Brexit could force Silicon Valley to rethink plans for Europe

The venture capitalists and entrepreneurs who populate Silicon Valley say they love to take risks. But the Brexit might just be a little too much for them.

Tech firms wanting to do business in Europe see in London not only a hub for talent but also a gateway to the continent. But given the United Kingdom’s decision to withdraw from the European Union, investors might think twice about writing checks for British startups that can no longer freely move employees and equipment throughout the 28-nation bloc without having to obtain visas.

“The Brexit erodes London’s primary competitive advantage,” said Andy McLoughlin, a partner with SoftTech VC, a seed stage investment firm in Palo Alto.

In fact, London tech firms may instead want to move to Berlin or even Silicon Valley, said McLoughlin, who previously co-founded an enterprise software company in London called Huddle.

For London startups, the Brexit will make the already tight market for tech talent even worse, said Michael Balsam, vice president of the Outsell consulting firm. These companies will face a tough time recruiting employees who can’t freely travel throughout Europe, he said.

“Talent becomes a challenge,” Balsam said.

In some ways, Britain leaving the EU is akin to Silicon Valley withdrawing from the United States.

The EU wants to create a “single digital market” where European startups can quickly scale up, the same way a startup in Mountain View can instantly start selling products and services throughout the United States, said Mark Webber, a partner with the Fieldfisher law firm in East Palo Alto.

Under the rubric of a “digital single market,” Europe has sought to craft uniform rules that protect intellectual property, safeguard consumer data, eliminate mobile-phone roaming charges and end country-by-country restrictions on such content as movies and TV shows.

The European Commission estimates that eliminating the remaining barriers to online services among the EU nations — a market of 500 million people — could add $470 billion to the European economy. The Brexit, however, will likely endanger the integrity of a digital single market.

In addition, the United States has been negotiating a massive trade and investment treaty with the European Union in the spirit of the Trans-Pacific Partnership deal that the Obama administration recently inked with 11 Asian countries. Britain’s withdrawal from the EU means the United States will have to craft separate deals with Europe and the United Kingdom.

Things just got a lot more complicated.

However, companies are unlikely to abandon London in droves, Webber said. The capital is still a world-class city with a strong financial sector and first-rate workforce.

Britain also represents the second largest economy in Europe and the biggest market for e-commerce. In fact, large tech firms like Amazon and Google will find it much easier to directly lobby British officials rather than joust with regulators from more than two dozen European countries, Balsam said.

But the most serious consequence from the Brexit is instability. Under the EU treaty, the United Kingdom has two years to negotiate its departure from the bloc. While the EU wants Britain to move quickly, the Brits will likely take their time, Webber said.

So a lot could still change, which makes it hard for investors and entrepreneurs to plan ahead.

“We’re dealing with a lot of uncertainty,” Webber said. “There’s a lot of speculation. We don’t have a lot of answers.”