The State of UK Venture Capital

The British Private Equity & Venture Capital Association (BVCA) have published an annual report titled ‘Venture Capital in the UK’ (here).

With £8 billion invested in 2023, the UK ranks third globally for VC investment and remains Europe’s largest market. However, the report highlights areas for improvement, including challenges in scaling businesses and increasing domestic institutional investment.

This blog post summarises the report’s key findings and explores how stakeholders can navigate this dynamic and evolving landscape.

1. The UK as a Leading VC Market

The UK accounted for 5.8% of global VC investment between 2021 and 2023, placing it behind only the US and China. Within Europe, the UK consistently outperforms its peers, attracting more investment than France, Germany, and Sweden combined. This strong performance is underpinned by a diverse pipeline of innovative businesses and a wide range of investors.

However, later-stage funding continues to rely heavily on international capital, with US investors playing a significant role in Series B and beyond. Creating a robust framework to encourage larger domestic VC funds is seen as critical to retaining innovation and intellectual property within the UK.

2. Regional Innovation and Sectoral Focus

Nearly half of VC-backed businesses in 2023 were based outside London. Regional hubs like Bristol and Edinburgh are central to this success, with Bristol behind only Oxbridge and Imperial College London in the list of top academic institutions by number of equity deals secured by their spinouts. 

These regions, along with others like Cambridge and Manchester, are driving advancements in emerging sectors such as AI, cleantech, and life sciences. However, the geographic concentration of VC firms in London (which hosts approximately 80% of them) underscores the need for initiatives to address regional disparities.

Efforts such as the ‘British Business Bank’s Future Fund: Breakthrough and Regional Angels Programme’ aim to stimulate investment outside London and support the regions. 

3. Bridging the Scale-Up Gap

A key challenge identified in the report is the “scale-up gap”. While the UK is a leader in fostering startups, businesses transitioning to later-stage funding often face hurdles in accessing significant domestic investment. In 2023, 94.3% of deals over £50 million included international investors, highlighting the reliance on foreign capital.

The lack of large UK-based funds limits opportunities for businesses to scale domestically. Addressing this funding gap requires unlocking greater institutional investment, particularly from UK pension funds, to ensure businesses can grow and thrive within the UK.

"For too long, pensions capital has not been used to support the development of British start-ups or scale-ups" - Chancellor Rachel Reeves, Mansion House speech, November 2024.

4. Diversity and Inclusion in VC

The report also shines a light on diversity challenges in the VC ecosystem. Women-led and minority-led businesses remain underrepresented in terms of funding, despite some progress. For instance, the proportion of deals involving at least one female founder has increased, but all-female teams still receive only a small fraction of overall investment.

Industry initiatives such as the BVCA ‘Inspirational Women Award’ are working to encourage greater diversity and representation in the sector, but further efforts are needed to unlock the full potential of underrepresented founders.

5. Policy and Taxation

The BVCA emphasises the importance of stable tax and regulatory frameworks to support VC activity. Positive developments include the extension of SEIS and EIS schemes to 2035 and increased government funding for R&D. However, the report calls for further reforms to streamline access to these schemes and enhance their effectiveness, particularly for knowledge-intensive sectors.

Predictable policies and targeted support are seen as critical to maintaining the UK’s competitiveness as a destination for innovation and investment.

How We Can Help

With offices in London, Bristol and Edinburgh – key hubs highlighted in the report – we are closely connected to the UK’s venture capital ecosystem. Our team provides strategic legal advice across the lifecycle of venture-backed businesses, from structuring early-stage investments to navigating complex cross-border transactions and exits.

For investors, we offer support in fund formation, regulatory compliance, and structuring investments to align with their objectives. For businesses, we assist with raising capital, protecting intellectual property, and preparing for growth stages or acquisitions.

For more information about the UK VC market and how you can navigate this dynamic landscape, please contact Alex Lloyd or Shaaf Alam.