British startups are suffering from a lack of access to late-stage capital that is holding them back from scaling up and fulfilling their potential in the U.K., according to analysis from the industry’s main trade body.
The British Private Equity and Venture Capital Association (BVCA) says U.K. startups seeking to continue growing their operations from Series B stage funding and beyond are encountering a significant investment gap that means additional capital often must be raised from investors in the U.S. and elsewhere.
The BVCA’s data shows that early stage startups make up roughly 85% of the companies backed by venture capital in recent years. The group says that more needs to be done to create the conditions for investment at later stages to ensure companies can scale in the U.K.
Last month, Chancellor of the Exchequer Rachel Reeves pledged that the government “will continue to work with leading entrepreneurs and venture capital firms to ensure our policies support a positive environment for entrepreneurship in the U.K.”
And the BVCA has welcomed follow-up actions from the Labour government that includes greater support for the U.K.’s spin-out ecosystem, increased R&D funding, and the funding for the British Growth Partnership announced in the Mansion House speech, but the group is arguing that more can be done.
“The UK has an incredible pipeline of entrepreneurs and founders building amazing companies and a broad base of VCs and other investors backing them,” said Michael Moore, the BVCA’s chief executive and former Liberal Democrat MP.
He points out that U.K. pension funds are allocating less of their investment to the private markets, resulting in U.K. pension savers missing out on the returns generated by venture capital and private equity investments in the U.K.
At the same time, British businesses are missing out on a domestic source of investment, notably scale-up capital that is required for startups to grow and remain in the U.K.
Moore is calling on the “government, regulators and industry to be ambitious and work towards ensuring access to the levels of funding that equivalent companies in the U.S. have.”
Britain was the world’s third-largest venture capital market during the 2021-2023 period, when it accounted for £72 billion ($90 billion) of investment, according to data from the British Business Bank, the U.K.’s economic development bank.
The U.S. is home to the largest and most developed VC market, which was valued at £580 billion during the same period, followed by China’s £221 billion.