The possible effects of Brexit on European entrepreneurship

British society has spoken: The United Kingdom will leave the European Union, which means that British and European leaders will start negotiating the terms and pace of the exit during the next couple of years. Britain's departure will obviously affect all aspects of society, including entrepreneurship and the startup scene, but the scale of the damage will depend on the kind of relationship the UK maintains with the EU.

So what options does the UK have? According to Open Europe, the nation has four possible models to choose from:

1. The Swiss option: the UK would negotiate a free trade deal with the EU but it would exclude Britain's financial services from the EU's single market.

2. The Turkish option: Britain would have access to the single market but would face a dependent relationship with the EU because it would be bound by the bloc's external trade deals.

3. The Norwegian option: The UK would be part of the single market and would enjoy free movement of goods, money, services and labor - but would also have to obey most part of the EU regulation without having a say in the decisions and might have to contribute about 400 million euros a year to the EU budget.

4. A clean break: Britain would cut all the ties with EU and would have to negotiate deals through its membership of the World Trade Organization.

So, what does this mean for British entrepreneurs?

Katja Kotala, community trainee at Nordic Innovation House (a Silicon Valley space meant to help Nordic startups and entrepreneurs to grow and settle in the US market), believes this departure can have a very negative impact on the startup scene because of the great consequences the decision will have on the economy: "There really are no benefits in leaving the EU, even if the UK gets more control of national decision making, the Brits are still going to lose in their ability to participate in global markets, and therefore their economy will take a severe hit.”

The main difficulties UK startups will have to deal with post-Brexit are the lack of diversity in the talent pool and restrictions accessing the European market. British entrepreneurs and startup CEOs follow the Silicon Valley example and are prone to hiring international talent, encouraging a diverse and creative team that brings their own know-how to the company. The access to the European market is key as well, since 50% of the UK's exports go to EU countries - especially when it comes to services, financial services in particular, that have been rapidly growing in the last few years.

Polls conducted in Britain during the last few weeks show that most citizens favor the Norwegian option. For the sake of the argument, let's say they listen to what the people want and opt for the Norwegian option. What would that entail?

If they settle for this model, the UK wouldn't be part of the EU but would be part of the European Economic Area (EEA) and the European Free Trade Association (EFTA), which means following a considerable number of EU rules by proxy.
In fact, an
independent report published by the Norwegian government in 2012, estimated that Norway has adopted around three-quarters of all EU directives, rules that they have to obey but don't have a say in. So Kotala believes that, in this scenario, the Brits would be in the same situation they were pre-Brexit, but with a lot less control over the market norms: "In my opinion, globalization is here to stay and all we can do about it is to try and manage it by creating common rules in the global markets. The EU is one of the main players in creating those rules and breaking away from EU is only going to make UK a bystander."

And what does Brexit mean for the continental European entrepreneurial ecosystem? The main financial industry would stay in London, with a smaller pool of national startups and less opportunities to invest capital into entrepreneurial ventures in the EU economy.

Nevertheless, startups are organizations that work to solve chaos and problems in society by nature, and this could become an important niche for both British and continental European entrepreneurs. As long as they choose a model that works based on free movement of talent and good exchange, like the Norwegian option, this outcome doesn't have to be a complete disaster for the British startup ecosystem. Things are going to definitely change but only time will tell what kind of real impact the exit will have.

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