AI captures 44% of UK smaller business investment as market concentrates around fewer large deals
AI is reshaping the UK’s startup economy, attracting a record share of investment in 2025 and driving larger equity deals, against the backdrop of a slight decline in overall activity, reveals the British Business Bank’s annual Small Business Equity Tracker.
The equity market for smaller businesses is increasingly concentrated around higher-value AI deals. AI companies accounted for 44% of total equity investment into smaller businesses in 2025, the highest share on record.
AI represented more than a quarter (26%) of all deals, nearly doubling its share since 2022. Investment in AI-related deals rose by 48% year-on-year, highlighting strong investor appetite. This trend continued into Q1 2026, where a handful of AI-related megadeals drove overall investment growth, despite weaker funding conditions for smaller businesses.
Meanwhile, the British Business Bank continued to play a significant role across the market, supporting 15% of all deals and 16% of investment between 2023 and 2025, with a particular focus on innovation-led businesses, including in AI.
Larger deals drive the UK smaller business equity market
Investors concentrated capital into fewer, larger transactions in 2025 with the top 10 fundraisings accounting for nearly a quarter (23%) of all investment, the highest level since 2020. Equity investment into UK smaller businesses fell slightly, by 4% to £12.3bn in 2025, however, investment remained above pre-pandemic levels.
Lower levels of early-stage activity
While growth-stage investment proved resilient, early-stage deals at seed and venture stages were 27% and 13% lower respectively in 2025. The Digital and Technology sector remained the largest recipient of equity investment. Advanced Manufacturing saw strong growth in investment value in 2025, whilst Financial Services and Life Sciences were lower. Clean Energy and Creative Industries maintained stable investment levels, despite lower deal volumes, highlighting continued investor confidence in select growth opportunities.
Spinout funding expands significantly highlighting the UK’s research strengths
Spinout companies play a key role in translating academic innovation into commercial growth, and supporting spinouts remains a key priority for the Bank.
Funding for UK university spinouts has grown strongly in recent years, with venture capital deal volumes up by 95% in 2021-2025 compared to 2016-2020, outpacing the United States, Germany and France. This increase highlights the UK’s position as a world-leading research and development hub, home to four of the world’s top 10 universities. The British Business Bank continues to play an important role in this segment, supporting a higher share of spinout deals (16%) than the wider market (12%).
The UK had the highest number of venture capital-backed spinouts among international comparators, including the United States, Germany and France, when controlling for the size of the research base. However, UK spinouts’ equity deals declined by 33% and investment value by 51% year-on-year in 2025, indicating a slowdown in activity.
UK venture capital investment overall was 32% lower than the US in 2023-2025 when adjusted for the size of economy. However, US investment figures were inflated by a small number of exceptionally large deals over this period, which has influenced the US investment figure.
British Business Bank accelerates investment activity
The British Business Bank has accelerated its pace of investment following the publication of its Five-Year Strategic Plan in November 2025. By increasing our annual deployment by two-thirds, we are unlocking around £26bn of private capital alongside £13bn of our funding over the next five years. The Bank is also deploying £4bn to boost the most promising businesses in the government’s eight Industrial Strategy sectors.
Leandros Kalisperas, chief investment officer, British Business Bank, said: “While we are seeing signs of the market cycle playing out, the British Business Bank is accelerating deployment of investment across the cycle, and ensuring promising businesses can continue to access the finance they need to start, scale and stay in the UK.
“The concentration of investment into AI highlights both the scale of the opportunity and the challenges within the wider market. Ensuring capital is available across sectors and stages will be critical to maintaining a diverse and competitive pipeline of UK companies.”
Michael Moore, chief executive, UK Private Capital, said: “The UK should celebrate the strength of our spinout ecosystem – outpacing the US, France and Germany is no mean feat, but it’s important that we build on this competitive advantage in years to come.
“The British Business Bank is playing an important anchor role in helping develop this ecosystem and growing an investor base of larger VC funds. Nurturing these start ups and ensuring they can access the right capital at the right time will encourage more companies to scale and stay in the UK.”
Regional growth as London becomes less dominant
The North West of England saw one of the largest increases in equity investment, with investment levels rising 82% in 2025, alongside strong growth in Scotland (74%) and the South West (104%), driven by a small number of large deals in AI and energy. At the same time, London has become less dominant, with its share of UK equity investment declining from 60% in 2024 to 57% in 2025.
The British Business Bank is expanding its investments across the UK and is committing £2.6bn of capital to support entrepreneurs wherever and