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Stagflation will see Britain’s SMEs reach a funding brick wall

Recent reports predict the UK’s current course of low growth and high inflation – otherwise known as “Stagflation – has now evolved intoan impeding recession, according to the Guardian. The extreme squeeze on living standards – the worst since the 1950s – and has resulted in consumers becoming far less willing to float the retail arena, with the corporate arena showing signs of equal reticence for new investments. Business advisor, Claire Trachet – CEO of Trachet – says “Every indicator suggests we’re parachuting into a recession, the question now is – how deep will it be?”. For the UK SME sector – which account for half of turnover in the UK private sector – this means a significant strain on financial resources as scaling to survive becomes the modus operandi, as opposed to previously intended growth focused trajectories.

Amidst rising inflation rates, higher energy prices, a falling exchange rate and a cost-of-living crisis – investment houses have been forced to dig deeper to support incumbent investees as opposed to new entrants onto the scale-up scene. As such, access to a flood of fast finance has begun its slow descent. To add context to the trajectory, landmark national research from business advisory, Trachet, found that 47% of Gen Z Brits and 39% of Millennials stated If they were to start a business, they’d be looking to procure investment to facilitate rapid growth compared to just 24% of their Gen X counterparts, illustrating a generational shift in behaviour for the new wave of entrepreneurs.

However, the motivation to secure a speedy scale has evidently hit an economic brick wall as the ill-effects of a double decade of turbulence takes hold. New research from CrunchBase found that 50% of start-ups that reach series A funding fail to raise their next round, with 88.7% of those failing to successfully exit their business, revealing the high risk associated with investing in start-ups. As a magnitude of UK businesses rely on this type of investment to grow and scale, the VC pullback means significant strain will trickle down to the UK economy.

Business advisor, Claire Trachet, CEO & Founder of Trachet comments on the VC pullback of 2022:

“Venture capital tends to work as a reactive market, each investor depends on the next stage (either a subsequent round of financing or an exit) for their short term success – usually every 16-18 months. As raising the next stage becomes less accessible, the market response is to hold back investment activity to avoid having more derelict investments. In the current bear market, it will take a few months for the VC pullback to happen, post-IPO to seed funding”