How the UK could become the early stage Fintech capital of the world post Brexit thanks to Securities Tokens

brexit

This week is Brexit week. Personal disclosure: I think Remain was the right option. However, as a business person I know that you have to work with whatever actually happens, rather than what you hope will happen and that you look for opportunities in problems that the world delivers to you.

At Daily Fintech we look at world events through the narrow lens of “is it good or bad for Fintech?”

So, here amidst the doom & gloom, is my optimistic case for Fintech post Brexit.

I specifically wrote early stage Fintech capital of the world. The tremendous tax incentives in the UK for investing in startups via Seed Enterprise Investment Scheme (SEIS), is a big driver for early stage. Other places may have bigger pools of capital for doing later stage deals (Silicon Valley is dominant there) but in few places are the incentives as good for early stage – and ventures have to go through early stage to get to late stage (said Captain Obvious).

SEIS offers unparalleled incentives for high income people to invest in startups. Even if a venture fails they get a lot of tax back immediately. On exit, they get zero capital gains tax, after 3 years minimum holding.

SEIS has been around a while. So has Fintech. What is new is the emergence of legal Securities Tokens. Look at these from the perspective of that early stage investor. The investment is priced by the market and can be traded (if Securities Token exchanges get their act together with some reasonable liquidity/spreads). Perhaps more important is it becomes harder for big Funds to come in at the next round on terms that disadvantage you as an early investor (not impossible, just harder).

For the entrepreneur/capital raiser, the fact that SEIS offers zero capital gains tax after 3 years minimum holding puts a de facto lock-up into the terms (because any investor selling before 3 years loses this tax advantage).

If the UK is the place where investors can go from angel/seed to exit within 3 years, the UK is where the best entrepreneurs will want to be – and where the best entrepreneurs want to be will be where jobs and prosperity is created.

What about access to Europe? Entrepreneurs can choose jurisdictional locations and strategies that give access to investors in different locations around the world. Many ventures today are decentralised with people in multiple locations. Consider Ethereum as an example (with developers and other employees all over the world. Talent can choose where they want to live; entrepreneurs and investors follow talent.

What about all those Banks relocating out of London due to Brexit? For those losing jobs and those who depend on them, it is 100% bad news. For Fintechs looking for talent and users it is good news.  Many of the jobs will be automated anyway and an HR policy of “relocate due to Brexit” simply avoids having to fire people due to automation.

So, London could become the early stage Fintech capital of the world post Brexit thanks to Securities Tokens.  There are lots of policy, regulatory, legal and technical issues to make this happen, but nothing that is rocket science. 

The real issue is London as a diverse, fun talent magnet. The passporting/regulatory issues are far more manageable. If Brexit means entrepreneurs cannot recruit talent from around the world regardless of country of origin, religion, colour, sexual orientation, then all bets are off.

The solution is simple. Every startup given SEIS status should have the right to offer work/residency permits to whoever they want, from anywhere, no questions asked.

It is a real opportunity, but we should never underestimate the ability of politicians to snatch defeat from the jaws of victory. 

What are you seeing? How will this play out? Please go to this thread on Fintech Genome to comment.

Image Source.

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.