UK venture capital investment rebounds as software and biotech attract funding

UK venture capital investment is heading for a record year after surging in the first half to £14.4bn, bolstering the country’s reputation as the leading European hub for AI deals.

The value of deals is on track to double over the course of the full year, which would exceed the record £26bn total from 2021, according to data from PitchBook. This year’s investments were concentrated in late-stage venture capital in the software and pharma or biotechnology sectors.

“The UK has the largest AI ecosystem in Europe, including hubs and networks of engineers,” said Navina Rajan, senior research analyst at PitchBook. “There’s more interest to invest in UK venture capital companies generally.”

Demand has come primarily from overseas investors, particularly in the US, who view the UK as one of the better hunting grounds for emerging growth companies. While the venture capital market is heavily skewed towards the US, the UK leads in the European region. Within the AI sector, the UK ranked third behind the US and China, according to PitchBook.

“[The UK] shows a lot of strength in the AI sector, especially in and around London, supported by great talent in a perfect storm that has helped create world-leading AI businesses that investors want to support and help grow,” said Nicole Lowe, UK head of KPMG’s Emerging Giants practice.

UK investors accounted for just 11 per cent of funding in UK venture capital this year, a low proportion historically, though US buyers have usually dominated.

In general, wealthy UK retail investors have lost their appetite for venture capital trusts designed to stimulate backing for early-stage companies. In 2025, the then chancellor Rachel Reeves cut upfront tax relief on initial funding for VCTs from 30 to 20 per cent. That reduced the maximum deduction that investors could make against other income taxes, immediately hitting demand for these trusts.

UK venture capital fundraising, after rising sharply during the Covid period, fell markedly afterwards, dropping to just £2bn last year, far below the annual average of £7.5bn in the eight years to 2024. This year’s capital raising has already exceeded the total for 2025.

While the IPO market remains relatively quiet in the UK, the potential for venture capital exits has improved this year. “Our work on the European IPO market has consistently highlighted the UK as one of the key hubs of IPO candidates. Our most recent analysis shows that more widely, the backlog in Europe has nearly halved,” PitchBook analysts wrote in a report earlier this month.

Isomorphic Labs, an AI and life sciences company, and autonomous driving technology group Wayve dominated fundraising this year, at £1.5bn and £945mn in the second quarter.

Rajan at PitchBook said there were two schools of thought about this year’s rebound in venture activity. “One is that AI is a separate ecosystem and the underlying VC market isn’t that healthy. Another view is that this is the next wave of tech investment.”