Funding for UK startups dropped dramatically in the third quarter of 2024, according to recent figures, as founders feel the pressure to find new sources of investment.

Venture capital funding for startups fell by 50% from the previous quarter, as startups secured only around $2.9bn according to the latest Dealroom and HSBC Innovation Banking report.

“Despite a typical seasonal slowdown in VC activity over the summer, Q3 still saw $2.9 billion raised by UK startups, and continues to track in line with 2023,” Simon Bumfrey, head of technology and life sciences at HSBC Innovation Banking said.

2024’s third quarter marked the lowest point for startup investment in the UK in the past five years.

According to the report, the slowdown is mainly due to a drop in megarounds, while early and breakout stage funding remained fairly stable in comparison.

Within this, however, funding trends were similar to that seen in 2023.

Fintech has come on top as the UK’s best-funded tech sector this year, raking in $3.3bn, still a decrease from $4.5m in 2023.

The health tech sector came in second place, rocketed by a few large funding rounds, including £156m series C funding for Flo Health, and £90m of series A funding for Myricx Bio. Health tech funding totalled $2.3bn.

Flo’s funding round also propelled it to become Europe’s first femtech unicorn, a technology startup focused on solutions aimed at women.

Within this, AI and deeptech-associated technologies were leading segments for UK VC investment. Generative AI-related companies raised £1.4bn, while autonomous mobility, drug discovery, and remote monitoring also gained traction.

Despite a downward trend in funding, the UK still came out on top compared to other European nations in terms of VC funding.

Startups in the UK raised nearly as much VC funding in 2024 as France and Germany combined.

In the first three quarters of 2024, UK startups raised £12.4bn, significantly outpacing France (£6.5bn) and Germany (£6.7bn).

Interestingly, 70% of VC funding for UK startups came from abroad in 2024, one of the highest shares to date.

That’s not to say UK-based VC investors are faltering – the data shows that they are on track to raise a record £12.2bn of fresh capital by the end of 2024.

Recommended reading

• Scots Gov Announces £1.5m ‘Pathways Pre-Start Fund’
• UK Gov Extends Startup Investment Tax Relief For 10 Years
• Techscaler One Year In: Hit or Miss?

“This deep pool of liquidity is a sign of confidence from long-term investors in the strength of the domestic innovation ecosystem and suggests a buoyant outlook for 2025 and beyond,” Bumfrey said.

“In 2024, top global funds have been actively raising capital to be deployed in UK start-ups and scale-ups ready to achieve their next phase of growth.

“Encouragingly, the fact that Q3 funding was heavily weighted towards deals at the critical Series B and C ʻbreakoutʼ stages, suggests that these global VCs will have no shortage of mature, high-growth businesses to invest in.

“The proportion of inbound, international investment is at its highest since 2021, which underscores the strength of UK innovation on the global stage.”