A British microchip maker attracts Japanese investment, but other techies are nervous

ON JULY 18th ARM, a Cambridge-based company that designs microchips, announced that it was to be bought by Japan’s Softbank for £24 billion ($32 billion). ARM, founded in 1990, was the biggest of the tech companies in Cambridge’s so-called “Silicon Fen”. Britain’s new government seized on the sale as evidence that the country was still “open for business”, in the words of the chancellor of the exchequer, Philip Hammond, in spite of its recent decision to leave the European Union. Shares in ARM soared by 45% at the start of trading.

The confidence manifested by the ARM deal, however, contrasts with gloom in other parts of Britain’s tech industry. Tech has been one of the best-performing bits of the economy over the past decade. London has become the tech capital of Europe: according to one study, more than 1,000 tech investment projects were located in London in 2005-14, many more than the next-most attractive city, Paris (381), or indeed the whole of France (853). Britain attracted £524m of investment in financial tech (fintech) alone in 2015.

Following the referendum, however, the mood has changed. Andrew Tibbitts and Elizabeth Varley run TechHub, a community for tech entrepreneurs that was set up in London in 2010; they say that the overriding emotions in the industry are “fear and worry”. That is largely because tech companies rely heavily on the free movement of labour for their success. Half of TechHub’s members in London are non-British, and almost one-third are from continental Europe, a pattern repeated across most of the industry. Many of the best software engineers come from eastern Europe and the Baltic states. Furthermore, fintech startups could be hit by the withdrawal of “passporting” rights in Europe, whereby London-based firms can sell financial services throughout the EU.

With uncertainty as to how immigration and passporting will be affected by Brexit, investment appears to have slowed. Since 2010, London-based technology companies have raised $5.2 billion of venture capital, much of it from American funds. Now “it seems that all inward investment is on pause,” reports Mr Tibbets. John Meehan, a partner who specialises in fintech at Arma Partners, a mergers and acquisitions consultancy, says that other investors such as pension funds are holding back too. There is “definitely a chill”, he says.

Those trying to raise money are braced for tougher times. Tom Blomfield has spent the past couple of years developing a new digital bank for use on smartphones, called Mondo. He has raised £8m and at his next funding round in September he hopes to raise £15m-20m; this, he acknowledges, will be “harder”, as American and Asian investors will be less willing than before to put money in. “It’s a tragedy” for fintech, says Mr Blomfield. “We’re shooting ourselves in the face.” Taavet Hinrikus, the Estonian-born head of London-based TransferWise, an online foreign-exchange service, says that he is “starting to explore where we would set up other offices in Europe to get the operating licences”, as other fintech companies are thought to be doing.

With London’s future under a cloud, other cities have pounced on the opportunity to supplant it as Europe’s next tech capital. Paris is one candidate; Berlin also has its eyes on the prize. London is still ahead, for the ease of starting a company, and as a centre for American investment, financial services and tech all in one. But the longer political uncertainty lasts over the terms of Britain’s divorce from the EU, the likelier that this lead will shrink.

British techies hope they might get some immediate relief if the government relaxed the visa system, making it easier for startup entrepreneurs and engineers to live and work in Britain post-Brexit. The government has done a good job in nurturing the tech industry so far. Now is the time for some first aid.