Investment in UK growth companies dwindles to a seven-year low, threatening to halt expansion for young enterprises.
Scaling Down: UK's Start-up to Scale-up Transition Hits a Seven-year Low
The pipeline for start-ups transitioning into scale-ups in the UK has taken a hit, with Series A funding reaching a seven-year low, a new report suggests. Figures obtained by City AM indicate that the value of Series A funding, or investments ranging from £2m to £10m, has slumped to £2.4bn in the 12 months ending March 2025—a drop of £500m compared to the previous year.
According to investment platform, Venture Path, compiling data from Dealroom and Sifted, the value of Series A funding had decreased from £2.9bn in March 2024 and £3bn in 2023. The report paints a grim picture, with one in 14 startups now managing to secure growth capital to scale, compared to one in four in 2021.
Commenting on the matter, Venture Path's Ian Merricks told City AM, "If companies cannot progress from start-up to scale-up funding, we become a nation of micro businesses, lacking scale." He further elaborated, "Companies remain under-supported to be investor-ready and to know how best to access VCs. There are massive discrepancies in who can access VC funding, especially for under-represented regions and founders."
The report also highlighted that just 82 companies completed Series A funding in the first quarter of 2025, compared to 120 in the same period of 2024. This signifies a broken funding ladder, as per Venture Path's report.
The British government will publish its Financial Services Growth and Competitiveness Strategy on July 15, outlining its plans to nurture growth. However, Merricks remains concerned, emphasizing that existing support for companies to become investor-ready and navigate VC funding is inadequate.
Moreover, the report unveiled that Series B funding, or later-stage growth capital, had stagnated with flat values of capital invested at £2.3bn. This stagnation could portend more challenges for start-ups looking to scale up in the coming months.
Unveiling the Causes Behind the Dip
Several factors contributing to the decline in Series A funding for UK start-ups transitioning to scale-ups include:
- Economic Uncertainty: Trade disruptions, changes in policies, slow real income growth, and increased consumer caution can deter investors and potentially affect funding availability for start-ups.
- Regulatory and Fiscal Challenges: Rises in employer National Insurance Contributions, the National Living Wage, and changes in regulations can impact businesses' operational costs, complicating the funding landscape.
- Market Conditions: The slow growth in the fund management industry and the cost of living crisis may contribute to the ongoing economic uncertainty, further affecting investment decisions.
- Shift in Business Structures: The potential rise in micro businesses could be a strategic response to the challenges in securing growth funding and navigating a challenging economic environment.
The report underscores the need for fostering a more favorable environment for start-ups seeking to scale up, through initiatives like enhanced investor support, regulatory improvement, and a more supportive fiscal policy.
- The economic uncertainties, such as trade disruptions and changes in policies, might be causing discrepancies in accessing venture capital funding for startups transitioning to scale-ups in the UK.
- Rises in employer National Insurance Contributions, the National Living Wage, and changes in regulations have added to the complexity of the funding landscape for businesses in the UK.
- The slow growth in the fund management industry and the ongoing cost of living crisis may be contributing to the ongoing economic uncertainty, which in turn, affects investment decisions in the UK's startup sector.
- The potential rise in micro businesses in the UK could be a strategic response to the challenges in securing growth funding and navigating a difficult economic environment.
- In order to foster a more favorable environment for startups seeking to scale up, initiatives like enhanced investor support, regulatory improvement, and a more supportive fiscal policy should be considered.
