1. Fleeing Brexit to Berlin? Beware red tape, startups say

Fleeing Brexit to Berlin? Beware red tape, startups say

Despite a slick campaign to lure companies from London to Berlin after Britain voted to leave the European Union, some of those which have moved say it is not as easy as it first appeared.

By: | Berlin | Published: October 20, 2016 3:02 PM
Following the unexpected referendum decision in June, Germany's liberal Free Democrats hired a truck to drive around London with a billboard declaring, 'Dear start-ups, Keep calm and move to Berlin'.  (Reuters) Following the unexpected referendum decision in June, Germany’s liberal Free Democrats hired a truck to drive around London with a billboard declaring, ‘Dear start-ups, Keep calm and move to Berlin’. (Reuters)

Despite a slick campaign to lure companies from London to Berlin after Britain voted to leave the European Union, some of those which have moved say it is not as easy as it first appeared.

Following the unexpected referendum decision in June, Germany’s liberal Free Democrats hired a truck to drive around London with a billboard declaring, ‘Dear start-ups, Keep calm and move to Berlin’.

An ironic reference to a popular poster entreating Britons to Keep Calm and Carry On at the outbreak of World War Two against then Nazi-ruled Germany, it was soon followed by the opening of an official Berlin marketing office in London.

Two London based companies are among those who have already taken the plunge. Their experience highlights the attractions of the German capital but also the bureaucracy that lurks behind the marketing, a factor in the global tussle for business unleashed by the Brexit vote.

Web-design company MBJ London and real-estate investment platform Brickvest, both co-run by Germans, had already planned to open offices in Berlin but were jolted into speeding up their investments by Britons’ June 23 decision.

The motivation: to limit their London exposure in case of a “hard Brexit” – where Britain loses access to the single market.

The two firms cite access to talent and the low cost of living among Berlin’s benefits, as well as a hotline to help start-ups get employee visas.

But they urged the city to lower language and regulatory hurdles and offer more flexible office space.

“If it wants to become the leader in fintech then these are the steps it needs to take, otherwise it will get a few companies but it will not become the hub,” said Brickvest co-founder Thomas Schneider.

Brickvest is building a back office in Berlin and plans to grow its staff from five to 15 people over the next six months. A “hard Brexit” would make London just a small regional office.

But Schneider said the German financial regulator BaFin was too conservative and the fact that all documents must be translated into German to apply for a banking licence was off-putting for companies like his, which employs 10 nationalities.

As a result, Brickvest is more likely to apply for a licence in Ireland’s capital Dublin – and open a front office there – if Britain loses its passporting rights – the ability under EU rules for any financial firm to serve the whole region from a single base.

BaFin acknowledged documents must be submitted in German for banking licences but said this was not always necessary in other areas, such as insurance.

“BaFin is, however, continually addressing developments around Brexit, both from a legal and regulatory perspective. The same applies to applications from Fintech companies,” it said in a statement.

LONG-TERM RENTS

MBJ plans to build up its operational team in Berlin and more than double its headcount to around 40 or 50 by the end of 2017. Management will also move from London.

But it took the company around two months to set up here compared with some three days in London, said MBJ’s Chief Operating Officer Toni Horn. The start-up needed to get documents approved by a notary and had to go to court to get the company registered.

Setting up a bank account was tricky, as was finding office space, with most landlords offering rental contracts for three to five years – an impractical time-frame for a start-up that may outgrow the space within a year, or fold.

Instead, MBJ has rented an office at co-working space WeWork at Potsdamer Platz, a desolate No-Man’s land during the Cold War that has become one of the capital’s busiest commercial centres.

Such co-working buildings are filling up fast.

Since the Brexit vote, the city government’s marketing agency Berlin Partner has helped five companies move from London and received some 40 specific inquiries, mainly from start-ups founded three to five years ago in the fintech and IT sectors.

More established healthcare and technology firms are also scoping out the German capital, though this is mainly just scenario planning at present, said Stefan Franzke, CEO of the public-private partnership supporting investment in the city.

But it is not just foreign start-ups who find things hard. A German Startup Monitor survey published on Tuesday found local startups wanted fewer regulatory and bureaucratic hurdles, lower taxes and greater support in raising capital.

Only 5.5 percent of founders surveyed gave the government a “good” or “very good” score when it came to understanding start-ups, with just over half saying the government’s grasp of what start-ups need was “unsatisfactory” or “deficient”.

The government has taken steps to help fledgling firms, approving a draft law last month to allow start-ups to claim tax breaks on losses even after a change in ownership.

Schneider urged Germany to consider giving every company already licensed by the UK’s financial watchdog an automatic BaFin licence after Brexit, a step the regulator says depends on future negotiations with London.

He was scornful of what he called “cute PR action” but Horn said the difficulties it masked had failed to put people off.

“A lot of our friends are relocating now to Berlin,” he said, “because if you’re starting to grow a company and you want to hire a lot of talent, doing it in an area where there’s complete uncertainty about what is going to happen over the next 3-5 years, is just not a good decision.”

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