How Britain’s startup sector is evolving

There was also a commitment from Palantir to help 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 attract capital. This is reinforced by the latest figures from the data provider Dealroom: the U.K.’s total venture capital investment in the first half of 2025 came to $8 billion — more than the combined funding raised by Germany and France — confirming it as Europe’s most popular destination for startup investment for the 30th 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 more than $1 billion) during the last three years, among them Wayve, the autonomous vehicle company, in which Nvidia pledged last week to invest a further $500 million, having first taken an equity stake in 2018.

But the U.K.’s traditional core competence, when it comes to startups, is not AI but fintech. The latest Dealroom data suggests that to date, the U.K. has created 188 unicorns, third only behind the U.S. and China. The biggest of these — the likes of Revolut, Wise (formerly Transferwise) and Monzo — are in fintech. Further evidence of the health of the U.K.’s fintech sector came 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 major milestone for Tide and a strong endorsement of our growth as the leading global business management platform serving 1.6 million members worldwide.”

While much attention is naturally on fintech, the other great strength enjoyed by the U.K. startup space is in quantum computing, the field enabling the completion of complex calculations beyond the capability of traditional computers.

Among U.K. players in 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 venture arm. Another 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 good example of what many see as the biggest 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 year — the transaction completed 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 term. Such worries were also raised after Google was allowed to acquire 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 believe the U.K. would not be better off were DeepMind still an independent company.”

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

It all adds to the sense that, in 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 plenty of angel and early stage investment, they — together with Venture Capital Trusts (a type of VC investment backed by retail investors) — may simply provide a tax shelter to British taxpayers who would otherwise not invest in tech companies. It argued this may also lead to a bias toward investing in low rather than high risk companies.

There are also concerns that even these reliefs may not be generating the results they once did.

A group of investors led by the VCT Association, the Association of Investment Companies and the British Venture Capital Association on Monday published an open letter to Finance Minister Rachel Reeves urging her to raise the current 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.

But it is possible to overdo the pessimism. As an increasing number 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. Another Dealroom report published during the last month highlighted the U.K.’s European leadership in both “colts” (businesses with revenues of between $25-$100 million) and “thoroughbreds” (businesses with revenues of more than $100 million), as well as unicorns.

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

— Ian King

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— Katrina Bishop