Start Up Funding and Maturing Economies
Blain’s Morning Porridge June 23rd, 2026 – Start Up Funding and Maturing Economies
“To move a mountain, start with the smaller stones…”
The success and depth of US capital markets to finance entrepreneurs and successive tech revolutions has been extraordinary – fuelling the exceptionalism of the US economy. In contrast, the UK is more risk adverse towards start-up opportunities. That’s largely cultural, a reflection of the more mature, later-stage British Economy. What will happen when the US economy is also past its top, and following the UK into maturity?
It feels like a bit of a watch and wait kind of day. The streets are melting in the summer swelter – it’s simply too hot to go to London this morning. The SpaceX IPO has taken a spanking (exactly as predicted), the AI bubble and the debt financing required to make it happen looks poppy, and the market is still digesting the threat of Fed rate hikes. There are times when the best thing to do is simply stop, look and listen, and wonder about the bigger things.
Thus, it was that I found myself thinking about the big film of the summer – The Odyssey – the ultimate “Journey” saga. Spoiler Alert: Wiley Odysseus, the King of sea-girt Ithaca, offends the Gods and is punished with 10-years of wandering the Mediterranean, undergoing multiple calamities, before he returns to his wife and (grown up) child, having lost his entire army and crew in the process (and fathering a couple of sons on the way, one of whom will inevitably slay his father in a case of mistaken identity years later.)
Last week I was at an event hosted by Looking for Growth (“LFG”) in London, talking about how the UK could ease the funding journey for start-ups. I was there to back up the experience of two successful founders, Chloe Coleman of Vouchsafe and Ben Warner of Electric Twin, with some market context and history. They’ve both led their start-ups through successful funding rounds. (LFG is a cross-party campaign group seeking to reverse decline by promoting growth. They have the good sense to realise it’s as much a societal issue as a simple financing problem.)
Today’s founders/entrepreneurs can face as terrible a journey as Odysseus to fund themselves. They have to overcome the barely coherent Cyclops of bureaucracy and regulation, the Giants of Risk Aversion, the Enchantress sweetly asking them to sell out early or a Funder who transforms your lithe startup into wallowing swine, the lotus promises of money that never materialises, the Siren song of deep pocketed US private equity, and the Scylla or Charybdis of market bubbles and crashes. Even if founders get past the first peril; the definitional seed funding – it might not get any easier on subsequent funding rounds for growth capital if the cruel and pernicious market gods decide to abandon you.
Despite the difficulties, the UK is relatively successful at launching early-stage firms – especially through our universities. There are flashes of unicorn genius creation – but too often the problems come later as start-ups seek growth capital. That’s the scale or fail moment, and the UK’s financial services sector just doesn’t seem to have the risk appetite. Too often UK firms end up seeking capital from abroad.
I was told a story that there is a UK government lending programme for start-ups where the application form opens with the question: “can you show us 4 years of accounts where each successive quarters shows positive rising profits.” Doh! And civil servants wonder why no one is applying for it.
And that’s when it struck me – the UK and Europe are mature economies characterised by caution. What happens to global markets when the challengers for the title of Global Hegemon – China and the USA – both face up to the reality they are also approaching mature economy status?
Today the USA benefits from having very deep capital markets, and institutions willing to listen to the narrative of founders. While the Brits make “considered investments”, US financiers gamble on start-ups. They are prepared to take bets on entrepreneurs who persuade them their firms are going to reap stellar returns. They do it swiftly because they fear other financiers may scoop them. They ask founders serious questions about the real Total Addressable Market (including Elon Musk’s expectation that Grok (the 8th best AI in a 3-firm market) will get all $26 trillion of the debatable AI TAM!). They ask about the upside, the expected profits, the tech – and they will invest on the story they listen to.
The UK just doesn’t have that same degree of institutional enthusiasm. Our financiers lack the bombast and certainty. And that’s because risk capital to support start-ups in the UK is a complex tale of a matured economy and scarcity. There are elements of sociology, psychology, behavioural economics and economic history at play. What is clear is there is no simple scientific basis as to why some economies appear to be better and more willing to finance risk than others.
There are elements of learned experience – some countries appear to have bottled the secret sauce of start-up success in various sectors. Other nations are still on ascending economic curves where their financiers tend to be risk takers betting on start-ups create wealth. Nations in relative decline, approaching maturity, will tend to be more risk adverse – figuring start-ups are riskier; therefore funding gets more difficult.
When the UK was on its growth curve towards becoming the global hegemonic power through the late 18th and 19thcenturies, there was the risk appetite and liquidity to finance the risks entailed by industrial revolution of Mills, Spinning Jennys, and Steam. In contrast, the declining economic power Britain was replacing, France, faced constant internal financial strains, a dearth of liquidity, an unequal and class riven social structure, and a marked indifference to change.
Today, the UK’s period as the global economic powerhouse is long gone. The nation is still seeking its way into a new reality. It is still maturing. Brexit is part of the process. The revisionist leavers believed the former glories of the UK could be re-established if only the Europeans weren’t holding the UK back. The remainers acknowledged the relatively small size and scope of the UK economy, and its modest global market share, meant cooperation as part of the European polity offered a stronger future.
That said, the potential upside for the UK from start-ups is huge. However much we batter ourselves about broken politics, lacklustre high-streets, deprivation and the decaying national infrastructure, Britain is still a fantastic country. London, Manchester, Bristol, Edinburgh, Cardiff, and all the other cosmopolitan cities are exciting places to live and work. Whatever the papers tell us about unemployed youth that won’t work, entrepreneurs report we have a deep bench of enthusiastic and multi-skilled people in the Workforce.
But there are multiple frictions.
Critical to the success of any start up is employees. That is a crisis – it’s impossible to start a business in London if none of the workers can afford to live there. I call this the Barista Event Horizon: when no-one who can make a decent coffee maker can afford to live anywhere near London, then history reminds us of any civilisation without a decent Expresso or Flat White is doomed to cataclysmic failure. When highly qualified young people can’t afford to rent and live and can’t start family formation and enjoying life – then there is a wider economic crisis facing the whole nation.
The reality is the UK is still finding its place as a mature later-stage capitalist economy, balancing the excitement of creating new firms and industries, with our aging population and geriatric infrastructure.
The story of how the UK has got to where it is fascinating and may serve to illustrate how other nations will develop. The UK is one of the few nations in history that voluntarily surrendered its status as Global Hegemon peacefully to an anointed successor, the USA. That allowed the UK to maintain the polite fiction it was still a global super-power. It then staged a final period of glory in the Second World War, but as the US emerged as the clear Global Hegemon, and the Arsenal of Democracy, the now tired and exhausted UK went into swift decline – most dramatically when the US pulled the plug on the last action of Empire in the Suez Crisis.
In the 1960s the UK remained a potential technological power – the pioneer of nuclear power, jet engine technology, supersonic flight, and the early computer industry, but by the mid-1970s it had lost its leadership in every sector, as Government became increasingly risk-adverse, bureaucratic and inwardly focused. As the nation’s industrial power slid, and jobs came under threat, industrial action and strikes, plus the first Oil Shock caused by the Yom Kippur War, plunged the nation into the Winter of Despair, and an electoral landslide for the Tories who pledged to change everything.
Let’s not forget – Margaret Thatcher nearly failed, her government plumbing new depths in unpopularity as she began to reform the economy through mass redundancies and austerity spending. It was her resolute determination to fight and recover the Falkland Islands that turned opinion around – making her the only Iconic post-Churchill leader. She was then able to use the windfall from North Sea Oil to finance the restructuring of the economy – taking on the unions, ending subsidies, and fighting the miners to unravel the post-war economy. Which she successfully did – but nothing replaced it.
The industrial steel, manufacturing and coal towns of the North, Wales and Scotland were left gutted with no jobs, and limited future prospects. After 50 years that despair is now factored into local expectations.
Only in London did a new economy emerge – the financial sector which exploded as Big Bang deregulated the markets, triggering a stock market boom as London emerged as the Capital City of Global Finance. It was an extraordinary time – yet when I stared in finance in 1985, it was working for one of the American firms that came to dominate the city.
Following the global financial crisis in 2008, European decided the only way to avoid further crisis was to regulate lending and banking activities to the nth degree. In contrast the Americans freed their banks and financial institutions very swiftly, which what has allowed them to capture the global markets in their entirety. Today US private equity, private credit, hedge funds, banks and brokers dominate the markets. There are only a couple of wheezing European institutions in the top 20.
And after that brief, but still too long, description of UK economic history as it moved from global hegemon – what is its relevance to the USA?
The reason for the success of the US economy today is largely due to its very large and deep capital markets, and a healthy attitude to risk that counts the potential returns as far more important than the risks. They’ve developed sophisticated approaches to the quantification of risk versus returns, but fundamentally, the US markets are buccaneering – they accept the power of narrative, of hype and FOMO and roll with it.
The US markets are still in their ascendant stage. What happens when they mature?
Where will the US find itself if China or another hegemonic power emerges? What will happen in the Post Trump era to maturing American capital markets? That’s why the start-up markets are worth watching for clues…
Out of time and back to the day job…
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Meanwhile, don’t forget about my new book:
The Battle For Hamble is a proper grown-up examination of how bureaucracy has failed: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It explains how a wholly unnecessary Gravel Quarry will be dug in middle of a prosperous village – putting 6000 jobs at risk. The truth is no one wants gravel, and the quarry company understands it’s not what you dig out, but what you stuff back into a hole in the ground that matters. Gravel sells for £30 a tonne – Landfill earns £150 a tonne to bury. Go figure.