Wise words on post-Brexit fears of a UK tech talent shortfall

Profile picture for user slauchlan By Stuart Lauchlan December 6, 2016
The UK is well-placed right now as part of a triumverate of tech talent-enabled cities in Europe. But all that could change after Brexit, according to a major study from VC firm Balderton Capital.

James Wise

UK start-ups are overwhelmingly concerned about being able to access tech talent following Brexit from the European Union (EU), according to a study of 15,000 employees in over 1,000 venture-backed companies in Europe.

The European Talent Landscape report has been published by Balderton Capital, the leading venture investor in the EU, notching up more $250 million plus exits over the past five years than any other European venture firm.

At present, the picture for the UK is pretty good. London, Paris & Berlin dominate the European start-up landscape today, with London the most popular destination for developers looking to work abroad. Between them, the three capital cities are home to nearly as many developers as Silicon Valley - an estimated 515,000 v 564,000.

But there’s also a clear need for mobility of talent. An average over 40% of employees in tech start-ups are not native to the countries they work in.  Meanwhile some 40%+ of founders come from or have spent considerable time abroad, compared to an average of 22% of non-native founders in the US.

Earlier this week, Balderton Capital partner James Wise discussed the report’s findings at the TechCrunch Disrupt conference in London, where he said that the number one issue for UK start-ups was access to talent:

The tech community is particularly reliant on migrant workers. To date, this has been good for the UK. In fact, the UK is still the number one nation that people look to for work in tech roles outside of their home country across Europe. That hasn’t really changed a lot since the Brexit vote. Companies with non-native founders in the UK made up almost half, 42%. In investment terms alone, they raised about £1.8 billion. And that number doesn’t begin to include the jobs they create and the taxes that they pay.

But things could change very easily, he cautioned:

The UK is in a phenomenally lucky place because of the successes we’ve had and the eco-system we’ve built to be almost a third of the European eco-system in terms of numbers of start-ups and the amount of capital raised. But it wouldn’t take much, we reckon about 20% of the workforce would have to move, in order for us to lose that position and rebalance the way that Europe looks.

One issue that’s already occurred has been a shift in salary advantages as a result of the pound’s decline in value since June’s Brexit vote. For example, the average engineering salary in the UK used to stand at $70,500 whereas it’s now more likely to be $58,168, slightly less than the equivalent in Germany of $58,176. Wise observed:

Right now, the UK has lost its competitive advantage in terms of salaries just because of the currency exchange. At the beginning of the year, if you were a developer you could expect to earn maybe 20% more on average than you would today. This kind of wipes out the economic advantage we had over our friends in Paris and Berlin.

Stronger narrative

Wise would like to see the UK government articulating a stronger narrative about the importance of the tech community to the economy and what strategic priorities there will be around it when it comes to policy-making. That means:

A narrative which makes people feel that the tech community is not a group of hipsters in Shoreditch and actually is nationwide and strategically important to the country and does contribute to the economy. Making sure that we have that narrative in place and encouraging people to think in that way about the tech community that way is something that we haven’t sorted out post-Brexit.

The other issue is outward-facing and convincing the rest of the world that post-Brexit Britain is an open and appealing place to come and work. That’s going to mean fundamentally rethinking the visa and quote systems, said Wise:

The Tier 2 Visa system is going to have to change, but it’s going to have to change at some scale. We conservatively estimate there’s about 41,000 hires made of non-natives into the UK start-up ecosystem each year, and right now there’s 20,000 Tier 2 visas for every industry – so we’re going to have to change that.

We’re also going to have to look at the process. For an industry that’s clichéd motto is ‘move fast and break things’, we are going to have to radically change the way that we process visas. Because right now it takes about three weeks to hire someone without a visa and about 16+ weeks to hire someone with a visa.

Wise made his comments while sitting alongside the UK Digital and Culture Minister Matt Hancock, who boasted of the decisions by the likes of Apple and Google to commit to UK expansion and the billion pound broadband funding recently announced.

While acknowledging these were positive developments in their own way, Wise made the point that they don’t tackle the number one problem which is talent:

The raft of announcements are very welcome, but few of them deal specifically with our ability to train world-class talent here in the UK and also to attract global talent to come and build companies here. That’s what we’re concerned most with now. We need to focus a lot more on the pipeline of talent that we have in the UK and make sure the percentage of engineers we have who can work in innovative companies continues to rise.

He concluded:

The important thing for us is that we are able to create a community that still support and grow world-leading companies. Our priority is making sure that the eco-system is still there and that the opportunity is still there.

My take

Wise words from Mr Wise - and ones that it is to be hoped sunk in with Hancock. As noted yesterday, other countries in the EU are lining up to poach existing and new talent and investment away post-Brexit. There’s currently no public plan for how the visa system will adapt to ensure mobility of and access to non-native tech talent.

With freedom of movement as the most contentious argument that needs to be addressed in the Brexit negotiations with the rest of Europe, this is an issue that reaches beyond the tech and start-up sectors. But as Wise notes, it won’t take much for London to lose its current appeal to many potential skilled workers, so it’s an issue that the UK government needs to prioritise immediately.