AI attracts record share of UK startup investment despite funding slowdown

AI companies attracted a record share of UK equity investment in 2025, accounting for almost half of all funding for smaller businesses despite a slight decline in the overall venture capital market, the British Business Bank has found.

According to a report by the UK government-owned economic development bank, equity investment into UK smaller businesses fell by four per cent year-on-year to £12.3 billion in 2025. However, investors continued to back AI firms, which secured 44 per cent of total investment, the highest proportion recorded to date.

AI companies also represented 26 per cent of all equity deals, almost doubling their share

since 2022. The report found investment in AI businesses increased by 48 per cent compared with the previous year.

The bank said that investors increasingly concentrated capital into fewer, larger transactions. The 10 biggest fundraisings accounted for 23 per cent of all equity investment during 2025, the highest proportion since 2020.

While later-stage companies continued to attract investment, early-stage funding weakened. The report found seed-stage deals fell by 27 per cent during the year, while venture-stage transactions declined by 13 per cent.

The Digital and Technology sector remained the UK’s largest recipient of equity investment, while Advanced Manufacturing recorded strong growth. Investment in Financial Services and Life Sciences declined, although funding for Clean Energy and Creative Industries remained stable despite fewer deals.

The report also highlighted the UK’s university spinout ecosystem, which has expanded significantly in recent years. Venture capital deal volumes for spinouts increased by 95 per cent between 2021 and 2025 compared with the previous five-year period, outperforming the United States, Germany, and France.

However, activity slowed during 2025, with spinout equity deals falling by 33 per cent and investment value dropping by 51 per cent.

The British Business Bank said it continued to play a key role in supporting innovative businesses, backing 15 per cent of all equity deals and 16 per cent of total investment between 2023 and 2025.

“The concentration of investment into AI highlights both the scale of the opportunity and the challenges within the wider market,” said Leandros Kalisperas, chief investment officer at the British Business Bank. “Ensuring capital is available across sectors and stages will be critical to maintaining a diverse and competitive pipeline of UK companies.”