting into macroeconomic theory, but on balance, my prediction is pessimistic. I just think we’re moving so quickly.
More on Distro Dojo:
- 500 Startups Announces First “Distro Dojo” Growth Program based in London
- Inside the London Distro Dojo
- Announcing the 2016 Distro Dojos