Artificial intelligence is reshaping Britain's startup investment landscape, accounting for a record share of equity funding as investors increasingly concentrated capital into larger transactions, according to the British Business Bank's latest Small Business Equity Tracker.

AI businesses attracted 44 per cent of all equity investment into UK smaller companies in 2025, the highest proportion since records began. They also accounted for 26 per cent of all deals, almost double their share in 2022, while investment into AI businesses rose 48 per cent year on year. The trend continued into the opening months of 2026, with a handful of large AI fundraisings driving overall market growth despite weaker conditions for smaller businesses.

Overall equity investment into UK smaller companies fell 4 per cent to £12.3bn in 2025. However, activity remained above pre-pandemic levels as investors favoured larger transactions. The 10 biggest fundraisings accounted for 23 per cent of total investment, the highest concentration since 2020.

The shift towards later-stage companies came at the expense of younger businesses. Seed-stage deals declined 27 per cent during the year, while venture-stage transactions fell 13 per cent, although growth-stage investment proved comparatively resilient.

The report also highlights the strength of the UK's university spinout sector. Venture capital deal volumes involving spinouts increased 95 per cent between 2021 and 2025 compared with the previous five-year period, outperforming the United States, Germany and France. When adjusted for the size of each country's research base, the UK generated the highest number of venture capital-backed spinouts among its international peers.

Despite that longer-term progress, spinout activity weakened in 2025. Equity deals fell by a third while investment values dropped 51 per cent, reflecting more cautious market conditions.

Regionally, investment became less concentrated in London. The capital's share of UK equity investment fell from 60 per cent in 2024 to 57 per cent in 2025, while the North West recorded an 82 per cent increase in investment. Scotland saw funding rise 74 per cent and the South West more than doubled investment levels, largely driven by several sizeable AI and energy transactions.

Leandros Kalisperas, chief investment officer at the British Business Bank, said the growing concentration of investment into AI demonstrated both the scale of the opportunity and the need to ensure promising companies across sectors and stages continued to have access to finance. He said the Bank was accelerating investment following its five-year strategy, with plans to unlock around £26bn of private capital alongside £13bn of public funding over the next five years.