UK startups win better deals as investors fight for top companies

The dynamics shaping UK startup investment are evolving. This has been highlighted by HSBC Innovation Banking’s Venture Capital Term Sheet Guide 2026, which aims to empower founders to make informed decisions when seeking investment, while enabling VCs to benchmark against the wider industry.

HSBC Innovation Banking’s Venture Capital Term Sheet Guide 2026, based on 711 completed term sheets and 50,000 data points, found that later-stage companies, especially those in AI and deeptech, are gaining significant negotiating power as investors scramble to back proven businesses.

The report, which covers 42% of UK equity deals over £500,000 by volume, paints a picture of a funding landscape that is splitting in two: generous terms for scaled companies with strong track records, and an increasingly tough environment for those just starting out.

Later-stage founders hold the cards

At Series B and beyond, deal sizes are growing and competition is stiffening. Term sheets for investments over £10 million now represent 31% of all deals, a share that has risen steadily, as larger capital requirements and fierce rivalry for high-quality companies push terms in the favour of founders.

In some cases, Series A rounds are reaching sizes that are typically associated with later-stage deals, especially when it comes to AI and deeptech startups. This dynamic means there is an unusual degree of leverage for these founders in an early point in the journey.

Seed investors tighten their grip

The picture looks different at the earliest stages. Seed and early-stage deals still dominate overall activity, accounting for around 69% of all term sheets, but the terms of those deals have grown less generous.

The use of participating preference shares, a structure that tilts returns towards investors in the event of a sale, has doubled from 7% to 14%. Syndication, where multiple investors co-fund a round, has also risen, from 26% to 31%, as tighter capital markets and longer gaps between funding rounds make investors more cautious.

Investors are also placing greater weight on concrete performance metrics, particularly revenue and profitability, before committing capital.

London still leads, but the regions are catching up

For the first time, more than half of all deals are now funded outside London, with 51% of seed rounds taking place beyond the capital. Sector-specific clusters are emerging with particular strength: life sciences (60% of deals outside London), cleantech (61%), and energy (56%) are drawing significant investment into regional hubs such as Cambridge, Oxford, and Manchester.

Although, London continues to offer founders the most attractive terms. Around 93% of term sheets in the capital include non-participating preference shares, compared to a more mixed picture in the regions, where founders should expect greater negotiation around downside protection.

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American money dominates later stages

British investors continue to be the backbone of early-stage funding, backing 70% of seed rounds and 55% of Series A deals. But at the later stages, overseas capital, particularly from the United States, takes over. Nearly two-thirds of Series B and C+ rounds were led by foreign investors, amounting to £5.9 billion in investment.

The UK’s most mature startups have become dependent on international capital, but it isn’t all negative, as the UK’s innovation economy remains to global investors.

University spinouts mature

University spinouts account for 9% of all UK term sheets and are especially prominent in life Sciences and deeptech, both sectors where translating research into commercial products is the greatest challenge and the greatest opportunity. As the broader ecosystem matures, these companies are increasingly negotiating term sheets in line with standard market practice, a sign of growing sophistication across the academic startup world.