Fundraising outlook for UK venture capital

As the year comes to a close Christina Theilgaard, Head of IR and Stuart Mant, Head of Business Development at Albion Capital reflect on the trends shaping retail and institutional fundraising markets in the UK.

While Christina and Stuart consider different drivers across their respective domains, it is evident that opportunities presented by backing visionary founders scaling innovative technology companies globally are creating non cyclical opportunities that appeal to both sets of investors.

With macro instability becoming the norm and a favourable valuation environment, coupled with incredible entrepreneurial drive and a maturing UK tech sector, 2025 presents a unique opportunity to build on the existing moment to invest in the future of UK tech for the long-term.

Resilience and opportunity in the VCT market

By Stuart Mant  

Reflecting on the current state of Venture Capital Trust (VCT) fundraising, we have a market that continues to show resilience despite economic uncertainty. Currently around £900m of capacity has either launched or been announced (including potential over-allotments) with the supply side driving the total market potential.

Robust demand for the 2024/25 offers 

Mobeus raised their full £90 million allocation earlier this autumn, while the British Smaller Companies VCT has to date filled £62 million out of a target of £75 million.

So far, just over £300 million has been raised this year—up by around 13.7% year-on-year (Wealth Club)—which is encouraging and is being driven by a combination of factors:

Government policy creates unique tax efficient opportunities 

The government’s commitment to extend the VCT scheme to 2035 has provided much needed stability. Tax efficiency continues to be a key driver, with VCTs offering income tax relief, tax-free dividends, and no capital gains tax on disposal, making them an attractive option in today’s limited tax-efficient investment environment.

Long-term portfolio growth

For investors, it’s not just about the tax relief anymore, it is about accessing a unique portfolio of businesses that deliver resilience and long-term growth opportunities.

Personally, I encourage investors to think beyond the minimum five-year holding period to truly capture the growth journey of these businesses. For example, one of our portfolio companies, an AI unicorn Quantexa, which had no product revenues when we first backed them in 2017 to generating over a $100 million annual recurring revenue by the end of 2024 — an extraordinary journey that rewards patient investors.

Attractive entry price for new investors 

Valuations of quoted technology companies have come down significantly from the high levels seen in 2021. This adjustment has created a more attractive and stable environment for making investments into unquoted technology companies. The portfolios of many VCTs have been stress tested in recent quarters resulting in NAV adjustments and overall pivot towards efficient growth, ultimately providing attractive entry levels for investors looking for growth opportunities over the long-term as the market environment improves.

Portfolio diversification 

Beyond that, we’ve seen an increasing interest from advisors and individual investors in exploring how to access early-stage private technology companies in areas like health technology and software. Traditionally, it has been difficult for retail investors to access such opportunities, so VCTs, which often target technology and healthcare,   present an interesting opportunity for diversification within an individual’s investment portfolio.

A new generation of VCT investors 

Another trend to note is the shift in investor demographics. While the average age of a new investor into the Albion VCTs is around 57, there has been a noticeable increase in younger professionals exploring VCTs—solicitors, bankers, and even footballers. Many of these individuals are facing restricted opportunities to make pension contributions, which pushes them to seek alternative, tax-efficient ways to invest. This is a growing trend we’ve observed within our own investor base at Albion and we will be exploring further in 2025.

Challenges remain, including subdued M&A activity and the potential for future legislative changes to the VCT scheme. However, we remain optimistic about  investing in VCTs and the opportunities they offer to  investors and the positive impact they have on the broader UK economy.

Institutional fundraising and the appeal of niche strategies 
By Christina Theilgaard

On the institutional fundraising side, recent months have brought encouraging signs of recovery with the European fundraising market growing by 5% year-on-year (source: Q3 2024 European Venture Report, PitchBook), yet challenges persist. Extended closing times, tighter liquidity, and strain on the re-ups into successor funds remain, with some LPs delaying commitments due to limited capital availability.

Three emerging trends driving institutional interest include:

AI and Biotech appeal for corporates   

Over the past year we’ve seen the growing appeal of the UK as a hub for AI and biotech investments. There has been a significant interest from US and European corporate investors, drawn by the UK’s world-class scientific institutions and relatively lower valuations compared to the US. Recent interest rate cuts have further boosted appetite in sectors like biotech and pharmaceuticals, where access to capital directly fuels innovation.

Shift to specialised strategies

A striking 75% of capital raised in the past six months has gone to niche managers with specialised investment strategies, reflecting a shift away from larger platform funds perceived as asset aggregators. Personally I see this trend as a hedge against market uncertainty and a way to unlock targeted growth opportunities. At Albion, we continue to be encouraged by the trend of increasing commitments to focused strategies as a way to access growth and diversification.

UK pension funds getting ready to allocate more to venture 

The Mansion House Compact, of which Albion is a signatory, is helping overcome obstacles that have historically impeded many pension funds from investing in VC. While some Defined Benefit (DB) pension funds have been active in UK private markets for decades, there is now a strong policy ambition for Defined Contribution (DC) schemes to follow suit. The implications of these funds allocating a minimum of 5% in this space cannot be overestimated; it would unlock billions of much-needed capital into our world-class start-ups while helping to achieve better returns for UK savers.

We are seeing DC funds working hard to make this possible by the adoption of innovative structures, such as the Long-Term Asset Funds (LTAFs), with 15 LTAFs now launched compared to 2 LTAFs at the same point 12 months ago.

However, there is still a long way to go for most pensions funds as expertise in the private sector has been limited to the market leading Defined Benefit (DB) funds to date, and so other DB schemes such as local government schemes, where consolidation in the market is being driven from the top down, should in due course result in more allocation to venture. We recognise that a lot of stakeholder alignment and cultural change / education are still needed and this will take time.

Looking ahead, we remain optimistic about the resilience of venture capital in the UK, particularly in sectors like deeptech which are less influenced by short-term macroeconomic fluctuations. These mission-critical technologies continue to attract strong global demand, underscoring their potential for sustained long-term growth.

Final thoughts 

Both Stuart and Christina highlighted the enduring appeal of venture capital despite macroeconomic challenges. Their insights paint a picture of a sector navigating uncertainty with a strong focus on innovation and long-term value creation. If you are looking to discuss retail or institutional opportunities or have a different view on the markets please get in touch.