AI Took a Record 44 Per Cent of UK Startup Equity in 2025 as Seed Funding Fell, British Business Bank Data Shows
- Shawn Jhanji
- Jul 8
- 5 min read
Picture a founder outside the story everyone is telling. She is not building a large language model. She is building a climate hardware business in Sheffield, or a healthtech tool in Cardiff, with early revenue and a plan to grow. This week the British Business Bank published the numbers that describe the market she is trying to raise into, and they explain something she has almost certainly felt already. The money is pooling, and it is pooling somewhere very specific.
The Bank's recently published annual Small Business Equity Tracker, found that artificial intelligence companies captured 44 per cent of all equity investment into UK smaller businesses in 2025, the highest share on record. AI accounted for 26 per cent of all deals, a share that has nearly doubled since 2022, and investment into AI-related deals rose 48 per cent year on year even as the wider market softened. Capital did not just favour AI. It concentrated.
The ten largest fundraisings alone soaked up 23 per cent of everything invested, the highest such concentration since 2020.
Underneath that headline sits the number that matters most to the founder in Sheffield.
Total equity investment into UK smaller businesses fell 4 per cent to 12.3 billion pounds in 2025, but the fall was not evenly shared. Growth-stage investment held up. Early-stage did not. Seed deals were down 27 per cent and venture-stage deals down 13 per cent on the year. The part of the market that funds the ordinary founder, the first believer cheque that turns a plan into a company, contracted hardest while a handful of AI megadeals pulled the average up.
This is the honest starting point, and it is worth naming plainly before moving on. A market that routes nearly half its capital to one sector, and almost a quarter of it to ten deals, is a market getting narrower at exactly the moment founders need it to get wider. For anyone raising a seed round outside the AI wave in 2025, the tracker is not an abstraction. It is the explanation for why the room felt emptier.
So much for the problem. The more useful half of this story is what is moving in the other direction, because plenty is.
Start with geography, because the tracker contains a genuinely encouraging shift. London is becoming less dominant. Its share of UK equity investment fell from 60 per cent in 2024 to 57 per cent in 2025, and the capital did not vanish, it moved.
The North West saw equity investment rise 82 per cent, Scotland 74 per cent and the South West 104 per cent, helped by large deals in AI and energy. Three points of London's share is not a revolution, but the direction is the one that matters. For a founder whose disadvantage was never her idea but her postcode and her lack of a warm route into a Mayfair fund, a market that is learning to write cheques outside the capital is a market slowly correcting one of its oldest biases.
There is a research strength here too that rarely gets celebrated. UK university spinout venture capital deal volumes grew 95 per cent across 2021 to 2025 compared with the previous five years, outpacing the United States, Germany and France. That is a serious national advantage in turning academic work into companies. It slowed in 2025, with spinout deals down 33 per cent and their value down 51 per cent on the year, which is a warning rather than a reversal. The pipeline is world-class. The question is whether the capital and the mechanics keep pace with it.
That question, of mechanics, is where a newer set of answers is starting to take shape, and where this publication has consistently argued the most interesting change is happening. If the problem is that too few investors can reach too few founders, and that the ones who do reach them often demand board control and preference terms in exchange, then the architecture of how equity is issued and traded is not a side issue.
It is the issue.
Tokenised equity, paired with the UK's new private trading regime, points at a different shape. PISCES, the Private Intermittent Securities and Capital Exchange System, went live this year, with the London Stock Exchange's Private Securities Market among the venues now approved to run periodic auctions in private company shares. Its early significance is not that it lets anyone buy into private companies. It is that it gives founders and their earliest backers a regulated, intermittent route to liquidity without forcing a trade sale or an initial public offering.
Combine that with tokenised shares, where the legal holding stays filed conventionally at Companies House and the token is a tradable representation of it, and you get the outline of a model where a founder can raise incrementally, widen the pool of qualifying investors she can reach, and offer early supporters a realistic exit, all without handing over the keys to her company in a single large institutional round.
The structural claim underneath that is the one worth contemplating. Traditional rounds concentrate power. They hand institutional investors board seats, preferred terms and liquidation preferences in return for scale. A model built on tokenised equity and periodic secondary liquidity could let founders raise at scale while retaining more control, more upside and more of the relationships that decide a company's direction. That is not a feature update but more of a shift in who holds power in a capitalised company. It also sits comfortably alongside the UK's most generous seed incentive, since the SEIS three-year rule is a condition of the tax relief rather than a lock on the shares, and a first trading window placed at or beyond the three-year point can enable liquidity without sacrificing relief.
None of this is a finished answer, and it would be dishonest to present it as one.
Tokenisation is one emerging mechanism among several, alongside regional funds, emerging managers, blind and open selection processes, and the patient work of development banking. The genuinely open questions are in the implementation: how a tokenised ledger reconciles with Companies House in day-to-day practice, what nominee and custody structures satisfy both HMRC and the FCA, and what formal guidance the authorities will eventually give. These are not settled, and this piece is general information and an open editorial question, not tax or investment advice.
Key Takeaways
AI captured a record 44 per cent of UK smaller business equity investment in 2025, and 26 per cent of all deals, as the market concentrated around fewer, larger transactions.
Total investment fell 4 per cent to 12.3 billion pounds, with the pain focused on early stage: seed deals down 27 per cent and venture-stage deals down 13 per cent.
London's dominance is easing, its share falling from 60 to 57 per cent, with the North West, Scotland and the South West all seeing large increases.
The British Business Bank is accelerating deployment by two-thirds and widening who invests, while UK spinout volumes continue to outpace the US, Germany and France.
Tokenised equity and PISCES-enabled secondary trading are one emerging route to a wider investor funnel and founder-friendly liquidity, though the Companies House, custody and HMRC implementation questions remain open.
Sources: British Business Bank, Small Business Equity Tracker 2026, published 2 July 2026 (https://www.british-business-bank.co.uk/news-and-events/news/ai-dominates-uk-smaller-business-equity-market-record-investment-share-overall-funding-falls).
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