How Britain’s startup sector is evolving

There was also a commitment from Palantir to assist British defense startups and small and medium-sized businesses expand into U.S. markets.

Such decisions highlight the strength of the U.K.’s startup sector and its ability to draw capital. That is reinforced by the newest figures from the information provider Dealroom: the U.K.’s total enterprise capital investment in the primary half of 2025 got here to $8 billion — greater than the combined funding raised by Germany and France — confirming it as Europe’s hottest destination for startup investment for the thirtieth consecutive quarter.

Excitement around AI is driving this investment, with the U.K. having created 10 AI unicorns (a startup that has achieved a valuation of greater than $1 billion) through the last three years, amongst them Wayve, the autonomous vehicle company, wherein Nvidia pledged last week to speculate an extra $500 million, having first taken an equity stake in 2018.

However the U.K.’s traditional core competence, relating to startups, will not be AI but fintech. The most recent Dealroom data suggests that up to now, the U.K. has created 188 unicorns, third only behind the U.S. and China. The largest of those — the likes of Revolut, Smart (formerly Transferwise) and Monzo — are in fintech. Further evidence of the health of the U.K.’s fintech sector got here when, on Monday, the business management and banking platform Tide achieved unicorn status after a $120 million funding round, led by the private equity group TPG, valued it at $1.5 billion.

Tide CEO Oliver Prill said: “Securing this investment from TPG is a serious milestone for Tide and a robust endorsement of our growth because the leading global business management platform serving 1.6 million members worldwide.”

While much attention is of course on fintech, the opposite great strength enjoyed by the U.K. startup space is in quantum computing, the sphere enabling the completion of complex calculations beyond the potential of traditional computers.

Amongst U.K. players within the space to have already achieved unicorn status are Cambridge-based Quantinuum, backed by JP Morgan Chase, Mitsui and Honeywell, which earlier this month saw its valuation double to $10 billion in a funding round led by NVentures, Nvidia’s enterprise arm. One other is London-based Arqit, which supplies quantum-resistant encryption services, and which went public in May 2021 via a merger with the special purpose acquisition company (SPAC) Centricus Acquisition Corp.

Yet this space also recently provided a great example of what many see as the most important challenge for U.K. startups. Oxford Ionics, a British quantum pioneer whose partners include the German chip giant Infineon, agreed a takeover by U.S. rival IonQ in June this 12 months — the transaction accomplished last week — valuing it at $1.075 billion.

It has revived concerns that the U.K.’s willingness to relinquish control of its most promising tech businesses will cost it in the long run. Such worries were also raised after Google was allowed to amass the AI startup DeepMind in 2013. Ian Hogarth, who now chairs the U.K. Government’s AI Foundation Model Taskforce, later wrote: “I find it hard to imagine the U.K. wouldn’t be higher off were DeepMind still an independent company.”

In other words, the U.K. is superb at nurturing startups, but less good at helping them scale up. Accordingly, such businesses are sometimes willing to sell to overseas buyers, invariably American, who can provide the capital, skills, networks and access to larger markets they require to grow.

All of it adds to the sense that, within the words of Stephen Welton, the founder and former CEO of the Business Growth Fund, the U.K. is an “incubator economy” where tomorrow’s growth champions are born but not retained.

Questions are also being asked about how the U.K. incentivizes tech investment.

A report published last week by The Purposeful Company, a consortium of FTSE businesses, investment firms, business schools and consultancies, suggested that, while tax reliefs under the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) have encouraged loads of angel and early stage investment, they — along with Enterprise Capital Trusts (a form of VC investment backed by retail investors) — may simply provide a tax shelter to British taxpayers who would otherwise not put money into tech firms. It argued this will also result in a bias toward investing in low slightly than high risk firms.

There are also concerns that even these reliefs is probably not generating the outcomes they once did.

A gaggle of investors led by the VCT Association, the Association of Investment Corporations and the British Enterprise Capital Association on Monday published an open letter to Finance Minister Rachel Reeves urging her to boost the present lifetime and annual investment limits for VCTs and EIS, which have been frozen for nearly a decade, during which inflation has eroded their real value.

Nevertheless it is feasible to overdo the pessimism. As an increasing variety of startups remain in private ownership for longer, investors are focusing more on delivery than on speculative valuations.

And here, the U.K.’s startups are delivering. One other Dealroom report published through the last month highlighted the U.K.’s European leadership in each “colts” (businesses with revenues of between $25-$100 million) and “thoroughbreds” (businesses with revenues of greater than $100 million), in addition to unicorns.

This leadership is more likely to generate more, not less, interest in U.K. startups. 

— Ian King

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