Q1 2025 saw negative sentiment towards UK VC funding. Lots of opinions about the difficulties of raising VC funding, the need to eternally bootstrap, anonymous horror stories, and the suitableness of VC in an AI world. I’ll start with a strong view. A lot of this is BS, from people who never could or should raise external scaleup capital.
Startup popularism
Over the last 15 years, “startup life” has been popularised, even glamourised. This ultimately has created too many businesses thinking that their self-employment, lifestyle or small business is a scalable venture-backable opportunity, capable of achieving 9 or 10 figure trade sales. With 5.5m businesses in the country, external investment is obviously not for every business. On a daily basis, I am approached by businesses looking for growth funding, whose very business model will not work for investors. For these, it does look like VC funding isn’t there for them. I’d agree, and nor should it be.
The role of equity
Good businesses can definitely be created without external funding. But sometimes equity makes all the difference… if the conditions are right; a big market, a business ahead of the curve, seeing something others can’t, a strong management team, with domain knowledge, and evidence of demand. The role of external investment is to fund explosive growth that the business can demonstrate there is a need for, which the business’s cashflow or borrowing potential cannot yet allow, in a space where the market won’t wait for the business to grow slowly or organically via bootstrapping.
Equity as a signal
Raising VC funding is a signal. As only a tiny minority of companies get to build with VC backing, securing it tells the world (customers, partners, future hires) that you have been recognised, for identifying a very big opportunity, and you have attracted the resources to try to win in that market. Whilst not an endgame in itself, (that’s the exit, often still 3, 5, 7+ years off), it is a declaration that your entrepreneurial tenacity, your market traction, tech and team have been recognised as potentially game changing in your sector. You now have your opportunity. The best investors bring more than money to this starting point, they bring experience and contacts to help you win.
Elite…but not elitist
Only 1 in 10 seed-funded businesses are currently accessing VC funding. The UK needs this number to be much higher (approx. 400 companies accessed Series A-B funding in the UK in the last 12 months). But it should never be 10 in 10 though; not all businesses need (or create a return for) VC investors at this scale.
With this in mind, raising VC funding is an elite sport; it’s not suited to all, not meant for all, and not available to all. That statement shouldn’t be confused for it being elitist; “Talent is distributed evenly, access to capital isn’t” is the phrase that highlights the need for more equitable access to equity being drastically improved, especially for under-represented founders and regions. But, increasing the amount of equity, or loosening the responsibilities of equity, to simply be more freely available does not create more successful outcomes. That instead risks damaging the long-term supply of equity into UK scaleups.
The best definition of elite in this context is not about wealth and privilege, but Cambridge English Dictionary’s definition: “belonging to the best-trained group in a society”. This is something we can do something about. Helping UK scaleups, or aspiring scaleups, get better prepared for investment is the simplest solution, irrespective of where the businesses or founders originate from.
At VenturePath, we work with around 300 scaling businesses, preparing them for scale and investment. We decline around 40 businesses for every 1 we select; they just aren’t for venture-backed scaling. Supporting founders (drawn from all backgrounds) of truly scalable businesses to become “better trained” and being connected to £10bn of UK VCs who are hunting for tomorrow’s winners is the well-trodden path to investment backed success.
UK VC 2025 – What’s really going on?
In Q1, I met with around 50 of our partner VCs in the UK. The good news is there is sufficient VC money in the UK ecosystem to continue to back more great companies at Series A-B. Better news, more is coming, with the British Business Bank driving this, the pension reforms plus Foreign Direct Investment initiatives underway.
Universally, VCs are quickly getting their head around market changes of AI and its different financial implications, different business models. The UK VC market is able to write the £2-20m Series A-B cheques that some companies need. Perhaps the risk appetite could improve, and new money and new market entrants into venture will help drive this, but we have a great starting point for UK businesses, on the journey from say £1m to £10-15m revenue. As long as they are well prepared, and well supported, many more will be able to achieve the success they promise, in this elite sport: venture-backed scaleup success.
