Back to normal?

The UK equity investment landscape appears to be settling into a more measured rhythm. After the exceptional peaks of 2021 and 2022, H1 2025 figures suggest the ecosystem is finding its footing in what may become a more sustainable baseline for funding activity. Headline numbers arguably tell a story of market maturation. Deal count is down 25% year-on-year; total investment has fallen 34%. But while this represents a contraction, it also reflects a return to more fundamentally sound investment practices after unprecedented activity driven by extraordinary circumstances post-pandemic.

There are encouraging signs of stabilisation. Investment ticked up 1.3% from H2 2024 in both deal numbers and amounts raised. The gains are modest, but suggest the sharp downward trajectory of recent quarters may now be levelling off. If current patterns continue, with quarterly declines of around 12%, deal volumes would reach approximately 4,647 for the full year – the lowest since 2014. Similarly, projected investment of £15.2bn for 2025 would take the market back to 2018 levels. Rather than a retreat, it might be more accurate to see this as a return to the strong, consistent growth seen pre-pandemic. The consistent quarterly declines across multiple measurement periods suggests this isn’t temporary market jitters, but rather a deliberate recalibration by investors toward more selective, value-focused deployment of capital.

Not just capital gains

London continues to demonstrate its strength as an investment hub, capturing 50% of all deals and 65% of total funding. A 22% increase in equity funding compared with H2 2024 shows that quality opportunities are still finding capital, even in a more cautious environment.

Beyond London, several regions are showing positive momentum. The South West experienced a remarkable 75% increase in funds raised, contributing 5% of the UK total. While The Openwork Partnership’s £120m raise in May accounts for much of this, it demonstrates that significant deals are still getting done outside the capital.

Scotland continues to build on recent success, securing 7% of all deals and 4% of total funding – increases of 24% and 9% respectively from the previous half. This sustained growth suggests the Scottish ecosystem is developing real depth and attracting serious investor attention. The picture in Wales and Northern Ireland is more mixed, but such regional variation is typical of a maturing market where investment flows to the strongest opportunities regardless of geography.

Tech remains top

Technology sectors maintain their appeal – but not all innovations are equal. Software companies continue to dominate, accounting for 49% of deals and 64% of total funding. The 28% increase in investment amounts, despite flat deal numbers, shows that successful software companies are able to raise larger rounds.

But investor appetite is increasingly selective. Software as a service companies achieved a 60% increase in funding to £3.4bn, while AI companies continued their impressive run with 21% growth in investment. These newer, exciting sectors appear to have achieved almost recession-proof status, with investors willing to write large cheques for companies working on cutting-edge AI, even as they become more cautious elsewhere.

Companies in more traditional sectors – even those with proven business models and steady revenue streams – are finding capital harder to come by. Data suggests investors are increasingly concentrating on sectors they perceive as having transformational potential, rather than spreading risk across a broader range of industries.

Digital security emerged as a standout performer, with funding surging 422% to £535m. This reflects the growing awareness that cyber security is an essential rather than discretionary spend – 43% of businesses have reported cyber attacks in the past year. Fintech also showed resilience, with companies securing 12% of all deals and 32% of total investment, totalling £2.7bn.

Pre-money valuations have declined across all stages; in particular growth-stage companies (usually businesses that are roughly more than five years old, with substantial revenues and delivering a profit), have been seeing average valuations fall from £68m to £38m. This recalibration, while challenging for founders, creates a healthier foundation for future growth – companies with more realistic valuations have better prospects for subsequent rounds and exits.