How geopolitics is influencing investment
The UK’s classification of AI as critical infrastructure is being paradoxically balanced by increasingly strict national security scrutiny on ownership, investment, and partnerships, introducing political risk into the innovation pipeline, says Claire Trachet
Britain classified AI as critical national infrastructure last September, sitting it alongside defence, energy and telecommunications. At Davos this year, former UK Prime Minister Rishi Sunak declared AI a “core facet of hard power”. Earlier this week, French President Emmanuel Macron warned Europe faces a “geopolitical and geo-economic state of emergency” and must protect critical industries or be swept aside by American and Chinese technology.
Given AI’s pervasive nature – much like the internet – governments don’t just regulate it, they control who can own it, invest in it and acquire it. For Britain’s innovation pipeline, where over one third of venture capital now flows into AI, this means unprecedented government oversight. And much like the internet, this shift will take time to mature, meaning the window remains open for dealmaking. But the fundamentals have already changed.
UK AI firms raised £6bn in 2025, up 52 per cent from 2024. But as capital floods in, a paradox is emerging. The state is becoming one of the UK’s largest venture investors while simultaneously tightening control over who can own, partner with, or acquire the companies it helps fund.
Public money is underwriting sectors where public authority is tightening control
British Patient Capital manages over £3bn in assets – among the UK’s largest institutional investors in venture capital. Last month, it made its largest ever direct investment – £25m into Kraken, the Octopus Energy spinoff. Europe launched a €5bn Scaleup Fund targeting AI, quantum, semiconductors and defence. Public money is underwriting growth in precisely the sectors where public authority is tightening control.
The UK’s Competition and Markets Authority cleared all 36 mergers it reviewed in 2025 without blocking a single one – the first time since 2017. Ministers framed this as proof the government backs growth. But this non-restrictive, pro-growth M&A window sits alongside increasingly stringent national security scrutiny operating on a parallel track. Contrast this with Germany and France, where interventionist stances are holding up even smaller deals still under review.
Since 2022, the National Security and Investment Act has blocked deals across 17 sensitive sectors – not just acquisitions, but minority stakes, licensing agreements and IP transfers. The majority of publicly disclosed blocks have involved Chinese or Russian-linked buyers, even as ministers pursue closer economic ties elsewhere. The government talks about pragmatic engagement with strategic rivals – wanting infrastructure capital while blocking technology partnerships. In practice, this balance is proving difficult to hold.
Scrutiny is moving upstream. Fractile – a British AI chip company backed by the Nato Innovation Fund that just announced £100m of UK investment – lost its co-founder in 2024. The departure happened during company-building, not M&A. National security considerations now surface at funding rounds, partnership discussions and hiring decisions.
Where capital comes from determines not just exit options, but operational freedom – which partnerships are possible, which customers are accessible, who can join the board
Cap tables now carry embedded political risk. Where capital comes from determines not just exit options, but operational freedom – which partnerships are possible, which customers are accessible, who can join the board. Some founders are choosing investors with geopolitics in mind from Series A onward. For VCs, due diligence now includes questions irrelevant three years ago: which sovereign links influence their LPs? and in the context of global regionalisation – can these be managed over a fund’s seven-to-ten year life?
British founders and buyers are transacting now because they recognise the current regulatory environment may not hold. The innovation pipeline being built today will operate under rules still being written.
Claire Trachet is CEO of Trachet, a London-based fundraising and M&A advisory firm