UK startups need UK backing
If we want the economic growth, jobs and tax revenues that come with a buzzing entrepreneurial economy we need to back our startups, writes Hargreaves Lansdown’s Nicholas Hyett
The UK is a startup factory. Over 800,000 companies were incorporated here in 2025, so there’s no shortage of ambitious entrepreneurs. The challenge we have is backing those companies as they grow.
Recent research from Apollo shows that UK company survival rates are significantly lagging both the US and Europe. Five years after incorporation just 38 per cent of UK companies are still going compared to an EU average of 46 per cent and 51 per cent in the US.
That’s been put down to market size, flexible labour markets that let companies adjust costs quickly and lighter regulation, but also to a lack of access to investment. Some of those challenges are thorny and structural, but access to capital shouldn’t be one of them.
Domestic investment is falling
As a nation, we’re becoming worse at backing our own winners and our companies are increasingly reliant on overseas investors for funding. The share of venture capital funding from domestic investors fell from 33 per cent in late 2015 to 25 per cent in late 2025.
Domestic investment means domestic investors share in the prosperity created by UK startups. In my experience, UK-based investors are also more likely to back startups outside London, spreading the wealth creation and high-quality jobs associated with startups across the country. It’s therefore no surprise that venture capital funding for companies outside London has also fallen from 33 per cent of the total to 25 per cent.
The government has recognised the importance of encouraging UK investors to back private and early-stage businesses. So far, the focus has been on pension funds via the Mansion House Accord. This aims for 10 per cent of defined contribution funds in private markets by 2030, with five per cent in UK assets. Structures and routes to market are still being worked out. The government anticipates these changes could unlock around £25bn of investment into the UK economy, although this will take time to scale.
So whilst the Mansion House Accord can help build the UK’s institutional investment base over the long term, the good news is that for smaller companies needing direct access to capital we have a solution already – the venture capital trust (VCT).
The benefits of venture capital trusts
These investment trusts have been directing up to £1bn a year from retail investors into investment in innovative UK companies. They’re long-term, dedicated venture capital investors that specialise in making the kind of smaller investments that often get overlooked.
By allowing retail investors to back UK startups they allow the wider UK to share in our entrepreneurial successes. Several VCTs, such as the Maven and Northern VCTs, actively target investments into companies outside London, where they think investment opportunities are potentially more appealing.
Venture capital investments are higher risk – and best suited to more experienced investors. The government offers 20 per cent income tax relief on VCTs to reflect the higher risk involved, which exists even when backing a diverse portfolio of companies through a VCT.
That tax relief pays dividends for the UK and the exchequer. The VCTA estimates 1,100 companies are supported by VCTs, employing over 100,000 people, often in high quality, innovative jobs.
But as Dolly Parton said, “if you want the rainbow, you gotta put up with the rain”. If we want the economic growth, jobs and tax revenues that come with a buzzing entrepreneurial economy we need to back our businesses. And if investors help UK companies to succeed, they can share in that success too.
Nicholas Hyett is lead alternatives analyst at Hargreaves Lansdown