Investment in businesses based in the UK regions is growing strongly, driven by the AI and energy sectors and making London less dominant, new research published today reveals.
Meanwhile funding for university spin-outs – many based in the regions – has also grown strongly over the past five years, highlighting the UK’s position as a world-leading research and development hub,
These trends are highlighted by the latest annual Small Business Equity Tracker from the British Business Bank, which also shows that national and regional investment funds, such as the Northern Powerhouse Investment Funds, have been effective in generating strong deal pipelines.
The strength of the regional market is demonstrated by the fact that equity investment in the South West soared by 104% last year, by 82% in the North West and 74% in Scotland.
Meanwhile, the equity market for smaller businesses is increasingly concentrated around higher-value AI deals.
AI companies accounted for 44% of total equity investment into smaller businesses in 2025, the highest share on record.
AI represented more than a quarter (26%) of all deals, nearly doubling its share since 2022. Investment in AI-related deals rose by 48% year-on-year, highlighting strong investor appetite.
This trend continued into the first quarter of this year, when a handful of AI-related megadeals drove overall investment growth, despite weaker funding conditions for smaller businesses.
The report shows that larger deals are driving the UK smaller business equity market, with investors concentrating capital into fewer, larger transactions.
The top 10 fundraisings accounted for 23% of all investment – the highest since 2020. Equity investment into UK smaller businesses fell slightly, by 4% to £12.3bn, it did, however, remain above pre-pandemic levels.
While growth-stage investment proved resilient, early-stage deals at seed and venture stages were 27% and 13% lower respectively in 2025
According to Matt Adey, chief economist for the British Business Bank, investors are tending to back businesses at later stages of their development and returning to them for subsequent funding rounds – a common trend in challenging economic times when investors become more risk averse.
“These investments are less risky because the investors have probably followed them for a while and they are now up and running,” he added.
“Many of them are also using AI in interesting ways such as new product development.”
The digital and technology sector remained the largest recipient of equity investment. Advanced manufacturing had strong growth in investment value last year, while financial services and life sciences were lower.
Clean energy and creative industries maintained stable investment levels, despite lower deal volumes, highlighting continued investor confidence in select growth opportunities.
The real standout of the research is the strength of the university spin-out market over the past five years with venture capital deal volumes up by 95% in 2021-2025 compared to 2016-2020, outpacing the US, Germany and France.
However, even this market segment has not been immune from wider economic challenges – UK spinouts’ equity deals declined by 33% and investment value by 51% year-on-year last year as investors retreat to larger deals backing more established businesses.
The British Business Bank continues to play an important role in this segment, supporting a higher share of spinout deals (16%) than the wider market (12%).
Overall, the British Business Bank accelerated its pace of investment following the publication of its Five-Year Strategic Plan last November.
By increasing its annual deployment by two-thirds, it is unlocking around £26bn of private capital alongside £13bn of its funding over the next five years.
The bank is also deploying £4bn to boost the most promising businesses in the Government’s eight Industrial Strategy sectors.
Leandros Kalisperas, chief investment officer, British Business Bank, said: “While we are seeing signs of the market cycle playing out, the British Business Bank is accelerating deployment of investment across the cycle, and ensuring promising businesses can continue to access the finance they need to start, scale and stay in the UK.
“The concentration of investment into AI highlights both the scale of the opportunity and the challenges within the wider market. Ensuring capital is available across sectors and stages will be critical to maintaining a diverse and competitive pipeline of UK companies.”
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