The UK venture capital (VC) market has demonstrated resilience, reaffirming its position as Europe's leading destination for VC investment. According to KPMG's Private Enterprise Venture Pulse report, in Q1 2025, the UK attracted £4.1 billion in investment -more than double that of Germany, the next largest market. Despite this, deal volume decreased from 507 in Q1 2025 to 435 in Q2. Three key themes currently define the landscape: a surge in early-stage funding, the resilience of AI and deep tech, and the emergence of hubs beyond London.
Early-stage momentum vs late-stage stagnation
Early-stage investment continues to dominate the UK VC landscape. According to data from the British Private Equity & Venture Capital Association (BVCA), in 2024, seed-stage deals experienced an increase of more than 80% in investment levels, and the number of companies receiving funding at this stage rose by 30%. This trend reflects strong support for innovation and a healthy appetite for risk among investors. However, there is the risk the UK could become an 'incubator economy', as noted by the Lord Mayor of London.
Late-stage funding accounted for only 20% of total UK VC investment last year, compared to 35% in the US, leaving companies struggling to scale up through domestic capital. Notably, over 60% of late-stage funding now originates from overseas investors - 42% from the US alone - diluting UK ownership and encouraging companies to look abroad. To avoid stagnation, UK based investors must increase their focus on growth-stage opportunities.
Advanced technology dominance
AI continues to dominate investment, with UK AI startups securing £1.8 billion in VC funding in the first half of 2025. Notable investments include Isomorphic Labs’ $600 million round (AI-led drug discovery), Sythensia's $180 million (c. £160m) round (AI video generation), and Nscale's $1.1 billion (c. £840m) round (AI infrastructure services). Deep tech - including technology such as quantum computing, augmented reality and life sciences also show significant promise, supported by government initiatives such as the Defence Innovation Fund and capitalising on the UK's strong academic research sector. These sectors are driving innovation and positioning the UK as a European leader in advanced technology investment.
The rise of regional hubs
While London remains the hotspot for UK venture capital - accounting for 47% of deals and 60% of investment value - regional hubs are expanding rapidly. Cambridge, Oxford, Cardiff and Glasgow have emerged as significant centres for investment, particularly due to their academic spinouts, which attracted £2.6 billion in equity investments in 2024. Oxford and Cambridge Universities ranked first and third, respectively, in Europe for their spinout creation value. The increasing prominence of deep tech and AI is further enhancing the appeal of these research-driven regions, helping to diversify opportunities across the UK.
Looking to the future
The UK remains Europe’s VC leader, but sustaining global competitiveness will require addressing the late-stage funding gap that forces many UK businesses to seek assistance overseas. VC firms should priorities sustainable growth over short-term gains, fostering stronger, more resilient businesses that appeal to long-term investors. Government support will also be essential to retain high-potential companies.
Despite these issues, the UK’s leadership in AI, deep tech, and life sciences provides a strong foundation for future growth. A strategic shift in capital allocation and focused regulatory support would ensure that the UK is well positioned to enhance its standing a major global player
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: Dhruv Chhatralia BEM, Darren Ormsby, James Bryce, Scott Kennedy, Will Munday, Alex Stoughton, Francesca Kinsella, Graham Tait, Gary MacDonald, Matthew Judge and Rosie Spencer.
Thank you to Gary Macdonald, Alec Mackenzie and Alex Alaniz for the contribution of this article.
