Macroeconomic and political headwinds are whipping themselves into a storm: rising interest rates; a partial recession; bond markets defanging growth-oriented policies; and hefty inflation are being felt in every area of the economy. And the UK’s startups and scaleups are no exception — as our latest data makes clear.
In some ways, this is to be expected. COVID-19 accelerated new investment (levered with cheap debt) into consumer-focused, software-enabled growth plays. Recession threatens their user growth, and rising interest rates — causing some equity investors to exit the market — threaten their runway.
But early-stage investing is meant to involve heavy losses, particularly in the Silicon Valley model. The UK’s failure rate has always been slightly lower, but losses are still part of the game.
Some investment over the past 24 months has been frothy — it couldn’t last. But some of this asset class (more classic venture capital) is meant to be countercyclical. Investing in an early-stage, high-risk technology requires a time horizon that can defy macro uncertainties.
So venture investors need to be optimists: the current climate requires an adjustment of investment theses, but not permanent cessation. The success of the innovation economy cannot be measured in pounds alone: good ideas can win out, bad ideas will go bust.
