Brexit’s Impact on Silicon Valley

In 2002, I attended a few events put together by an organization called Round Zero. Round Zero was an organization made up of founders and entrepreneurs in Palo Alto who met monthly for structured dinners on topics related to startup life.

It was a depressing time. The tech bubble had crashed. Venture capital was almost impossible to get. The rest of the world was experiencing schadenfreude watching the hype and hope of Silicon Valley dissipate.

I met a guy I didn’t know in one of the cocktail hours before dinner and struck up a conversation. I asked him what he was excited about; he started to wax rhapsodic about search and how he was ultra-focused on making sure people found what they were looking for. His goal was to make sure that people found exactly what they wanted in the first link they got. I asked him about revenue and how he was going to make money; he said he wasn’t focused on that. I looked again at this guy with disheveled hair and three-day stubble and thought to myself, “This one is not going to make it—time to meet somebody else.”

That guy was Sergey Brin, and the company was Google.

On Thursday, the citizens of United Kingdom voted in a referendum to leave the European Union. That result had major geopolitical and financial implications. The pound hit a 30-year low, stock markets all over the world lost $2.1 trillion in market value, gold prices went up, oil prices went down.

What is the actual financial impact of Brexit for early-stage technology companies in Silicon Valley?

Zip, zilch, nada.

Here’s why:

• Nothing has happened yet. The U.K. has two years to finalize arrangements with the E.U. on how the split is going to happen. Two years is a lifetime for an early stage company.
• The U.K. market is a very small portion of most startups addressable market in the early days. While a few early stage company have customers outside the U.S., most companies focus with the U.S. market.
• Post-Brexit, U.S. companies will still be able to sell into the U.K. and the European market. There will be a few regulatory changes and some additional red tape but not any more than what they face to go to other markets
• Triumph or disaster for early stage companies is determined by product-market fit more than anything else. The closure or opening of a foreign market does not determine that.

Now, if you are startup in London or a very large tech company, the impact on you can be significant. Your access to capital might be constrained because of all the uncertainty this move causes. The other significant impact is psychological. When you have major geopolitical change, capital flows away from risky assets to “safe” ones. It is quite possible that the IPO market that just opened with Twilio could close again. Late stage financings from non-traditional investors might be hampered.

One thing we have learned at Menlo Ventures from doing venture capital for 42 years is to be greedy when others are fearful. This coming Monday, we will be super excited to see the companies coming in to meet us. From our perspective, if we liked the company on Wednesday, we are going to love them on Monday, since the only ones who will continue the startup journey are the “missionaries.” The “mercenaries” will be focused on the financial implications of this geopolitical move, while for the “missionaries,” it’s all about those search results.

We are in the missionary-backing business.

Keep calm and carry on.