British Business Bank has launched its 2026 Small Business Equity Tracker. It found that AI companies accounted for a record 44% share of UK SME equity investment in 2025.
Overall equity investment in small businesses in the UK fell by 4% to £12.3bn in 2025, although investors continued to favor large deals. The top 10 financings accounted for 23% of all investments, the highest level since 2020, showing that the market is increasingly being shaped by a small number of large deals.
AI was at the heart of that change. The sector accounted for 26% of all transactions in 2025, nearly doubling its share in 2022, and investment in AI-related transactions increased by 48% year-on-year.
The findings suggest that while investors are focusing capital on businesses deemed to have stronger growth prospects, financing conditions remain challenging for small and early-stage companies. Seed-stage deals fell by 27% in 2025, and venture-stage deals fell by 13%.
Growth stage investments were more resilient. While digital and technology remained the largest recipient of equity funding, advanced manufacturing recorded a significant increase in investment volume. Financial services and life sciences saw investment fall, while clean energy and creative industries were generally strong despite lower volumes.
spin-out activities
The report also highlighted the role of university spinouts in the UK funding market. Venture capital spinout deal value increased by 95% from 2021 to 2025 compared to 2016 to 2020, a faster growth rate than the United States, Germany, and France.
Considering the size of its research base, the UK recorded the highest number of venture capital-backed spin-outs of any international peer group. The bank supported 16% of spinout transactions, outpacing its broader market share of 12%.
Its momentum weakened in 2025. UK spinout share trading was down 33% year-on-year, with investment values down 51%. This indicates that this part of the market is not affected by a broader economic slowdown.
The data also shows a gap in overall venture capital funding compared to the United States. UK venture capital investment from 2023 to 2025 was 32% lower than the US when adjusted for economy size, although the US figure was influenced by a small number of very large deals.
regional shift
Several parts of the UK outside London have seen sharp increases in investment. In 2025, equity investment in the North West will increase by 82%, Scotland by 74% and the South West by 104%.
These profits were related to a small number of large AI and energy trades. Although London remains the largest market, London’s share of UK equity investment has fallen from 60% in 2024 to 57% in 2025, suggesting some decline in London’s dominance.
From 2023 to 2025, British Business Bank supported 15% of all transactions and 16% of total investments. Its activities focused specifically on innovation-driven businesses, such as AI companies and university spin-outs.
The institution has also increased the pace of its own investment activity since developing its five-year strategy. It plans to leverage around £26 billion of private capital and £13 billion of its own funds over five years, while also injecting £4 billion into the Government’s eight industrial strategy areas.
It will also pump £2.6 billion into supporting entrepreneurs across the UK, including through two new national and regional investment funds.
Leandros Kalisperas, chief investment officer at British Business Bank, said the bank’s view of the market was placed in the context of the current funding cycle.
“With signs that the market cycle is moving forward, UK Business Bank is accelerating the rollout of investment across the cycle to ensure promising businesses continue to have access to the capital they need to start, expand and stay in the UK. “Ensuring access to funding across sectors and stages is critical to maintaining a diverse and competitive pipeline of UK businesses.”
Michael Moore, CEO of UK Private Capital, pointed to the current status of UK spinouts despite the economic slowdown in 2025.
“The UK should celebrate the strength of its spin-out ecosystem. It is no mean feat to surpass the US, France and Germany, but it is important that we build on this competitive advantage for years to come. British Business Bank will support the development of this ecosystem and support the development of a large VC fund. “It plays a key anchor role in growing the fund’s investor base. By nurturing these start-ups and giving them access to the right capital at the right time, we will encourage more companies to scale up and stay in the UK.”
