UK Startup Funding Declines by 25% in H1 2025, Yet AI and Defense Spaces Show Promising Uptick

Despite a buzzing technological scene and the relentless progress in artificial intelligence, funding into UK startups witnessed a nearly 25% drop in the first half of 2025 from the previous year. According to data by Sifted, a formidable €6.7bn was invested in UK startups until June, compared to an impressive €8.7bn over the same period in 2024. The count of deals also plummeted from 615 to 570. However, the UK continued to hold the mantle of the best-funded startup ecosystem in Europe, while Germany began closing the gap with a striking 15% rise in funding to €4.3bn. France, in contrast, saw a precipitous 30% plunge in startup funding to €3bn.

The Healthtech startups, which include biotech, drug discovery, medtech, and digital health companies, acquired the lion’s share of the funding, raising €1.8bn. Even within the tech spectrum, AI agents (systems that can autonomously complete tasks without human interaction) raised a substantial €642m in H1 2025, experiencing a threefold increase from $198m in the same period the preceding year. Nadja Reischel, an investor at Cherry Ventures, notices a trend: either companies leapfrog straight to a Series A after proving ROI or they fail to clear seed funding.

Meanwhile, the defense tech sector has been drawing increased attention, growing its funding pot from €64m to €157m in H1 2025. In March, US defense tech mammoth Anduril proclaimed its plans for a new factory and research facility in the UK, aiming to produce advanced attack drones among other autonomous weapons. Following suit, the UK government committed in April to investing £400m in defense tech and revamping the procurement process for startups in this space. There’s no denying that the UK startup ecosystem is experiencing a period of rapid change. As it continues to emend and evolve, with promising trends shining through, its future prospects hold significant intrigue.