A market on the move
Despite global economic uncertainty, the UK venture market showed resounding resilience. Venture debt, once a niche tool, gained traction as startups sought to pair debt with smaller equity rounds in order to extend runway, finance acquisitions, or bridge to profitability.
The UK remained one of Europe’s most active hubs for venture debt, with a strong late-stage startup scene and increasing interest from institutional lenders.
Government initiatives, such as the Mansion House reforms, aimed at unlocking pension fund capital for private markets, added momentum. These reforms signalled a broader shift toward diversifying funding sources for innovation-driven businesses, with venture debt positioned as a key beneficiary.
Venture-debt competition is intensifying
HSBC Innovation Banking topped Sifted’s Q2 2025 European ranking by deal count, with Columbia Lake Partners and Claret Capital close behind. Atempo Growth is scaling with a new fund, while BlackRock’s acquisition of Kreos Capital has added heavyweight firepower to UK and European venture lending.
Traditional bank lenders are also active, and more institutions are circling. Expect further capital formation as private credit continues to attract mainstream attention.
Deal Terms: A Shift Toward Structure and Caution
Deal terms have evolved to reflect a more risk-aware environment. Several notable trends have recently emerged:
- Greater standardisation: Updated model documents from industry bodies like the BVCA have helped streamline negotiations. These templates encourage consistency in shareholder agreements and subscription terms, reducing friction and legal costs.
- Borrower sensitive provisions: Greater lender competition for quality credits has led to initial interest only provisions followed by amortisation. We are also seeing fewer covenants relative to traditional bank loans, though material adverse changes, negative pledges and restrictions on additional debt continue to remain a feature.
- Investor protections on the rise: In response to market volatility, investors leaned into protective provisions. Participating liquidation preferences have become more common, and in some cases, preference multiples increased. Anti-dilution clauses—particularly full ratchets—are more frequently seen in down rounds or rescue financings.
- Founder commitments scrutinised: Investors continue to request personal warranties from founders, despite industry guidance suggesting company-only warranties. Leaver provisions have also became more structured, with clear distinctions between “good” and “bad” leavers and vesting schedules tied to performance.
Sector trends and the road ahead
While fintech saw a dip in funding whilst sectors like AI, health tech, life sciences and climate innovation attracted strong interest. Government backing for tech infrastructure, including a £1 billion investment in AI and supercomputing, reinforced the UK’s commitment to future-facing industries.
Looking forward to the next 12 months, venture debt is expected to play an even larger role in UK start-ups as a complement to equity. As founders seek capital that preserves equity and investors look for structured exposure to growth-stage companies, venture debt offers a middle ground for capital efficient growth. With regulatory support, greater supply of funding, better pricing for top credits and increasing familiarity among founders, the venture debt market is poised for continued expansion.
DWF has the largest venture and growth capital group in the UK with over 85 lawyers in 10 offices, and supports investors and companies across several sectors including financial services, technology, media and telecommunications, life sciences and healthcare and real estate and infrastructure. If you have queries on any of the issues covered in this article please contact one of our experts.
Thank you to George Robinson for his contribution to the article.
