A historic referendum passed by the English and the world market felt its ripples. People all over the world are busy analyzing on how this phenomenon will affect them. Needles to say, India shall also be affected by Brexit and a critical effect of this can be on the Indian Start-up Ecosystem. In this article we shall try to study how the start-ups will be affected by the Brexit.

• Venture Capitalist may reduce their exposure in Indian Start-ups – In any mature Start-up ecosystem Venture Capitalist /Angels play a vital role. Investors like Warburg Pincus and Axon Partners Group who have significant exposure in European market can be highly affected due to this break-up. Regulatory restructuring and strict immigration laws is bound to effect these VCs and this in turn shall show its effect on their investment in India. Restructuring of Investment plan or reduction of risk exposure can be the new strategy in light of the Brexit for these Investors.

• Devaluation of Investment– As we all know that due to this referendum the valuation of English Pounds shall decrease. In fact today the pound shrinked by 7.08%. This shall in turn might affect the Investment valuation of the Indian Start-ups which have received investment from British Investors. So, say for example an Indian company has received an Investment of 1 million pounds yesterday. In Indian currency the company would have received Rs 10 crores yesterday. However due to today’s devaluation of pounds this shall be valued at 9.30 crores. A difference of close to 70 lakhs! Now imagine what all a start-up can do with 70 lakhs which just flew away with no fault of its own.

• Hamper in Growth prospective for Indian start up– To understand this we must understand how the global trading system are interlinked. Volatility in European Market and its currency shall reduce the demand of goods there. The moment demand of goods decreases supply shall also be negatively affected. Now if the supplier is an Indian start-up his revenue is bound to fall. This chain of interdependence may result adversely on the start-ups. Musigma for example which has a quantifiable exposure in these markets can feel the heat due to this.

• Market Access– Start-ups may also lose access to the markets. Previously, when the EU functioned as a whole it was easy to gain market access. Now that there is a possibility of different regulation applicable to England and the other EU Nations compliance cost is bound to increase. Entry point hurdles might occur due to this break-up between EU and England. 

• Risk aversion by the potential investors– Investors who had plans to invest in India might shy away from it. This phenomenon shall not be limited only to European Investors but this shall apply to all International Investors. As the European Market is posed to go through a lot of volatility investors can park their investment in secured instruments rather than taking the risk of investing in a start-up.

All in all there is a likely hood of fund and revenue crisis for the Indian start-ups. However, it’s very tough to predict how the investment markets will response in this type of global phenomenon specially when there is so much at stake and one can only wait and watch for the actual reality.

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