British Business Bank’s SME Equity Tracker finds AI deals 40% larger on average than deals across UK equity market
The average size of artificial intelligence (AI) deals was significantly higher than deals across the wider UK equity market in 2024, underlining the continued focus on the sector, reveals the British Business Bank’s annual Small Business Equity Tracker, published today.
The average AI equity deal in the UK was £8.3m in 2024, more than 40% larger than the £5.7m across the wider market. At the growth stage, AI deals were on average £36.3m, 2.5 times larger than the wider market, indicating that appetite for AI drives value.
Record breaking year for university spinouts
The UK is home to world-leading research and development, with four of the top 10 universities globally. University spinouts raised £1.9bn in equity investment in 2024, equivalent to 17% of total investment across the UK, and accounted for a record share of deals (12%). Spinout companies are a vital bridge between academic innovation and market deployment, and the British Business Bank supports these ventures more than the overall equity market.
Spinout companies raised larger rounds with the average deal size for spinouts reaching £8.0m in 2024, more than a third larger than the overall UK average, indicating investor appetite for backing innovation. Investment in spinouts increased by 4% in 2024, despite a decline in investment across the wider equity market. Between 2022-2024 almost a quarter (24%) of university spinout deals were supported by the British Business Bank, demonstrating the Bank’s significant role in supporting the commercialisation of cutting-edge scientific research.
Equity investment declined slightly, still above pre-pandemic levels
Equity investment has declined slightly in 2024, but investment value remains above the levels seen before the pandemic. Full year data shows that investment declined by 2% to £10.8bn in 2024 in the UK, while the number of deals fell by 15% to 2,048, reflecting a more cautious investment environment and a trend towards fewer, larger deals. Despite the fall in equity investment, 2024 was still the fifth highest year on record in value terms for small business equity investment.
Leandros Kalisperas, chief investment officer, British Business Bank, said: “2024 was a challenging year for the UK equity finance market as investment values and deals declined. However, it is encouraging to see that university spinouts have raised £1.9bn in 2024 and that the appetite for AI drives value across the UK equity finance market with large deal sizes.
“The UK venture capital market continues to perform well internationally, as it outperforms the US in financial services and clean energy, though more support is needed to close the gap in key sectors like life sciences and advanced manufacturing.”
UK investment gap with the US driven by sectors such as life sciences and advanced manufacturing
The UK had a 10% investment gap with the US between 2022-2024 after adjusting for the size of the economy. Looking across sectors the UK is outperforming the US in financial services and clean energy, and is only marginally behind in digital technology. However, there are more acute gaps in life sciences and advanced manufacturing, two of the growth-driving sectors identified for investment as part of the UK’s modern industrial strategy. Between 2022-2024, UK venture capital investment represented 0.68% of GDP, 1.1x less than in the US, though this gap has narrowed from 1.3x in 2019-2021.
British Business Bank plays critical role backing startups as early-stage venture capital investment declines
The British Business Bank is playing a critical role in start up growth as 48% of its equity deals were at the seed stage and 41% at the venture stage between 2022-2024. These are areas which have seen declines across the wider market, with the number of seed and venture stage deals in the UK falling by 15% and 17% respectively in 2024, similar to the trends seen across the Rest of Europe. The British Business Bank is continuing to support early-stage businesses through these challenging market conditions, underlining its importance to startup businesses.
London’s share of investment falls as Scotland, the North West and East Midlands rise
London has become less dominant over the last few years as its share of equity investment has dropped to 61% from a 2020 peak of 73%. London was also less resilient in 2024 than the wider UK equity market, seeing a 21% drop in the number of equity deals compared to 2023.
Five of the UK’s 12 Nations and regions saw growth over 2024 with activity in Scotland, the North West and East Midlands increasing across both the number of deals and total investment value. Proportionally, the British Business Bank was more likely to support deals in seven of the 12 Nations and regions compared to the wider market, reflecting the impact of the Bank’s Nations and Regions Investment Funds and Regional Angels Programme.
Business angels vital for early-stage equity investment
Business angels continue to be a significant source of equity investment for start up and early stage businesses with 70% of angels investing in early-stage businesses. The Small Business Equity Tracker found that two-thirds (64%) of respondents to the Bank’s survey of UK angel investors have matched or increased their investments from 2023 to 2024.
Where angels reported ‘backing underrepresented groups positively impacted investment decisions’, they were most likely to invest in female entrepreneurs followed by entrepreneurs from ethnic minority backgrounds. More than a quarter (26%) of businesses backed by angel investors were led by all-female founders, up from 12% in 2019, further indicating increased focus on female founders.