VC Outlook 2025: A Return to Growth & Global Ambition
A Thriving Ecosystem for UK Venture Capital
The UK venture capital landscape in 2025 is poised for significant growth, building on its position as the third-largest VC market globally and the clear leader in Europe. AI continues to be a focal topic for the industry and, as the birthplace of DeepMind, the UK remains a magnet for European AI talent, fuelled by strong academic AI credentials at our leading universities. This has resulted in significantly more AI startups than any other European country.
The UK's position outside of the EU's frequently over-regulated regime gives it a unique position in Europe to be the destination for AI companies wanting to operate effectively while having a great vantage point for approaching the US. Matt Clifford's AI Opportunities Action Plan provides a blueprint to ensure we seize this opportunity that is being embraced by UK government.
Beyond AI then, despite economic challenges, London remains a global hub for financial services and FinTech, and the wider UK continues its rich history of innovation across sectors such as deep tech, green tech, and health technologies.
In 2025, we can expect focused capital deployment, with investors prioritising quality over quantity. Founders will emphasise sustainable and efficient scaling, while regions beyond London will attract more venture capital.
Key Sectors to Watch
AI will continue to be the primary focus area for VC investment with deep tech, fintech, health tech and climate tech all continuing to garner attention.
The AI revolution will not obsolete SaaS but rather amplify its potential, with platforms becoming more intelligent and personalised. Embedded fintech will provide an important source of defensibility as companies that provide both software and fintech functionality can entrench themselves within customers more effectively.
Deep tech startups leveraging quantum computing, advanced materials, and robotics will play an increasingly transformative role, while health tech breakthroughs in genomics and AI-driven diagnostics will continue to revolutionise healthcare delivery. Climate tech addressing carbon management and clean energy will attract ongoing attention, albeit geopolitical changes create a complex backdrop.
Whilst AI and Quantum can be great forces for good, they are also powerful tools in the hands of bad actors. As software and critical infrastructures more generally evolve, it creates a need for novel cybersecurity tooling helping businesses large and small to avoid falling victims to a variety of new threats. Q-Day, the day when quantum computers can break all conventional encryption systems that protect digital information, will be upon us sooner than we think and has already prompted a strong response from regulators.
Bridging the Scale-Up Gap
To ensure the UK's most promising companies can grow into global leaders, addressing the persistent scale-up funding gap is crucial. Pension funds in the UK dramatically under-invest in the VC asset class when compared with their peers in the US, Canada and parts of Europe. Recent reforms are steps in the right direction, but more action is needed to unlock pension fund investment and other untapped capital sources. We have a once-in-a-generation opportunity to overhaul the UK pensions system to make it more attractive for savers and to accelerate the growth in some of the most innovative sectors of the UK economy.
The Role of Talent and Innovation
Talent will remain the lifeblood of the startup ecosystem, with competition intensifying for skilled workers in AI, software engineering, and climate science. Venture Capital and the tech industry more generally are global endeavours that require an international perspective to deliver outsized outcomes, so attracting and retaining the world's top talent remains critical in order that the UK can continue to be the destination that the most talented people in Europe and the world choose as the place to fulfil their ambitions. Our world class universities, alongside accelerators and incubators will all continue play a crucial role in fostering the next wave of groundbreaking startups.
Looking ahead
2024 was defined by resilience and reinvention but 2025 will see a return to growth and global ambition whilst settled in realism and meaningful impact rather than pure hopes and dreams. For founders, this means adapting to market conditions while remaining steadfast in their vision. For investors, it's about backing transformative ideas and supporting companies on their journey from startup through scale-up to genuine global impact. The UK's venture ecosystem, with its dynamic blend of talent, capital, and ambition, is uniquely positioned to lead this next wave of growth and innovation.
Authored by Stephen Chandler
Managing Partner, Notion Capital
