Despite 2017 being a record-breaking year for venture capital investment, there are a number of signs that signal the flow of VC cash could see a significant slowdown.

One of the things that may be a catalyst for this is the imminent increase in interest rates in the UK, US and Europe. Put simply, this could see individuals and groups choosing to hold cash (which will be earning a better return), rather than investing.

The rock-bottom interest rates and negative real rates of return that we have seen in recent times has led to many angel investors and VC groups becoming more inclined to speculate rather than accumulate, but with a rate rises on the horizon, the status quo may change and investors could become more cautious and even more selective.

Coupled with an impending rise in interest rates, another dramatic narrative is unfolding which could also have an impact on start-up / scale-up funding. Since 2014, the amount of VC rounds in tech companies has plummeted by nearly 50%, from ~19,000 to just over 10,000.

Despite this massive change, the value of VC funding has remained relatively stable. Analysing this lack of correlation would seem to mean that investors are concentrating their portfolios into a smaller number of start-ups, rather than the free-for-all we witnessed in the early 2010s.

So what’s behind this apparent stall in early-stage investment? Clearly, the answer to that question is multifaceted. Yet, there are a number of possible causes.

One of the most prominent theories is that investors are focusing their efforts towards a smaller number of more developed revenue generating scale-ups. Investors have learned painful lessons from speculating on businesses without revenues at high multiples on the promise of becoming ‘the next Facebook’.

Many have now realised that an investment in the original Facebook would have been the safer (and more profitable) bet.

It is therefore unsurprising to see that the super-unicorns such as Uber, AirBnb and WeWork have consistently managed to raise capital from the VC industry as these investors have chosen to plough their cash into a safer bet rather than taking the risk of funding an unknown quantity.

Even within the angel investor community, anecdotal evidence suggests that there is a similar reticence to return to the ‘spray and pray’ approach of yesteryear.

Whilst the emergence of crowdfunding platforms such as Crowdcube and Seedrs has provided the ability for both angels and VCs to get quality deal flow and diversify their portfolios, the hurdles for businesses to get listed on these platforms has increased significantly.

Anecdotal evidence suggesting that over 85% of applicants for crowdfunding get rejected, forcing entrepreneurs to rely on traditional methods of raising funding.

With the spotlight of larger pools of capital being focused on more developed businesses, there has been less attention by professional investors on early stage businesses. The one saving grace in the UK which continues to attract investors to these businesses is the SEIS and EIS schemes.

These schemes enable investors to reduce their tax burden for investing in eligible early stage businesses and have been successful in attracting cash that would otherwise be earning very little (if anything) in a bank.

Bringing the conversation back to a potential rise in interest rates, smaller investors may well expect a higher return on investment as their cash can work harder for them in a savings account or bonds rather than a speculative punt on a start-up. It is therefore even more important now for start-ups that are looking for funding to clearly demonstrate their revenue generating potential, have a clear business plan and if possible be SEIS or EIS ready.

In short, the future still looks bright for the global start-up scene, but entrepreneurs seeking investment have to up their game. Imminent rises in interest rates will mean entrepreneurs are now competing with banks when it comes to seeking the cash of investors and that’s no easy task.

Thierry Clarke is CEO and founder of InvestorConnected.