West Midlands smaller businesses raise £234m in equity investment as AI deals dominate UK market
AI is reshaping the UK’s startup economy, attracting a record share of investment in 2025 and driving larger deals, even as overall activity declined, reveals the British Business Bank’s annual Small Business Equity Tracker.
West Midlands smaller businesses raised £234m in equity investment across 52 deals in 2025, according to the report. The region’s £100m growth-stage ‘megadeal’ investment into AI software firm Job Logic highlighted broader investor interest for firms working with AI.
AI companies accounted for 44% of total UK equity investment into smaller businesses in 2025, the highest share on record. AI also represented more than a quarter (26%) of all deals, nearly doubling its share since 2022. Investment in AI-related deals rose by 48% year-on-year.
Meanwhile, the British Business Bank continued to play a significant role across the UK market, supporting 15% of all deals and 16% of investment between 2023 and 2025, with a particular focus on innovation-led businesses, including in AI.
Spinout funding expands significantly highlighting the UK’s research strengths
Spinout companies play a key role in translating academic innovation into commercial growth, and supporting spinouts remains a key priority for the Bank.
Funding for UK university spinouts has grown strongly in recent years, with venture capital deal volumes up by 95% in 2021-2025 compared to 2016-2020, outpacing the United States, Germany and France. This increase highlights the UK’s position as a world-leading research and development hub, home to four of the world’s top 10 universities. The British Business Bank continues to play an important role in this segment, supporting a higher share of spinout deals (16%) than the wider market (12%) during 2023-2025.
The UK had the highest number of venture capital-backed spinouts among international comparators, including the United States, Germany and France, when controlling for the size of the research base. However, UK spinouts’ equity deals declined by 33% and investment value by 51% year-on-year in 2025, indicating a slowdown in activity.
West Midlands’ universities including the University of Warwick, University of Birmingham, Coventry University and University of Wolverhampton have a strong track record of supporting innovative spinout firms. Aston University spinout GridEdge, secured £2.8m in 2025 to support the development of AI-powered software that helps reduce carbon emissions and energy costs in commercial buildings.
Spinouts in the West Midlands however raise less than a quarter of the median UK investment value (£763k) for first-time deals at seed stage. Spinouts in the Midlands are also less likely to secure follow-on funding with a rate of 63% compared to 76% in the rest of the UK.
The Bank’s Five-Year Strategic Plan highlights its commitment to strengthening spinouts from science and innovation clusters across the UK, helping to grow local investor ecosystems through its £285 million Regional Angels programme and where needed, investing the first capital into deals to support emerging technologies where the UK has the potential to lead globally.
The Bank’s Midlands Engine Investment Fund II continues to support firms across the region. The fund, which offers a range of commercial finance including equity investment of up to £5 million, has driven £100 million into 225 firms since it launched two years ago.
The Bank is also expanding its investments across the UK and is committing £2.6bn of capital to support entrepreneurs wherever and whoever they are, including through two new Nations and Regions Investment Funds.
Mark Sterritt, Managing Director, British Business Bank Local Growth Team, said: “The region’s smaller firms have continued to secure significant funding and bring forward ambitious plans for growth over the last 12 months. The concentration of investor interest in AI and its related technologies plays well for the West Midlands given its developed tech ecosystem, institutions, talent and potential. The opportunity is there for firms and investors alike.
“The West Midlands is, however, multi-talented with strengths across key sectors. The Midlands Engine Investment Fund continues to back those entrepreneurs whose ambitions for growth will drive the region’s economic success.”