UK venture capital: a market rebounding?

Despite a backdrop of persistent geopolitical uncertainty, the UK venture capital (VC) space has entered a period of renewed growth and momentum. 

Overview of the VC investment landscape

The boom in investment seen during and immediately following the pandemic in 2021-22 was followed by two years of market adjustment, as conflict, political instability, inflation and higher interest rates impacted on investors’ appetite for risk and triggered a correction in valuations. Deal volumes declined as investors became more selective in their approach to deploying capital, and while funding remained available for prized assets (autonomous driving start-up Wayve completed a $1bn series C round in May 2024), headline venture capital investment figures fell from an all-time high of $36.3bn in 2021 to $18.4bn and $17.5bn in 2023 and 2024, respectively.* 

According to Dealroom’s analysis, 2025 saw a marked resurgence in VC investment in the UK, however, with start-ups raising $23.6bn across the year. These were the strongest figures since the 2021–2022 peak and represented a 35% year-on-year improvement: the first annual increase in four years. This growth in investment was largely driven by late-stage “megarounds” in the $100m+ bracket – of which there were 36 in 2025 – but there was also a small uptick in investment at the early (seed/series A) and breakout (series B-C) stages of the funding cycle. This suggests that although capital remains concentrated at the top-end of the market, with investors keen to back companies perceived as prospective “winners”, there is also increasing confidence in, and depth to, the UK’s start-up ecosystem as a whole. Indeed, these figures mark out the UK as by far the leading European destination for venture capital investment, significantly ahead of both Germany and France (whose start-ups received $8.1bn and $7.7bn of investment in 2025, respectively). 

Where has this increased investment been deployed?

Perhaps unsurprisingly, the data shows that VC capital is flowing into start-ups based on AI technologies at an unprecedented rate. UK AI start-ups raised $7.9bn across 454 fundraising rounds in 2025, up 80% on 2024 ($4.4 bn), and representing almost a third of all VC investment made during the year. Some of the biggest rounds contributing to this total included those for energy utilities tech company Kraken, AI infrastructure hyperscaler NScale, DeepMind drug discovery spin-out Isomorphic Labs, and AI video platform Synthesia, showing the diverse application of AI across sectors in the UK. A clear emergent theme, then, is that AI can no longer be considered a standalone sector, but rather an enabling technology that is converging with and amplifying innovation across multiple different areas of industry.

Putting AI to one side (for the moment), it is clear that the technology and life sciences sectors remain core pillars of UK VC investment. In 2025, $6.6bn was raised in the fintech sector alone (with notable $500m+ rounds for Revolut, FNZ and Rapyd), with a further c. $3bn raised by IT hosting and semiconductor start-ups. Life sciences followed close behind tech, with $4.2bn of funding raised in the health sector and leading rounds taking place for Verdiva Bio (biopharma), OrganOx (medtech) and (as already noted above) Isomorphic Labs. This hardly comes as a surprise. The UK continues to demonstrate its strength in areas of innovation that require intensive research – such as deeptech (which can be defined as technology based on tangible engineering or scientific advances applied for the first time) and life sciences – due to its leading university spin-out ecosystem. Across Europe, university spin-outs now make up a growing share of start-ups in deeptech and life sciences (accounting for 40% of new companies formed in these sectors since 2019), and the UK’s universities have been at the heart of this expansion. Dealroom’s 2025 spin-out report shows that British universities lead the way in terms of value created (e.g. funding raised; unicorns produced and $1bn+ exits; enterprise value) by deeptech and life science spin-outs, with five universities present in the European top 10 – and Oxford and Cambridge comfortably occupying the top two spots. The UK is now home to more than 1,100 VC-backed deeptech and life sciences spin-outs, and in 2025 alone, UK spin-outs raised $2.5bn of funding (including the significant rounds for Synthesia and OrganOx noted above).

Convergence of AI with tech and life sciences

While the UK continues to build on its structural and systemic advantages in tech and life sciences, therefore, it is clear that the AI revolution is having a marked effect on the allocation of capital within these sectors. In life sciences, drug discovery is becoming an industrialised process, with investors increasingly drawn towards AI-first, platform-based discovery engines with the potential to generate treatments across multiple indications (as contrasted with “single-asset stories”). Isomorphic Labs is the standout example, having just secured a massive $2.1 billion in series B funding (to follow its $600m raised in 2025), while other UK start-ups to have secured notable funding for their AI-enabled therapeutic discovery technologies include CHARM Therapeutics and Relation Therapeutics. In deeptech, as well as driving the development of novel technologies – for example, in vision and voice generation (Synthesia; ElevenLabs) – AI is becoming embedded across areas such as robotics, material discovery and defence (as described in Dealroom’s report on European deeptech). Accordingly, across Europe, AI x deeptech companies attract a growing share of VC funding in deeptech: 50% in 2025, up from c. 30% in 2022-23. (Interestingly, the proportion of VC deeptech funding landing at AI companies is much higher in the US, at 85% in 2025, but this reflects the huge sums being invested to support the foundational LLMs of OpenAI, Anthropic and xAI (the only prominent commercial foundational model in Europe being that of Mistral, at present).)

Outlook for 2026

The upward trend in investment activity seen in 2025 was maintained in the first part of this year. UK start-ups raised an impressive $7.8bn in venture capital in Q1 2026, marking the strongest start to a year since 2022, and up 60% from Q1 2025. Meanwhile, certain trends identified from 2025 look set to continue through 2026 – namely, the prevalence of late-stage megarounds and the flow of capital towards AI companies. Megarounds made up $5.1bn of total investment in Q1 of this year, while AI start-ups accounted for 8 of the 12 megarounds completed in the first quarter (with colossal rounds having been completed for each of Nscale, Wayve and ElevenLabs). Collectively, AI start-ups in the UK raised $5.8bn in Q1, representing a staggering 70% of total VC investment. Looking beyond these eye-catching AI figures, health and fintech led the way in terms of deal volume (if not overall value), once again showing the broader activity taking place across, and enduring resilience of, these sectors.

Challenges

Despite the recent growth in VC investment in the UK, a promising outlook for this year, and the enduring strength of the UK’s start-up ecosystem (not least in university spin-outs), structural challenges remain. The increasing prevalence of megarounds should not disguise the fact that UK start-ups can still struggle to access sufficient funding, especially when looking to scale up after having secured their first significant round. As a result, promising start-ups may opt for an early exit, frequently to an overseas buyer, without having reached their potential in terms of generating equity returns and long-term benefits for the ecosystem. This is regarded as a particular issue in deeptech – an area in which US acquirers accounted for 73% of acquisition value in Europe from 2019-2025 – given the long-term impact that early exits may have on European “technological sovereignty”.

Start-ups that are able to raise capital, meanwhile, often find it difficult to find domestic investors to lead larger rounds, and rely heavily on foreign investment, particularly from the US. This can in some cases result in a shift in the centre of gravity of a business away from the UK and towards the marketplace of the overseas investor. This issue is not limited to the UK: across Europe, at a national level, the proportion of investment raised by domestic investors in the $100m+ range is generally below a third. But UK start-ups attract more overseas capital than the average, with the share of investment by domestic investors at the scale-up ($100m+) stage being one of the lowest in Europe, at 15% (since 2025). Addressing this “funding gap”, for example, by boosting the share of investment in private companies made by UK pension funds (on which Bristows has commented previously), will be critical to improving the long-term prospects of venture-backed start-ups looking to scale up in the UK. Efforts are also ongoing to address the growth capital funding gap in Europe, with the launch of several €1bn+ funds focused on investing in European deeptech. The most notable of these is the EIC’s €5bn Scaleup Europe Fund, which EQT has recently been selected to manage and which is expected to begin deploying capital later this year. Concerningly, UK companies currently risk missing out on this deep pool of capital, as they are currently ineligible (post-Brexit) to receive funding from the EIC Fund. Negotiations are reported to be underway between the UK and the EU to permit access for UK start-ups, however – a topic we will be monitoring closely over the coming year, given its potentially significant impact on the funding prospects of deeptech start-ups in the UK.

Conclusions

Overall, the UK venture capital market appears to have emerged from its recent period of adjustment (post-2022) with renewed confidence. Strong headline investment figures underscore the UK’s continued ability to attract capital into innovation-driven businesses, particularly AI-enabled start-ups in the tech and life sciences sectors, but the figures also paint a picture of increasing capital concentration. Investors remain selective in their approach to investments, with a relatively small number of star scale-ups attracting a significant proportion of available funding. Meanwhile, the surge of capital towards AI reflects investor conviction in the long-term prospects for start-ups (across different sectors) able to embed the technology in their business plans at an early stage – a trend that looks set to continue for the foreseeable future. Looking ahead, the outlook for UK venture capital remains positive, underpinned by sectoral strength in deeptech (including AI) and life sciences, and a leading university spin-out ecosystem. However, there remain structural challenges that must be addressed if the UK’s start-up scene is to build on its current momentum and maximise its potential. In particular, broadening access to growth capital and ensuring that founders are able to scale in the UK – rather than exiting early or relocating – will be key to enabling the country’s innovative young start-ups to become enduring global leaders.

*This article draws on figures and information sourced from the following reports (published by Dealroom and HSBC Innovation Banking):

• https://content.dealroom.co/uploaded/2026/01/UK-Q4-2025-2026-Innovation-Update-DRHINV.pdf
• https://content.dealroom.co/uploaded/2026/04/UK-Q1-2026-Innovation-Update-Dealroom.pdf
• https://content.dealroom.co/uploaded/2025/11/European-Spinouts-2025-Dealroom.pdf
• https://content.dealroom.co/uploaded/2026/03/The-European-Deep-Tech-Report-2026.pdf
• https://www.hsbcinnovationbanking.com/en/resources/uk-life-science-healthcare-report