UK venture money is back, but it is reaching fewer small firms

UK startups raised $17bn (£12.7bn) in the first half of 2026, according to HSBC Innovation Banking UK and Dealroom, whose half-year update was published on 6 July. That is 102% more than in the first half of 2025 and the strongest opening to a year since 2022. Almost three-quarters of it, $12.6bn (£9.4bn), went to AI companies.

The recovery is narrower than the total suggests. Late-stage rounds took 68% of all capital raised, up from 42% a year earlier and above the European average of 59%. Rounds of $250m (£187m) or more accounted for $8.6bn (£6.4bn), more than half of everything invested, and all four rounds of $1bn or more went to AI-first businesses.

For the founder of a 30-person software company or a regional IT services firm planning a raise, the question is whether any of that money will reach them. The British Business Bank’s latest data on smaller businesses suggests the odds have got longer.

Fewer deals, bigger checks

The bank’s Small Business Equity Tracker 2026, built on Beauhurst data covering announced equity deals involving UK small and medium-sized enterprises (SMEs), finds that smaller businesses raised £12.3bn of equity in 2025, down 4% on 2024. The number of deals fell much faster, by 17% to 2,002. The 10 largest fundraisings took 23% of all investment into smaller businesses, the highest share since 2020.

The squeeze was sharpest at the bottom of the ladder. Seed-stage deal numbers fell 27% to 704, while seed investment held at £2.1bn: the same money, spread across fewer companies. The median time between rounds at seed stage stretched from 12.4 months in 2024 to 14.4 months in 2025. Venture-stage businesses, the next rung up, raised £4.5bn across 835 deals, with investment down 18% and deal numbers down 13%. Only growth-stage companies gained ground, with investment up 10% to £5.7bn even as deal numbers slipped 4%.

AI explains much of the concentration. Smaller businesses active in AI raised £5.4bn through 527 deals, and AI companies took 44% of all equity investment into smaller businesses in 2025, a record share, as well as 26% of deals. In the Digital and Technologies sector, AI companies captured 46% of investment value in recent years while accounting for 35% of deals, according to the bank.

A wider gap in early 2026

Figures for early 2026 show the gap widening. In Q1 2026, smaller businesses raised £1.5bn across 418 deals: deal numbers fell 3% on the previous quarter and investment fell 43%. Across the whole market, including larger companies, investment rose 28% to £4.6bn, but around £3bn of that came from three megadeals for Nscale, Wayve and ElevenLabs. Nscale, which raised £1.5bn in the quarter, is no longer classed as an SME after a change to Beauhurst’s method.

Leandros Kalisperas, chief investment officer of the British Business Bank, puts it plainly in the report’s foreword: “The findings point to an active but increasingly concentrated market.”

The bank’s reading is that investors have changed how they back young companies. At seed stage, it says, activity is “moving away from high-volume, small-ticket investment and towards a more targeted approach focusing on larger, higher-conviction rounds and greater scrutiny on revenue and profitability”. Overseas investors, which can typically deploy larger checks, also took part in fewer UK deals in 2025, particularly at venture stage.

Where the early money still is

Not every source of early capital has shrunk. HM Revenue and Customs (HMRC) figures cited by the bank show investment through the Seed Enterprise Investment Scheme (SEIS) rose 14% to £276m in the 2024–25 tax year, while Enterprise Investment Scheme (EIS) investment held steady at £1.6bn. A survey of UK Business Angels Association members found 27 angel groups invested £53m across 321 deals in 2025.

Regional money is moving too. Equity investment rose 82% in the North West in 2025, 74% in Scotland and 104% in the South West, although the bank says a small number of large AI and energy deals drove those rises. London’s share of UK equity investment fell from 60% to 57%. The bank itself leans toward early rounds: 54% of the deals it supported between 2023 and 2025 were at seed stage, against 39% across the wider market.

HSBC’s side of the story is more upbeat. “What is particularly encouraging is how AI is increasingly being applied across sectors,” said Emily Turner, chief executive of HSBC Innovation Banking UK. Her bank’s figures show where: enterprise software attracted the most AI investment in the half, at $5.2bn (£3.9bn), ahead of health at $2.6bn and hosting at $2.1bn.

What founders should plan for

Neither dataset says UK venture capital has dried up. Together they say it has become selective, and that the selectivity bites hardest on companies raising a first or second round. That changes the arithmetic for leaders of smaller tech businesses in three ways.

The first is runway. If the median gap between seed rounds is now more than 14 months, a company that budgets for 12 months of cash is planning to raise from a position of weakness. The second is evidence. Investors applying “greater scrutiny on revenue and profitability”, in the bank’s words, will discount an AI story without paying customers behind it, and an AI label is no longer rare: more than a quarter of smaller-business deals in 2025 involved AI companies. The third is the cap table. The bank says SEIS and EIS deal volumes stayed resilient while announced seed deals fell, which points founders toward angel investors as well as funds.

The $17bn headline is real, but much of it went to a small number of very large rounds, mostly in AI, at a scale few UK businesses will see. For everyone else, the 2026 funding market rewards the companies that need it least. Founders who can show revenue, stretch their runway past the 14-month median and widen their list of backers will be the ones still standing when the next round opens.