In 2025, 44% of all equity investment in UK SMEs will be taken by AI companies, the highest share ever.
However, the increase came as overall funding fell by 4% to £12.3bn, according to a report by the British Business Bank.
According to the study, AI-related deals rose 48% year-over-year, driven by a small number of “mega-deals.”
The overall financing situation for small and medium-sized enterprises has deteriorated, with investors putting capital into fewer sized deals. Funding for the top 10 companies accounted for almost a quarter of all investments, the highest level since 2020.
Seed-level and venture-level early-stage deals fell by 27% and 13% respectively, while UK university spinouts saw deals fall by 33% and investment value fall by 51%.
Nevertheless, when controlling for the size of the research base, the UK still had the highest number of venture capital-backed spin-outs compared to the US, Germany and France.
Leandros Kalisperas, chief investment officer at British Business Bank, said:
“The concentration of investment in AI highlights both the scale of the opportunity and the challenges in the wider market. Making funding available across sectors and stages is critical to maintaining a diverse and competitive pipeline of UK businesses.”
The report said London was losing its edge in equity investment.
Investment in the North West of England rose by 82% in 2025, with Scotland (74%) and the South West (104%) also growing, driven by a small number of big deals in AI and energy.
London’s share of UK stock investment will fall from 60% in 2024 to 57% in 2025.
The study also found that the share of all companies with female founders in equity investments will be 2% in 2025, and the share of equity transactions will be 7% in 2025, the same as the average for the past 10 years. Click here for details.
