More money, no problem For much of the last decade or so, inflation barely registered as an issue to take notice of. If anything, inflation being too low was the challenge of the day. That’s certainly not the case now.

Section 8

As the result of supply chain snarls and pent-up consumer demand, inflation is at levels not seen for more than 30 years.29

In response, the Bank of England has repeatedly hiked its base interest rate - with the current rate, 5.25%, last seen in early 2008.30 And this isn't just a British problem - stubbornly high rates of inflation have beset America and Europe too.31

The consequences of the uncertain economic conditions are already being felt by entrepreneurs. According to Crunchbase data, in the first quarter of 2023, there was a 53% fall in venture capital investment globally. Compared to 2021's optimism of the end of the COVID-19 age, startups in the US received 35% less investment in 2022 (though not lower than the previous decade's trends).32 VCs are more interested in reinvesting in portfolio companies to help them manage through difficult economic conditions than to venture into untested ideas.33

Chart 24: How easy or difficult do you think it will be/would be either to attract the funding your business needs or to achieve an appropriate market valuation for it from the following sources over the next twelve months?

How easy or difficult do you think it will be/would be either to attract the funding your business needs or to achieve an appropriate market valuation for it from the following sources over the next twelve months?

Chart 24

Entrepreneurs' need for money will not go away any time soon. Accessing finance is a matter of survival for many businesses, and a must for fuelling expansion.34 In this context, we asked entrepreneurs how easy they thought it would be for them to either attract more funding to cover their firms' needs, or to achieve an appropriate market valuation in the UK, Europe or the US.

Overall, they had the most positive attitude towards Britain, with 58% of entrepreneurs claiming that accessing funding or getting a fair market evaluation would be easy in the UK in the coming year, while just 13% said it would be difficult. For Europe, the sentiment was still a net positive as 43% claimed that funding and valuation would be easy there and 27% the contrary. However, Wfor the US, the sentiment was more negative - only 34% said that accessing finance or reaching an appropriate valuation would be easy in America, perfectly balanced against 34% who claimed it would be difficult.

Chart 25: Among owners of businesses that report under £1 million annual revenue

Among owners of businesses that report under £1 million annual revenue

Chart 25

This might come as a surprise, given the economic conditions in these places. But we hypothesise close proximity and know-how might explain entrepreneurs' attitudes - after all, the majority of the respondents will have some experience in navigating the British market. At the best of times, US funding is harder to access due to all the challenges of distance - during troubled times those challenges are only exacerbated.

Further analysis of the data shows that among all company sizes, the same ranking holds true. However, founders of larger businesses report easier access to capital and appropriate valuation in all three markets compared to their smaller counterparts. For the UK, 70% of entrepreneurs running larger businesses claimed that they could reach funding 'easily' in the UK, while the rate stood at 57% for entrepreneurs running smaller firms.

Chart 26: Among owners of businesses that report above £10 million annual revenue

Among owners of businesses that report above £10 million annual revenue

Chart 26

The difference was more pronounced for Europe and the US, pointing to a possible disengagement of our smaller businesses from international markets: 63% of founders of larger businesses stated that they could attract capital or achieve an appropriate valuation in Europe while only 35% of founders of smaller businesses agreed with them. For America, the scores were 48% and 26% respectively.

Similarly, only 16% of entrepreneurs running larger firms said that it would be difficult to achieve these capital needs in Europe and 13% claimed the same for the US. Among entrepreneurs running smaller firms, the expectation of 'difficult' access to capital and valuation in Europe stood at 31%, for the US it was 43%.

Chris Keen Partner, Mishcon de Reya

Expert comment:

Chris Keen, Partner, Mishcon de Reya

The findings of our Risk Readiness Report are a revealing and insightful window into the perspectives of the entrepreneurial clients who are at the heart of what we do in Mishcon Future.

Our experience is that the existence of risk is an inevitable part of operating at the cutting edge of innovation, and that starting a disruptive business and bringing novel products, services and technologies to market requires an inherent tolerance for uncertainty and an understanding that opportunity and risk often go hand-in-hand.

The clients we work with tell us that they are not intrinsically more tolerant of risk in their businesses than other industry leaders, but rather that they take a different attitude to risk - an outlook which is reflected in the opinions shared in the report. As lawyers to the innovation economy, our job is not to help our clients to avoid risk, but rather to enable them to understand, identify and manage it in a way that gives their companies the greatest likelihood of growing and succeeding. It is really pleasing to see the report's conclusions endorse that methodology and we are grateful to all of those who participated for taking part.

29Office for National Statistics (2023). CPIH annual rate.
30Bank of England (2023). Official Bank Rate history.
31Pew Research Centre (2022). In the U.S. and around the world, inflation is high and getting higher.
32Dealroom (2023). USA.
33Rafe Uddin (2023). Venture capital funds prop up young companies as inflation bites.
34Enterprise Nation and The Entrepreneurs Network (2022). Access all areas: Finance.