Venture investors pumped more than £6 billion into the UK’s AI sector last year, according to fresh figures from NatWest, but a closer look reveals an industry that may be teetering on the edge of a bubble.

The bank’s inaugural Future of UK Innovation  report, in partnership with PitchBook, found that UK startups raised £17.5 billion across more than 2,000 deals last year,  with AI firms taking over a third of all venture capital, though the numbers show investors are placing far bigger bets on far fewer businesses.

Rounds over £25 million made up more than 70% of last year’s VC funding, the highest share in a decade, with later-stage companies attracting more than 60% of all capital.

Despite the VC market still struggling to regain the momentum lost post-COVID, the AI sector has emerged as a defining force in the UK’s “innovation economy”, raising more capital YTD than in recent years.

Added to that, NatWest tracked a total of 67 exits for AI firms worth £4 billion, with capital concentrating in a narrow slice of AI companies that already display clear commercial readiness and scaling potential.   

While this may appear like healthy growth, the UK is home to more than 2,300 VC-backed AI companies, meaning cash is primarily flowing to a small group of later‑stage, commercially proven firms, with only a fraction finding meaningful exits.

Digging deeper, NatWest found that most of last year’s AI investments went to SaaS and AI-enabled verticals, like healthtech, fintech or Big Data, with AI startups increasingly skewed toward infrastructure and optimisation, rather than standalone model development.

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That pragmatic discipline may be healthy on one level, but it may also signal waning risk appetite and a narrowing of new AI bets into niche, commercially viable solutions, especially as compute and energy pressures continue to bite and make experimentation more expensive for younger firms.

According to NatWest, liquidity constraints will continue to suppress fundraising, even for Big Tech and the foremost LLM developers, many of which haven’t yet resolved the cost problems of AI within their own business models.

“This report arrives at a defining moment for the UK innovation economy. Our venture landscape has proven remarkably resilient, and we are entering a new era of confidence, opportunity and global ambition,” said Jenny Edwards, head of NatWest Venture Banking.

“This report is a call to action — highlighting where value will accrue next, where bottlenecks persist, and where the UK must move decisively to maintain its global leadership.”