Investment and Brexit from Tech London Advocates

Alex McKay - Soldo •

An interview with Russ Shaw, Founder of Tech London Advocates & Global Tech Advocates

Prepaid business card provider, Soldo, spoke with Russ Shaw as part of a series speaking to today’s most influential digital disruptors. Russ Shaw founded Tech London Advocates in 2013 and Global Tech Advocates in 2015, to establish an independent voice in the technology sector, with a focus on private enterprise. Since then, he has been championing London as a global tech hub and campaigning to address some of the biggest challenges facing tech companies in the UK – diversity, digital skills, immigration, infrastructure and access to funding.

Tech London Advocates represents the interests of the tech community – and that includes fintech. So what are your members asking for? 

First and foremost, the thing they are most concerned with is market uncertainty – because we’ve been in this Brexit holding pattern for three years. If you’re a fintech business in particular, it will have an impact. If we’re leaving the European Union and the digital single market, and fintechs want to maintain passporting rights to operate in the EU, they are going to have to open up an office in an EU country, or use something like Estonia’s e-residency programme, in order to have access to the 27 markets that are part of the European Union. 

When you step back and look at the bigger picture, all of the scenarios – soft Brexit, hard Brexit, no deal Brexit – have a potential impact on the sector, so I think entrepreneurs are looking for clarity and market certainty. 

Within that construct, my assumption is that we are going to lose freedom of movement, even if we don’t quite know when. And if you look at London’s tech ecosystem, a key part of its success has been driven by overseas talent. Roughly one in five London tech workers is European; one in three is from overseas. So they make up a big portion of the ecosystem. And in the fintech space, if you look at companies like TransferWise, for example, one of our really successful tech unicorns; the two co-founders are from Estonia. Therefore, the sector is closely following developments in immigration policy. 

Three types of Visas are important to the sector:

The first is the Tier One Visa – the Exceptional Talent Visa. On top of that, the Government has this year has created two new Tier One visas: the Startup Visa and the Innovator Visa. They come with a requirement for third party endorsers, which is something our government hasn’t really done before, and which we applaud. However, we’ve learned that a number of those third party endorsers are not yet ready or have struggled to give their support, or frankly, a couple of them have been charging exorbitant fees. So we feel that those two new Visas are not yet fit for purpose. 

Furthermore, the government has taken one visa away; the Entrepreneur Visa route was closed on March 29th. So I think the intention from the government has been right, but the implementation in the Tier One category is problematic. 

The next category is the Tier Two Visa. This is important because it covers the bulk of the skilled talent that comes into the UK. Our main request here is for government to lift the annual cap of 20,700 on Tier Two Visas, implemented when Theresa May was Home Secretary. 

Part of the problem is that those are not just for the technology sector; until last June, when we increased our campaigning around the issue, the tech sector was competing with the likes of the NHS. So our message to the government is to lift the cap, particularly with the current uncertainty.

Finally, we should also mention the Tier Four Visa. We’ve campaigned pretty hard to get overseas students to be able to stay in the UK for at least two years; and the government has now announced that the time that overseas students can stay after they graduate is being extended from six months to two years – so that’s a good piece of news.  

The flipside of this, of course, is home-grown talent. Because the tech sector, and fintech in particular, is hungry for skilled workers, we need to develop and nurture home-grown talent across the nation, bringing people into the sector who have studied STEM subjects.

When you step back and look at the bigger picture, all of the scenarios – soft Brexit, hard Brexit, no deal Brexit – have a potential impact on the sector, so I think entrepreneurs are looking for clarity and market certainty.

That’s the talent requirement. What else is the tech industry clamouring for?

Next is investment in the sector. I applaud the government on their initiatives; we want EIS and SEIS to continue, as they’ve been an important lifeblood for the community – particularly earlier stage businesses and especially fintech businesses. 

Fintech has led the way in that the amount of investment in the sector continues to grow significantly, even in the Brexit environment. 

The other piece of the equation, I would say, is around infrastructure. We have to deploy 5G networks across London and the UK in order to keep pace with China and the US, who are already at the rollout stage of 5G. We’re behind the curve there – as is the rest of Europe. We must push aggressively for a 5G rollout, and that will certainly be largely driven by the private sector, but we want to make sure that government policy continues to be favourable to 5G network providers, whether that’s through DCMS, Ofcom, or whomever.

At the very start of our conversation, you mentioned clarity. If I was a founder today, I would think that Brexit was creating anything but clarity. Is the UK still attractive to startups?

Well, we’ve heard from many startups and scale-ups that many EU nationals here have returned home, because they didn’t like an environment where they felt that EU nationals were not welcome or they were unsure what was going to happen with settled status. On top of that, recruiting EU nationals to come to the UK has been virtually impossible. Why would you come here if you don’t know what your status is going to be? 

I say to businesses: you are going to have to think about your position. But don’t lose your HQ from the UK. The fundamentals here are strong. This is still a really good country in which to do business. It’s relatively easy to set up a business here. And if you have to shut it down, that’s relatively straightforward too, whereas in France or Germany it’s nigh on impossible. 

If necessary, open an office in Amsterdam, Paris, Dublin or Berlin so that you know that you can operate in the EU – but don’t close your London HQ. It’s sad that this means many fintechs will be hiring talent there instead of here, but the uncertain market environment is certainly driving some of these decisions.

The big banks have left value on the table that you may not see in other markets.  That is catnip to a disruptor. You can experiment here; you can try out a variety of business models, and yet it’s a mature market and a well regulated environment.

What is the investor temperature at the moment for fintech?

I see a lot of optimism from investors coming into the fintech space here: with the disruptors and the challengers obviously, but also in areas like digital payments. 

I look at the full-service banks here: they’ve got issues around their legacy infrastructure and many of them have not yet built what I would call a truly full-stack offering that could potentially be disruptive. That leaves an opportunity not just for the startups and scale-ups, but for some of the big tech companies. Players like Amazon and Apple are looking at the UK market and the weaknesses of some of the full-service banks, and they see an opportunity to build a full-stack equivalent. It is also the reason why challenger brands like Monzo and Starling have done so well. 

The big banks have left value on the table that you may not see in other markets. That is catnip to a disruptor. You can experiment here; you can try out a variety of business models, and yet it’s a mature market and a well regulated environment.

Investors also see a track record of success from Series A through to exit. They see Funding Circle, World Remit, TransferWise, WorldPay, Monzo and Revolut. The list goes on and on…

Finally, from the investor side, and coming back to the Brexit discussion, valuations are pretty good. If there’s a positive strength to Brexit, it’s that Sterling has dropped significantly from where it was three years ago and might drop even more. Watch out for M&A, because more money is going to come in to the UK fintech sector. Some of these businesses are going to be acquired because the valuations of these businesses in comparison to other EU countries or to the US look pretty attractive.

I also sense that we have a really mature customer base, customers who are prepared to try things out. A major launch like Apple Pay, instead of completely displacing other players, creates demand for all sorts of subsidiary plays…

Yes – and a sophisticated customer base of people from all ages and all backgrounds wanting to experiment. I started my career in financial services, trying to get young people to engage in banking and insurance; and it was a nightmare, because for most of them it’s boring or simply not relevant. But my 25 year old son loves Monzo. He says they make banking interesting and exciting. The same is true of Revolut. These brands have started to make financial services appealing.

I believe there’s still a digital divide, but a sizable enough part of the population is embracing digital financial services to make us a really exciting country. But unlike the US, China or India, you’re not in a massive market where you need to build a lot of infrastructure or recruit heavy talent. We’re just an advanced and sophisticated market of 65 million people. Despite our current trials, that still makes the UK a wonderful place to operate.