Last quarter saw the UK suffer the slowest period of venture capital (VC) investment in five years, despite a surge in interest in the AI sector, a new KPMG study has revealed.

The firm’s latest Private Enterprise Venture Pulse report found that levels of investment dropped to £2.6 billion across 435 deals in the second quarter of 2025, down from £3.8 billion across 507 deals in Q1 2025.

The UK’s plunging VC figures are mirrored around the world, with global venture capital investment declining from £95 billion in Q1 2025 to £75 billion in quarter two.

As with the UK, global VC deal volume dropped to 7,360 in quarter two, hitting a decade low point as many investors paused activity outside of the most resilient sectors like AI, fintech, and defence tech.  

Despite a pullback across corporate VC activity, AI remained a dominant investment theme, alongside areas like healthtech and fintech, with megadeals for UK firms during the quarter including £251 million for EV charging firm Believ, cloud computing business XY Miners securing £223 million, and £148 million for healthtech firm CMR Surgical. 

According to KPMG, this meant that even with the overall downturn, the UK secured three of the top ten deals across the whole of Europe, though according to Crunchbase data, Germany came out on top, leapfrogging the UK for the first time since 2012. 

However, KPMG’s report shows that the Americas still lead VC investment globally, with the region attracting £54 billion, more than 70% of all funding over the last quarter. 

Of that, over £52 billion came from the US alone, even with investors wary of geopolitical headwinds, allowing the country to quickly pull away from its international peers in emerging tech markets.

“Despite a challenging global environment, marked by geopolitical tensions and significant trade-related uncertainties, Q2’25 showed that venture capital investment remains resilient, particularly in sectors that are driving long-term technological transformation,” said Conor Moore, global head of private enterprise at KPMG International.

“While investors are taking a more cautious approach to their investments overall, there’s clearly strong conviction behind the megadeals we’re seeing in areas like AI, defence tech, and fintech. What we’re seeing is a reallocation of capital, not a retreat.”

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Looking ahead, trends expected for quarter three and beyond include a continuation of subdued levels of VC investment, mostly thanks to uncertainty caused by fluctuating tariffs from the US, but AI is predicted to defy this trend yet again, being labelled a hot sector for further growth over the coming months.

So far, the AI bubble shows no signs of bursting. VCs have continued to bet big on AI startups since the opening months of this year, with recent figures showing that AI startups now account for nearly 60% of global VC investment, pushing the sector past $310 billion (£230bn) in total funding.

In the UK alone, data from HSBC last month found that AI startups secured a record-breaking $2.4 billion (£1.7bn) in venture capital during the first half of 2025, accounting for 30% of all UK VC investment, an all-time high.