UK Trends and Developments Contributed by: Dylan Doran Kennett, Michael Jacobs, Stephen Newby and Mark Ife, Herbert Smith Freehills LLP
Venture Capital in the UK: an Introduction After a challenging period, 2024 witnessed the encouraging signs of a long-awaited recovery in the venture and growth capital market. This rebound has gained momentum, and the outlook for fundraisings, liquidity and exits is promising, balanced against continued macroeconomic and geopolitical uncertainty. Overall, as we look forward to 2025, the venture capital market is likely to accelerate throughout the year. Looking back to 2024, and despite the difficul - ties faced by the global markets over the past year, the UK investment climate has remained strong, surpassing Germany, China and India to become the second most important destination for investment (after the US), according to PwC’s Annual Global CEO Survey for 2025. In Europe, the UK regained its dominance in capital raised in 2024, being responsible for 36.6% of the European total (an increase of more than 10% year-on-year) and attracting more investment than France and Germany combined, accord - ing to data from HSBC Innovation Banking. Ven - ture capital deal making in the UK also rose to the highest level in seven quarters in Q4 2024, according to data from Pitchbook. The resilience of the UK’s VC market has been driven in part by improved macroeconomic con - ditions across inflation and interest rates, posi - tive trends in valuations and investment terms, and improved sentiment in the UK ecosystem against a backdrop of significant regulatory and legislative reforms aimed at maintaining the country’s competitive edge for start-ups and investors, but also as a result of the strong pipeline of UK start-ups across key areas of the emerging technologies, which is driving demand on the investor side.
Globally, average deal sizes increased across all venture capital stages, fuelled largely by a surge in funding for AI-related investments, accord - ing to data from Bain & Company. Transactions involving corporate venture capital accounted for 35% of total equity funding in 2024, the high - est share since 2019, suggesting a significant and growing influence of venture capital in the equity markets. Looking Back: Reflections on the Last 12 Months Seed and early-stage companies are the most attractive to investors Transaction trends analysis by HSBC Innovation Banking has shown that investors are increas - ingly choosing to invest in seed, early-stage and breakout-stage companies. Investing in a seed-stage company offers investors the oppor - tunity to capture value by backing companies in their early stages, when valuations are typi - cally at their lowest, and acquire early minority ownership positions that can be maintained or increased in subsequent rounds. This trend was most apparent following the explosion in generative AI, when numerous ven - ture capital funds pivoted to this relatively earli - er-stage sector and to the deep tech, cleantech and life sciences segments. As a result of these trends, the median deal size for seed compa - nies in the UK has risen, reflecting the escalating ambitions of start-ups and their commensurate capex needs and the confidence of investors selecting “hot” sectors. In 2024, seed funding in the UK continued to be dominated by domestic investors, with around 57% of total early-stage funding coming from the UK, although US funds are entering the seed stage in the UK and Europe at a rapid rate, particularly in the tech and life sciences sectors.
610 CHAMBERS.COM
Powered by FlippingBook