AI is reshaping the UK’s startup economy, attracting a record share of investment and driving larger equity deals against the backdrop of a slight decline in overall activity, according to the British Business Bank’s annual small business equity tracker.
The tracker found that 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 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 mega deals drove overall investment growth, despite weaker funding conditions for smaller businesses.
Investors concentrated capital into fewer, larger transactions in 2025, with the top ten fundraisings accounting for 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.
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 companies play a key role in translating academic innovation into commercial growth.
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.
The Bank says this increase highlights the UK’s position as a world-leading research and development hub, home to four of the world’s top ten universities.
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.
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 concentration of investment into AI highlights both the scale of the opportunity and the challenges within the wider market,” says 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.”
