Changing Trends in Venture Investing

Market Overview

Despite ongoing macroeconomic volatility, the UK venture capital market has solidified its position as the third largest globally, and the largest in Europe by a wide margin. Investor appetite is expanding across the venture lifecycle, from seed through to growth equity. This momentum reflects a broader shift in how investors, policymakers, and institutions are thinking about private capital allocation, particularly with where long-term opportunities may lie.

Earlier in April, LVCN partnered with the British Private Equity & Venture Capital Association (BVCA) to host a fireside chat on the evolving venture landscape. Chris Elphick, Head of Venture Capital at the BVCA, joined for a wide-ranging conversation that covered investor sentiment, sector-specific shifts, and the structural tailwinds shaping capital flows across the UK.

A key focus throughout was the growing momentum behind pension reform as a potential catalyst for unlocking domestic investment. As highlighted in the BVCA’s Pensions & Private Capital Expert Panel Report, institutional investors, particularly UK-based pension providers, remain underexposed to venture and growth equity. With domestic scale-ups often reliant on overseas capital at critical inflection points, the case for enabling long-term pension capital to participate more actively in UK innovation has never been clearer.

Source: Venture capital in the UK 

Policy and Capital Mobilisation

One of the most urgent opportunities for the UK venture ecosystem lies in unlocking institutional capital through pension reform. At present, just 0.5% of UK pension fund assets are allocated to unlisted UK equities: a category that includes venture and growth-stage investments. To address this, the BVCA and leading industry voices have called for a step-change through the Mansion House Compact: raising the allocation target to at least 5% by 2030, starting with commitments from nine of the UK’s largest pension providers.

The government has already signalled intent. In late 2024, plans were announced to mobilise up to £80 billion from pension funds into UK-based innovation and growth companies, a bold move designed to strengthen domestic capital flows and reduce reliance on international LPs. The aim is not just to boost returns for savers, but to build a more resilient and strategically aligned innovation economy.

A useful reference point comes from France’s government-backed Tibi Initiative. Launched in 2019 by the French Treasury, the scheme successfully channelled billions in institutional capital, particularly from insurers and pension funds, into the country’s tech sector. It also helped expand the ecosystem of fund managers with the skills and experience to back later-stage innovation. Several speakers at the event pointed to Tibi as a model the UK could adapt, particularly through a Treasury-backed fund-of-funds approach or coordinated government endorsement.

Sectoral Shifts

One of the key themes emerging from recent data and discussion was the continued decline in climate-tech funding, now in its second consecutive year of contraction. According to a 2024 report by PwC, global investment in climate-related startups has slowed significantly, reflecting broader repricing trends and investor caution around capital-intensive, long-horizon technologies.

Yet with lower valuations come opportunities. For longer-term investors, this environment presents the chance to enter at attractive terms. Corporations not directly focused on climate solutions have also begun acquiring or licensing from startups, embedding these capabilities into other parts of their operations:

This trend is not new. In 2023, the climate-tech sector also saw a significant pullback, as noted in the 2024 ClimateTech Index published by the Startup Coalition. Despite a slowdown in top-line funding, several startups have continued to scale efficiently, taking advantage of reduced valuations and less competitive rounds. Notable names emerging from the London ecosystem include Seabound (YC W22) and Safi (formerly TrueCircle), both of which continue to attract attention for their resilience and clarity of mission.

Beyond climate, other sectors have shown stronger momentum heading into 2025. According to data from Carta report State of Private Markets 2024, early-stage valuations have continued to rise through Q4 2024, with notable acceleration in Series B and later-stage rounds. While full-year data is still being compiled, the early indicators suggest renewed confidence among investors in startups with proven traction or defensible business models.

Defence-tech and so-called “peace-tech” were also called out as emerging areas of interest. While a majority of the capital in this space is still flowing from the US, similar trends are beginning to take hold in the UK and across Europe. The ongoing conflict in Ukraine has prompted governments to reassess national security strategy, including support for dual-use innovation.

Within this context, the BVCA has noted growing interest from LPs in technologies that serve both civilian and defence applications, particularly where they align with broader industrial policy or infrastructure investment goals.

Looking Ahead

As the UK venture capital market continues to mature, signs point to a shift from momentum-driven growth to structural, policy-led transformation.

Discussions throughout the fireside chat made clear that investor optimism is beginning to align with tangible shifts in funding models, sector priorities, and capital mobilisation strategies.

Key takeaways from the session include:

• Pension fund reform is moving from policy to practice. The Mansion House Compact and broader government plans to mobilise £80 billion in capital are beginning to reshape how institutional investors think about their role in supporting UK innovation.

• Climate-tech funding is down, but not out. Lower valuations and softer fundraising rounds have created a window for longer-term investors willing to commit to mission-led solutions.

• Dual-use and defence-related technologies are gaining traction. These sectors have moved to the centre of investor attention, partly driven by geopolitical pressures and government innovation strategy.

• Growth-stage investment is picking up pace. Data from Carta shows an encouraging rise in Series B and beyond, signalling renewed appetite for scale-ready businesses.

• Global capital is rebalancing. With US private markets stabilising, LPs and GPs are actively eyeing overlooked opportunities in Europe. See more with A&O Shearman's Global M&A Insights 2024 report.

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If these trends hold, the UK could enter a more resilient, globally attractive phase of venture investing: one shaped as much by policy decisions as market performance.