After the market correction of recent years, the UK tech funding landscape is showing clear signs of a rebound in 2025. While the dizzying heights of 2021 are gone, a new, more measured optimism has taken root. For ambitious software and services founders, understanding this new environment is crucial for raising capital. The headline? The UK is still Europe's dominant tech hub, but the rules of the game have changed ¹ ² ³.
The UK's tech scene is on the upswing. In the first half of 2025, UK startups raised around £6.7 billion (€7.8 billion) ³ ⁴. While this is a slight dip from the first half of 2024, it represents a significant 18% increase from the second half of 2024, signalling a recovery and renewed momentum ³.
The UK comfortably maintains its position as the top destination for venture capital in Europe, raising more in the first quarter of 2025 than France, Germany, and Spain combined ¹. This resilience underscores the fundamental strength and attractiveness of the UK's tech ecosystem.
The most significant shift in the funding landscape is the change in investor mindset. The old mantra of "growth at all costs" has been replaced by a focus on sustainable, efficient scaling ² ³. Today's investors are prioritising:
Solid Unit Economics: A clear understanding and demonstration of your Customer Acquisition Cost (CAC), Lifetime Value (LTV), and gross margins.
A Clear Path to Profitability: You don't need to be profitable now, but you need a credible plan to get there ² ³.
Capital Efficiency: Showing that you can achieve significant growth without burning through enormous amounts of cash.
While the market is more cautious overall, investors are pouring capital into specific high-growth areas.
AI is King 👑: Artificial Intelligence isn't just a sector; it's a fundamental layer across all industries. In 2024, an incredible 48% of all venture investment went to AI-powered companies ¹. From generative AI to LLMs, startups with a strong AI component are attracting significant attention and capital ¹ ³.
Climate Tech's Green Shoots 🌱: The UK is defying global trends with a surge in Climate Tech investment, which grew 24% to £4.5 billion in 2024 ¹ ⁵. The intersection of AI and climate solutions is particularly hot, with UK firms in this niche seeing a 128% funding increase ¹ ⁵.
Health and Life Sciences Resilience 🧬: The UK's world-leading "Golden Triangle" of medical research (Cambridge, Oxford, and London) continues to attract huge investment ¹. Health and Biotech was the number one sector for VC investment in Europe in 2024, with UK companies taking a large share ¹.
Fintech's Steady Comeback 💷: After a cooldown from its 2021 peak, the UK Fintech sector has stabilised and is showing signs of a strong recovery ¹ ⁶. It remains the second-largest sector for funding in the UK and the clear leader in Europe ⁶.
As the VC landscape has matured, so too have the funding options. Ambitious companies are increasingly using alternative financing to complement traditional equity rounds.
Venture Debt: This is a form of debt financing designed for high-growth, VC-backed startups ⁷ ⁸. It allows you to raise additional capital to extend your cash runway between funding rounds without diluting your ownership. It's not a replacement for equity, but a powerful supplement ⁷ ⁸.
Revenue-Based Financing (RBF): This model is particularly suited to businesses with predictable recurring revenue, like SaaS companies. You receive an advance and you pay it back as a percentage of your monthly revenue. This means repayments are flexible; you pay back less in slower months and more in strong months, aligning your financing directly with your cash flow ⁹.
Focus on the Fundamentals: A clear path to profitability and strong unit economics are no longer optional.
It's a Seed-Stage Market: Investor activity is strongest at the seed stage, with more deals and larger cheque sizes than ever before ¹ ³. If you're an early-stage founder, now is a good time to raise.
Align with a Hot Sector: If your business genuinely operates in AI, Climate Tech, or Health Tech, lean into that narrative.
Explore Your Options: Don't assume VC equity is the only route. Consider if grants, debt, venture debt or RBF could be a smart, non-dilutive way to fuel your growth.
The UK funding landscape is more challenging than in the peak years, but it's also more mature and rational. For well-run companies with strong fundamentals and a clear vision, there is still ample capital available to build the next generation of global tech leaders.
Contact us to sense check your funding strategy
After a period of turbulence, the UK's mergers and acquisitions (M&A) market is showing clear signs of a rebound, bringing a renewed sense of optimism for software and services founders considering an exit. While the frenzied deal-making of 2021 is in the rearview mirror, a more stable and predictable environment is emerging for 2025 and 2026. The key takeaway? High-quality assets are in demand, but acquirers are more disciplined, and due diligence is more rigorous than ever ¹ ² ³.
Several factors are fueling the recovery in M&A activity. Stabilising interest rates have made financing more predictable, and pent-up demand from both corporate buyers and private equity (PE) firms, who are sitting on significant unspent capital ('dry powder'), is driving new deal flow ¹ ³ ⁴.
While overall deal volumes in the UK were down slightly in early 2025 compared to the previous year, the technology, media, and telecom (TMT) sector remains a bright spot. It has consistently been one of the most active sectors for M&A, and this trend is set to continue ¹ ⁴ ⁶. We are seeing a "flight to quality," where well-run, profitable, and strategically valuable companies are commanding significant attention ¹.
The landscape of buyers is diverse, but two main groups are leading the charge:
Private Equity (PE): PE firms remain a dominant force in UK tech M&A. They are actively seeking to deploy their capital, often focusing on "buy-and-build" strategies where they acquire a platform company and add smaller, complementary businesses to it ¹ ⁴ ⁵. PE buyers are particularly interested in businesses with strong recurring revenue, high margins, and clear growth potential ¹ ⁴.
Strategic Corporates: Large corporations, both in the UK and internationally, are using M&A to acquire new technology, enter new markets, and consolidate their competitive position ¹ ³ ⁴. These "strategic" acquirers are often willing to pay a premium for companies that offer a perfect technological or market fit, especially in hot sectors like AI ¹ ⁴. North American buyers, in particular, remain very active in the UK market, attracted by favourable valuations compared to the US ¹ ⁵.
In today's market, buyers have a clear checklist. The focus has shifted decisively from "growth at all costs" to sustainable, profitable growth. To attract a premium valuation, your business needs to demonstrate:
Strong Financials: Predictable, recurring revenue (high ARR), healthy gross margins, and a clear line of sight to profitability (or actual profitability) are non-negotiable ¹ ² ⁷.
High Customer Retention: A low churn rate and high net revenue retention (NRR) prove that your product is sticky and that you can grow revenue from your existing customer base. This is a key indicator of a healthy business ¹ ⁷.
A Defensible Position: What makes you unique? Buyers are looking for a strong competitive "moat," whether that's proprietary intellectual property (IP), unique datasets, strong network effects, or deep integration into customer workflows ¹.
Strategic Value in AI: Companies that have successfully integrated Artificial Intelligence into their products and operations are attracting significant interest and higher valuations. AI is no longer a buzzword but a key value driver ¹ ⁴ ⁶.
Get Your House in Order, Early: Don't wait until you want to sell to prepare. Ensure your financial reporting is clean, your contracts are organised, and your IP is protected. The due diligence process is intense, and being prepared can significantly smooth the path to a deal ¹ ⁷.
Focus on Profitability, Not Just Growth: The market has shifted. Demonstrating that your growth is sustainable and profitable will make your company far more attractive to a wider range of buyers ¹ ⁷.
Understand Your Strategic Value: Be clear on what makes your company a valuable asset. Is it your technology, your customer base, your team? Articulating this clearly will be key to negotiating a successful outcome.
The Market is Open: While buyers are selective, the forecast for the next 18 months is positive. High-quality software and services companies are, and will remain, highly sought-after assets in the UK M&A market ¹ ³ ⁵.
Contact us to discuss how we can help you present your business in the best light
Determining a company's value is more of an art than a science, especially for private UK businesses where public market data isn't readily available. The process is a complex blend of quantitative analysis and qualitative judgment, and the challenges evolve dramatically as a company matures. From the speculative nature of AI / deeptech and pre-revenue startups to the rigorous scrutiny faced by a scale-up, understanding these valuation hurdles is critical for founders and investors alike.
We are seeking a few more growth-focused software/services businesses to participate in a company valuation project. The project will be looking at the various valuation methods and available data by stage of business in order to come up with credible valuation ranges.
Know a company that could benefit? Reach out!
This project has been exploring the latest AI tools that can dramatically accelerate and improve business planning. As many people will be aware the planning process can be lengthy and cumbersome, but the rapid advancements in AI are certainly changing that.
We have had some fantastic input from various parties over the course of 2025, and also worked closely with a services business client who are going through an extensive growth planning process, including detailed financial projections under various scenarios.
The output from the project is compelling, feel free to contact us if you would like to explore some of the AI planning benefits for your business.
The business landscape is evolving rapidly, and Artificial Intelligence (AI) is no longer a futuristic concept but a present-day reality impacting efficiency, customer experience, and decision-making. But how prepared are UK businesses, particularly early-stage ventures, to navigate this change with a solid plan?
Having an effective business plan is crucial, yet integrating forward-thinking strategies like AI adoption seems to be a hurdle for many. While AI adoption is growing, especially among larger firms, a significant number of UK businesses are lagging:
Estimates suggest around 15-25% of UK businesses have actively adopted some form of AI technology, though this varies greatly by size ¹ ² ³.
A recent British Chambers of Commerce survey found that 43% of SMEs still have no plans to use AI technology ².
Specific sectors like finance show slightly higher strategic planning, but even there, less than half (43%) reported having a well-developed AI strategy in a recent survey ⁴.
This lack of strategic AI integration within business plans is concerning, especially when considering the challenges faced by early-stage businesses.
Securing funding and achieving long-term survival are major challenges for UK startups:
Funding Success: Accessing finance can be tough. Success rates for SME bank loan applications dropped significantly to around 50% in recent years ⁵. Equity finance can be even harder to secure, with studies showing only about half of startups seeking equity funding receive any, often falling far short of the amount needed ⁶.
Failure Rates: The "startup statistics" paint a sobering picture. While figures vary slightly, common estimates suggest:
Around 20% of new businesses fail within their first year ⁷ ⁸.
Approximately 40-60% don't survive past the first 3-5 years ⁷ ⁸ ⁹ ¹⁰.
Common reasons for failure include running out of cash (a top concern for 38% of failed startups) and a lack of market need for the product or service (35%) ⁷ ⁸.
A robust business plan, incorporating AI readiness, can significantly improve the odds of success. It demonstrates foresight to potential investors and provides a clear roadmap for navigating growth and challenges.
How ready is your business? Does your plan address key AI considerations like strategic alignment, tech stack, data infrastructure, talent, ethical use, and integration?
To help you evaluate your current standing, we are offering a free assessment using a simple AI and Business Plan Readiness Checklist. This checklist covers:
A 10-point assessment of your company's AI readiness.
A detailed 50-point review of your business plan and financial forecasts against investment-ready standards, covering areas like market research, operations, management, and financials.
Take the first step towards building a future-proof business plan. Access your free checklist assessment today!
Contact us to access and go through the checklist
Starting a business in the UK is one thing, but successfully scaling it into a high-growth enterprise presents a distinct set of significant challenges. While the UK fosters a vibrant startup environment, transitioning to a "scale-up" – a business experiencing rapid growth – often proves difficult. Understanding what defines these high-performers and what hurdles they face is crucial for any ambitious SME.
Scale-ups are typically defined as businesses with average annual growth in employees or turnover exceeding 20% over three years, starting with at least 10 employees ¹ ³. Despite making up a tiny fraction of UK SMEs (less than 1% according to some estimates ¹ ³ ⁶), their economic impact is immense.
Economic Powerhouses: UK scale-ups generate a staggering turnover, estimated between £1.2 and £1.4 trillion annually – representing over half of the entire UK SME economy ¹ ³ ⁴ ⁶.
Productivity Leaders: On average, scale-ups are significantly more productive than their peers, with estimates suggesting a 42% to 65% productivity premium ³ ⁵.
Job Creators: They are vital for employment, collectively employing millions of people across the UK ¹ ³ ⁴.
Scale-ups aren't just growing faster; they often operate differently:
Innovation Driven: Around three-quarters have introduced or improved products, services, or processes recently, a rate double that of typical large firms ⁴ ⁵.
Tech Savvy: Technology, including AI, is often central to their growth strategy. One study found 90% of scale-up leaders credited tech investment as a key accelerator ¹.
Globally Minded: A majority (around 60-67%) trade internationally and actively seek expansion into new markets ¹ ⁴ ⁵.
Focused on Key Resources: They actively address common scale-up challenges including accessing talent and skills, developing leadership, securing the right finance, accessing markets, and navigating infrastructure needs ³ ⁴ ⁵.
The journey from SME to scale-up requires overcoming specific hurdles, particularly around finance, skills, market access, and leadership ¹¹ ¹². Common challenges include:
Access to Finance: Many struggle to secure the right growth capital, often lacking awareness of funding options or facing difficulties during critical early growth stages ¹¹ ¹².
Talent Acquisition: Finding and retaining employees with the right skills is consistently highlighted as a major barrier ⁴ ⁵.
Market Access: Breaking into new domestic or international markets and navigating complex procurement processes can be difficult ⁴ ⁵ ¹⁰.
Leadership Capacity: Building the management skills and leadership necessary to handle rapid growth is crucial ⁴ ⁵ ¹¹.
Strategic Planning: Developing robust plans that address market opportunities, funding needs, and operational scaling.
Securing Growth Finance: Improving financial literacy and exploring diverse funding options beyond traditional routes ¹¹ ¹².
Building Leadership & Skills: Investing in management training and addressing critical skills gaps, particularly in digital and tech fields ⁴ ⁵ ¹¹.
Embracing Innovation & Technology: Adopting digital tools and processes to drive efficiency and competitiveness ¹ ¹¹.
Targeting Market Access: Developing clear strategies for entering new markets, both domestically and internationally ⁴ ⁵ ¹⁰.
Leveraging Networks & Support: Engaging with peer networks, mentors, and business support programs ¹¹ ¹².
Navigating the challenges of scaling requires strategic foresight and robust planning. At Infospaces, we provide tailored services to help ambitious software and services businesses develop credible growth plans, refine funding strategies, and prepare for the operational demands of scaling up.
If you're ready to tackle your growth challenges and plan your scale-up journey, contact us to discuss your growth opportunity
Based on an analysis of companies featured in the Sunday Times 100 list of fastest-growing private tech companies, here's a look at how different types of growing UK tech companies are leveraging data and AI. UK tech growth is significantly shaped by how companies across various sectors are integrating AI and sophisticated data analysis into their products and operations.
Companies focused on AI video creation are explicitly built on AI, using deep learning techniques like GANs to generate realistic avatars and synthesize speech.
Developers of conversational AI voice assistants employ advanced natural language processing, speech recognition, and dialogue management to handle complex interactions.
Providers of AI legal services utilise NLP and machine learning for automating contract review, drafting, and analysis.
Firms offering AI platforms provide tools for building and deploying machine learning solutions, often with a focus on explainability and responsible AI development.
A platform for corporate debt data and analytics uses NLP and machine learning to extract and analyse information from financial documents.
An AI-powered chatbot is used to help individuals manage their finances.
A system for automating trade document processing leverages OCR and AI for digitisation.
Companies in spatial computing for large-scale data processing and simulation use AI in conjunction with their core technology.
Providers of pricing decision intelligence software for insurers use AI to enhance pricing models.
Platforms offering access to digital textbooks and learning materials use AI for personalised learning and content recommendations.
Open-source API management platforms typically show limited or no explicit AI use in their core product descriptions.
Low-code application platforms for financial markets also show likely limited or no explicit AI use in their core product.
Direct mail platforms show minimal AI use.
Challenger banks and other digital banking services likely use AI for critical functions such as fraud detection, credit risk assessment, and customer service automation (e.g., chatbots). They may also use it for personalised financial advice.
Buy Now, Pay Later (BNPL) providers rely heavily on AI for credit scoring, fraud detection, and personalised offers, essential for real-time lending decisions and risk assessment.
Automated savings and investment apps use AI to analyse spending patterns, predict finances, and automatically allocate funds to savings or suggest investment options.
Subscription finance services likely use AI for credit scoring, fraud detection, and affordability assessments.
Digital identity platforms employ AI for facial recognition, liveness detection, and document verification to ensure security and accuracy.
Global business payment platforms likely use AI for fraud detection, transaction monitoring, and currency exchange optimization.
Business current accounts and admin assistants likely use AI for automating accounting tasks like transaction categorisation, invoicing, and tax calculations.
Insurance technology providers use AI to evaluate risk more accurately and for faster customer service. One such provider explicitly uses AI to improve pricing models.
Financial well-being platforms allowing early wage access likely use AI for fraud detection and risk management.
Open banking API platforms use AI for fraud detection, risk management, and data analysis.
Payment solutions for businesses use AI for payment optimisation and fraud prevention.
Cash deposit platforms likely use AI for matching users with optimal savings rates.
Retirement technology platforms likely use AI for retirement planning and investment advice.
E-commerce cashflow software likely uses AI to evaluate risk for cash advances.
Digital health platforms enabling users to manage health data and interact with healthcare providers often use AI for personalised health insights, medication reminders, and potentially symptom analysis or matching users with experts/carers. One platform explicitly uses AI for image analysis and quantification in medical imaging.
A female health and well-being app uses AI for personalised health predictions.
Companies providing molecular diagnostic tests or cancer immunotherapies or drug discovery services show no explicit evidence of AI use mentioned in the sources.
A personalised nutrition company (3D-printed vitamins) shows no evidence of AI use.
A medical devices company shows no evidence of AI use.
Providers of property smart building platforms or smart sensors for housing likely use AI for data analysis, predictive maintenance, and optimisation of building performance, occupant well-being, or energy use.
Companies providing battery storage systems or managing EV fleets/chargers likely use AI for optimisation, grid management, load balancing, and smart charging algorithms. One battery technology company explicitly uses AI-powered optimisation software.
Data centre providers likely use AI for optimisation and management.
A green energy marketplace uses AI for predictive analytics, optimising distribution, and matching supply with demand in real-time.
Companies focused on hydrogen power generation or carbon capture technology show no explicit evidence of AI use mentioned in the sources.
Fibre broadband providers show no evidence of AI use mentioned.
Companies developing electric motor technology likely use AI for motor control and optimisation.
Manufacturers of motion-based measuring tools likely use AI for sensor data processing and interpretation.
Developers of space launch vehicles likely use AI for trajectory optimisation and guidance systems.
Firms developing defence technology are noted as likely using AI given the sector, though specific public information is limited.
Developers of clean maritime technology (hydrofoils) likely use AI for control systems and hydrodynamics optimisation.
Companies working with metal alloy technology, including additive manufacturing, likely use AI for material property prediction and process optimisation.
Developers of surgical robotics likely use AI for computer vision, robotic control, and real-time data analysis.
Providers of supply chain sensors likely use AI for data analysis and anomaly detection.
Providers of rapidly deployable CCTV security systems explicitly state they are AI-powered, using video analytics.
Developers of automotive simulators likely use AI for motion control and data synchronisation.
Developers of radiation detection systems likely use AI for signal processing and threat identification.
Developers of high-performance LED video processors likely use AI for image processing and optimisation.
Developers of battery materials likely use AI for material property prediction and process optimisation.
Developers of deployable antennas for small satellites likely use AI for deployment control and structural analysis.
Developers of 3D holographic display systems likely use AI for image processing and real-time rendering.
Developers of cash handling technologies likely use AI for image recognition and anti-counterfeiting measures.
Developers of automated post-processing systems for 3D-printed parts likely use AI for process control and optimisation.
Providers of wearable GPS tracking devices for athletes likely use AI for data analysis and performance prediction.
Developers of multi-beam, software-defined antennas for satellite communications likely use AI for beamforming, signal processing, and network management.
Providers of surface-guided radiation therapy systems likely use AI for image processing and real-time tracking.
Developers of perfusion and patient monitoring systems for medical use likely use AI for data analysis and patient monitoring.
Companies providing molecular diagnostic tests, ethanol production technology, composite materials, subsea technology, pipe cleaning technology, or wireless retail communications systems show no explicit evidence of AI or significant data use mentioned in the sources.
This analysis highlights that while growth is a common characteristic among these top UK tech companies, the specific application of AI and data varies significantly, often aligning closely with the core technological offering and sector of the company.
In a rapidly changing AI landscape it is important to have a tech stack, data and skills strategy to protect and differentiate your business going forward. Building on our recent experience with a big data venture, we have done some some further research on the latest tools, frameworks and approaches to consider. Contact us to sense check your AI and data strategy
Source Note: The analysis and examples presented are based on information derived from the Sunday Times 100 list of fastest-growing private tech companies....https://www.thetimes.com/sunday-times-100-techThe UK boasts a vibrant technology sector, valued at over $1 trillion and ranking third globally. It is recognised as a strong hub for innovation and starting businesses. However, transitioning startups into sustainable, high-growth scale-ups presents persistent challenges.
Despite representing less than 0.6% of the SME population, scale-ups generate a disproportionately large economic impact, accounting for over 55% of UK SME turnover (£1.4 trillion) and employing millions. They exhibit high growth rates, averaging 43% annual revenue increases over the past three years, and are significantly more innovative and productive than typical firms. However, the ecosystem faces headwinds, including economic uncertainty, rising costs, and the legacy of Brexit. A high failure rate persists, with estimates suggesting around 60% of UK businesses fail within their first three years. There's a recognised risk of the UK becoming an 'incubator economy,' where startups are created but fail to scale domestically, leading to acquisitions by foreign entities or moves overseas.
Research consistently highlights key barriers to growth. The ScaleUp Institute identifies five core challenges:
access to markets (domestic and international)
access to talent and skills
leadership capacity
access to finance
infrastructure
Access to markets is frequently cited as the top barrier, alongside the critical need to attract and retain appropriately skilled talent.
Funding: Securing growth capital beyond the seed stage is a major hurdle, particularly for Series A and B rounds. Navigating government incentives like SEIS, EIS, and VCTs, while crucial early on, adds complexity. SaaS businesses often grapple with high burn rates post-funding, driven by long sales cycles and the pressure to scale rapidly. Unrealistic valuations from previous funding rounds can also hinder future investment.
Market Access: Many scale-ups lack the internal resources, expertise, or "headroom" to effectively plan and execute international expansion, a key growth vector. Entering new domestic markets also presents significant barriers.
Strategy & Operations: Developing "credible growth plans" is essential but challenging for resource-constrained startups. A common pitfall, especially in SaaS, is scaling sales and marketing efforts prematurely before achieving true product-market fit. Long SaaS sales cycles delay revenue realization, and neglecting customer success and retention can lead to high churn, undermining growth. Effectively integrating new technologies like AI into operations is another challenge, as is navigating evolving regulations.
Talent & Leadership: Recruiting and retaining key technical and commercial staff is a persistent struggle. Embedding technical talent effectively throughout the organization and securing experienced board-level support are also critical needs. Building leadership capacity to manage growth is often underdeveloped.
The landscape of government support schemes (grants, tax credits, loans) is often described as fragmented and confusing – a "spaghetti" of initiatives that can be difficult for time-poor founders to navigate, sometimes necessitating external consultants. Similarly, identifying the most valuable networks and support organizations within a fragmented ecosystem can be challenging. The complexity and fragmentation of the funding and support landscape further underscore the need for experienced guidance.
Furthermore, the prevalence of strategic pitfalls like premature scaling, neglecting customer retention, or lacking leadership depth suggests that scale-ups require more than just reactive support (e.g., finding funding when cash runs low). There is a clear need for proactive, strategic guidance before these issues become critical.
The core services offered by Infospaces – Business Planning, Market Research, and Funding Support – directly map onto the most frequently cited and critical pain points for UK tech scale-ups, particularly those in the early stages. Our Business Planning and Growth Strategy services are not merely prerequisites for funding, but positioned as essential guidance for building a sustainable, scalable business from the outset.
Contact us to refine your growth strategy
For around 30 years, I have helped ambitious early stage software and services businesses raise several £m through strategic business planning and investment ready projections. The process can be lengthy and cumbersome, but the rapid advancements in AI are changing that. For the past 6 months, I have been exploring the latest AI tools that can dramatically accelerate and improve business planning.
Now, I am launching a Proof of Concept project to further test these generative and emerging agentic AI tools against the specific needs of ambitious companies. We already have a regional funder on board (with several portfolio businesses) and are seeking a few more growth-focused software/services businesses to participate in the project. Know a company that could benefit? Reach out!