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Analysis: Private Equity & Venture Capital Funding

Private Equity & Venture Capital Funding

Should equity investment be part of your growth strategy in 2025?

 

For many UK SMEs, funding growth has traditionally meant taking on debt. But in 2025, an increasing number of businesses are exploring private equity (PE) and venture capital (VC) as routes to accelerate scale, access strategic support and unlock new markets.

This third instalment in our white paper mini-series examines how PE and VC are being used to power growth. We share what SME owners and finance leaders need to know before entering the equity investment market.

Equity Funding in a Shifting Market

After a post-pandemic boom, UK private capital markets entered a correction phase in 2022–23. Deal volumes fell, valuations reset and investors became more selective. But in 2024, signs of recovery emerged, with stabilising volumes, higher-quality deals and a renewed focus on long-term value creation.

As of 2025, private equity and venture capital remain critical sources of funding for growth, particularly for:

“Equity funding isn’t just about capital. It’s about capability. The right investor brings strategic insight, commercial discipline and a growth roadmap that can unlock far more than money alone.” – Rich Olsen, Director, Pegasus Funding Solutions

Venture Capital: Fuel for Scale-Ups

Venture capital plays a vital role in funding the UK’s most innovative and fast-growing companies, particularly in tech, life sciences and clean energy.

Market Overview

After the record-breaking highs of 2021, VC activity in the UK contracted significantly in 2022 and 2023. According to the British Business Bank, equity deal volumes in 2023 returned to 2020 levels. However, by late 2023 the market began to stabilise around £2 billion per quarter in deployed capital.

In 2024, UK startups and scale-ups raised a total of £9 billion, a 12.5% rise according to the BVCA. This was more than any other country in Europe, confirming the UK’s continued appeal as an innovation hub. Importantly, capital was concentrated in later-stage rounds (Series B and C), where investors backed companies with proven traction.

This maturity of capital reflects a shift in investor behaviour: the emphasis is now on sustainable growth, clear revenue models and strong teams, rather than rapid scale at any cost.

Where the Money Is Going

Dry Powder on the Rise

UK-focused VC funds raised £6.25 billion in new commitments in 2024, 59% more than the year before. This unallocated capital (often referred to as “dry powder”) is expected to drive deal activity in 2025 and 2026, particularly for businesses that meet the higher standards now demanded.

Private Equity: Strategic Partnerships for Mid-Sized Firms

Private equity is a powerful option for established SMEs that are:

The State of the Market

UK mid-market private equity activity slowed in early 2024 due to high interest rates and valuation mismatches. KPMG reported an 11% drop in mid-market PE investment in H1 2024 compared to the same period in 2023. However, by the end of 2024, activity was showing signs of recovery.

A key shift was the role of private credit funds, which increasingly stepped in to provide acquisition debt as traditional leveraged lending tightened. This innovation helped deals proceed despite economic headwinds.

PE investors are now focused on building long-term value, often through operational improvements and targeted bolt-on acquisitions. Hold periods are extending, and fast “buy-and-flip” strategies have become less common.

Sectors currently in focus include:

PE funds remain especially active in supporting succession plans within family-owned businesses, where the capital injection comes with experienced leadership input and a multi-year growth plan.

The Government Angle

The UK Government has signalled strong support for institutional capital to flow into growth companies. The planned British Growth Fund/Partnership, backed by pension funds, aims to unlock hundreds of millions in private equity capital for UK SMEs and scale-ups. This could create a new wave of investment in the second half of the decade.

Should Your Business Consider Equity Funding?

Advantages include:

Essential factors to consider include:

Preparing for Investment

If equity funding is on your radar, you should begin preparing early. Key steps include:

Final Thoughts

In 2025, private equity and venture capital are more selective than in recent years, but they remain well-capitalised and motivated to invest in the right businesses. For SMEs with strong fundamentals and a clear vision, equity funding can offer not just growth capital but long-term competitive advantage.

What’s Next?

This article concludes our focus on growth and expansion funding. In our next white paper series, we’ll explore the changing face of alternative funding and innovation.  We’ll share insights in latest trends across embedded finance and revenue-based lending and into public-private capital stacks and finance for circular economy models.

Get Expert Support

If you are exploring equity investment or considering a strategic funding round, speak to Pegasus Funding Solutions. We help SMEs understand investor expectations, refine their proposition and access trusted VC and PE partners.

Call: 0203 327 0567

Email: [email protected]

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