SME Equity in 2025
What the Slowdown in Deals Means for Ambitious Business Owners
As we enter the second half of 2025, the investment landscape for UK SMEs is starting to show its hand.
The British Business Bank’s annual Small Business Equity Tracker has recently landed. And if you’re running a growing company with turnover between £1m and £10m, this report is more than just an industry temperature check. It’s a window into how investors are thinking right now and what that means for your next move.
The short version? Investors are still deploying capital, but they’re getting choosier. Here’s what you need to know.
The Big Picture: Deals Are Down, But Ambition Isn’t
Let’s start with the numbers. Total equity investment into smaller UK businesses fell slightly by 2.5%, down to £10.8 billion. But the real headline is that the number of deals dropped by 15%, the sharpest decline in over a decade.
Fewer deals, but not less capital. That suggests a shift in investor behaviour. Towards quality over quantity. Investors aren’t disappearing. They’re just being more selective.
For you, as a business owner, that means expectations are higher. You’ll need more than a strong pitch. You’ll need a clear path to growth, robust financials, and an exit strategy that investors can believe in.
AI and Spinouts: Hot Sectors Leading the Way
The standout theme this year? Artificial intelligence (yawn).
Deals involving AI-related businesses were not only more frequent but significantly larger. The average AI growth-stage deal came in at over £36 million. While that may be a long way from your current raise, it’s a clear sign of where institutional focus is heading.
Also surging were university spinouts; research-driven businesses often built around proprietary IP. These now account for a record 17% of total equity investment, with an average deal size of £8 million.
If your business is tech-enabled, science-led, or R&D-intensive, this is encouraging. Investors still have appetite especially if you can prove a strong technical advantage.
The Geography Gap is Closing
While London remains the epicentre of UK venture deals, it’s not immune to the slowdown. Deal numbers there fell by over 21%. In contrast, regions such as Scotland, the North West, and East Midlands actually increased their share of deal activity and investment value.
This shift is significant. It’s proof that regional funding initiatives like the Northern Powerhouse and Midlands Engine Investment Funds are working. If you’re based outside the capital, that’s no longer a disadvantage. In fact, it might just be a strength.
One of Branta's clients has received MEIF funding, and TBH we were surprised they got it.
The Angel Market: Fewer First Cheques, But Still Vital
Angel investors continue to play a critical role especially at the seed and startup stages. But the number of first-time angel deals is down sharply, dropping by 38% since 2021. What’s happening?
Many angels are now focusing on follow-on investments. Backing the businesses they already know. They’re cautious about deploying fresh capital into unproven teams.
That’s not to say the money isn’t there. In fact, angels remain active in high-impact sectors like clean tech, digital health, and advanced manufacturing. But again, the emphasis is on quality. If you’re an early-stage founder, you’ll need to build early credibility. Perhaps by securing a grant, a strong pilot, or a commercial partner before going to equity markets.
Female Founders: Still Fighting for Fair Access
Progress on gender diversity in venture investment continues... s-l-o-w-l-y. All-female founding teams represented 7% of equity deals in 2024 but received just 2% of total investment value. Teams with at least one female founder raised 16.6% of capital. A slight fall on the previous year.
The British Business Bank is taking steps to address this, including pre-application support sessions and networking events for female-led ventures. But as a female founder, you may still face a tougher time raising which means it’s more important than ever to be investor-ready.
So What Does It All Mean For Your Business?
The days of rapid-fire deals and sky-high valuations are over, at least for now. This isn’t necessarily bad news. As valuations become more grounded, strong businesses with solid fundamentals and clear market traction will have a better shot at raising money on fairer terms.
That said, if you’re considering raising equity in 2025, you’ll need to come prepared. Investors are still writing cheques but only for businesses that can prove they’re worth betting on.
If you’re not quite there yet, it may be time to consider other routes. Whether that’s strategic debt, grant funding, or a phased raise that aligns capital with specific milestones.
Self-Test: Are You Ready for Equity Investment in 2025?
- Do you have more than a pitch deck? Investors now want evidence - customer traction, pilot results, or IP protection.
- Could you attract a follow-on cheque? Many angels are supporting existing portfolio companies. Are you investable now and again in 12 months?
- Are you fundraising where you’re based? Regional funds are thriving. Have you looked into the growth finance available in your region?
- Do you understand your market narrative? If you’re not in AI or clean tech, how will you position your business as a compelling opportunity?
Final Thought
The 2025 funding landscape might look tougher at first glance but for the right businesses, it’s an opportunity. The froth has gone. What remains is a sharper, more professional funding environment, where good ideas with strong execution can still get the backing they need.
If you’re thinking about a raise, planning an exit, or just want to make sense of your options, Branta is here to help you map out the right next step.
