London start-up scene weighs threat of British Techxit

Britain's tech start-up scene was having a bumper year in terms of new company creation, fresh funding and acquisitions by global tech players before voters decided to leave the European Union in Thursday's referendum.

Now high-profile companies are threatening to pull out or slow down plans to enter the UK market, international employees are second-guessing their immigration standing and investors could cut new funding that is the lifeblood of young tech firms.

Market researchers are predicting a sharp slowdown in UK technology and advertising spending and the longer-term threat that sizeable portions of these budgets will move to the continent.

"Nothing's changed yet but everything's changed," said Taavet Hinrikus, the Estonian CEO and co-founder of cross-border money service Transferwise, which is based in London.

London has become a magnet for tech entrepreneurs looking to do business in the European Union and a global launch pad for firms aiming to compete with U.S. and Asian web giants. Half the founders of London's top tech start-ups come from outside Britain.

One-third of recent European investments by venture capitalists, who are often drawn to tech startups, were made in Britain. In the first quarter, UK firms drew in $1.3 billion (984 million pounds) in funding, while the rest of Europe took $2.2 billion, according to research firm CBInsights.

"The two main benefits of being part of the EU are access to talent because of the free movement of labor and the fact that you can 'passport' regulation so if you're regulated in the UK, you're regulated across the EU," said Hinrikus. "We don't know what's going to happen with either of those."

The Transferwise CEO now says "it's too early to say" what the company may do but said before the referendum that his company could scale back further investment in London and consider moving its headquarters if Britain voted to leave the EU. Number26, a Berlin-based start-up offering Internet banking services over smartphones in eight European countries, is now reconsidering its planned entry into the UK market.

"We are probably going to consider other markets first," said co-founder and chief executive Valentin Stalf, citing separate bank licensing requirements likely to be required once outside the EU. "The UK market suddenly became a much more expensive proposition."