UK venture funding reaches $23.6B: Jenny Edwards, Managing Director, Head of NatWest Venture Banking

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0:32Hello and welcome back to the Scaling Europe show. I'm Seb Johnson. Today I'm joined by a very interesting guest, Jenny Edwards, head of venture banking at NatWest. They've just released a very interesting report on the state of UK venture and tech. Jenny, thank you for joining me. Thank you for having me. How are you doing today? It's great. Sunshiny day in London, so nothing could be better. It's amazing. As soon as the sun comes out, the vibe just shifts in London and it is amazing to be here in spring. Can you just talk a bit about your role and what do you do at NatWest? And then Yeah, sure.

1:00So I head up NatWest Venture Banking team, joined about a year and a half ago to build out kind of bringing together our foundations that we've had at NatWest for many years. So our accelerator business, our open innovation, which co-creates, design, house, and invest. And then we've got Coutts. And what we didn't have was really how do we scale up and help founders to scale up in a meaningful way. So we've hired a team focused on three key pillars, venture capital coverage, our relationship team and our venture and growth finance team, really wrapping around founders and investors to help them grow and scale in a meaningful way.

1:34Amazing. And, you know, you're ramping up the team, you're doing more and more. And now you've just released this big report. What was the thinking behind that? We really wanted to take a data-led approach. So there's a ton of positive momentum. If you spend any time reading any of your newsletters and podcasts, there's a lot to be excited about, even recently with headline kind of banner raises. But ultimately, there's still a lot of noise, like what's going on in the fundraising market? What's going on with AI? What's the exit market going to telling us? And so we wanted to take that data and really unpack it and provide it to founders and investors as somewhat of a framework for what we think will happen in 2026.

2:11Amazing. So can you talk a bit about the report itself? What data are you looking at and what is the story that it's telling? Yeah, I mean, headline figures are super positive. So, you know, at the time of the report, about$17.5 billion of fundraising happened. If you look at how it closed out in the balance of the last month of the year, we're at 23.6. So back up to 2022 levels, which is really great and a positive news story for the UK and investors across. So AI and SaaS really taking a bulk of that at$6 billion each. Early stage really continues to be a foundational element of the UK as a result of the academic universities, accelerators.

2:51We just have that in sort of the fabric of who we are at the UK. You saw over half of those from a deal count perspective go to the early stage. So really starting up companies in the UK still continues to be sort of who we are. and so we saw a lot of strong kind of results there. Amazing. And so you've done this big report, you've got all this data. What are you excited about for this year? So I'm excited. I mean, I think as you look towards a new year, you know, valuations and thinking about, you know, exit markets, there's rumors that those will continue to open that will add to some of the kind of sustained recovery within the fundraising market.

3:29So really excited about that. Excited to see what comes next for AI. So that AI enablement, What's going to happen within the niche markets? How does that kind of lend to the cost efficiency models that we need to see so that it becomes more mainstream? So in the UK, we've kind of moved from a very fintech focused market maybe like four or five years ago that dominated the fundraising scene. Now we're seeing more and more AI companies raising bigger and bigger rounds. Do you think that's a trend that we're going to see continue? So certainly, I think as you look towards 2026, you'll see AI as a gravitational pull.

4:01But I also think that if you look at the UK and who we are, the fundamentals are still around climate. You've got great regulatory sort of tailwinds behind life sciences. You see the two billion life science sector sort of fund being deployed, industrial strategy. So we have expertise. We've got depth around the academic institutions to really excel on a global scale across kind of those broader sectors as well. Yeah, really interesting. You mentioned that we're seeing half of those deals at the very early stage, pre-seed and seed, and we're seeing a huge chunk of them go to AI and SaaS. Where are the other, where's the rest going then?

4:37If half is pre-seed and seed, how does that look like across the later stages? Yeah, so later stages, I think, was really pronounced. You saw the highest concentration in capital in a decade. And if you look at my team just put together sort of a February snapshot, about 7.1 billion was raised in February across about 380 deals. So you continue to see that capital concentration play through. You know, you have the likes of like Revolut with 4 billion. So you do see a larger skew. I think what that tells us is that LPs are really looking after those higher conviction, kind of larger checks. we are seeing cross-border capital come into play at those larger later stage deals as well.

5:18Yeah, it's really interesting. Even last month, I mean, a couple of weeks ago, last week, it was Wave. Yeah, 1.5 billion. Huge deal. Yeah. At St. Deja in January, the deals are getting bigger and bigger, it feels like. Yeah. Yeah. Deals are certainly getting bigger and bigger. I mean, I think that comes when you look at just the cost from an AI perspective of cost to compute, you know longer life cycle private life cycle um the rounds but then there's also more as you kind of edge towards that exit what are those balance sheet fundamentals operational leverage that kind of come into play interesting and the founders that you work with how are they viewing the ecosystem what kind of problems or challenges are they facing yeah i think that the founders are cautiously optimistic um i think we see disciplined growth you know the the market they no one is able to rest on their laurels, but the macroeconomic economic environment continues to change.

6:10So individuals continue to have to kind of pivot and iterate their business. So I think cautiously optimistic. I think if you look to the report, I think kind of three key bottlenecks sort of bubble up. You know, one is around that scaling gap, kind of an age old tale. But I think, again, that's where the cross border kind of capital flows. But it's not necessarily, as we talked about, like not necessarily a bad thing, because all these companies need to expand on a global stage. And if you partner with the right investors, then they have the expertise to help you to scale and to grow into different markets.

6:43I think we see the cost. So AI sort of at a larger scale, how do you become more efficient? What are the levers that you can pull? And then kind of the kind of capital concentration that we continue to see towards the later stage. And then how do we help kind of, if you've got the early and you've got the later, How do we help kind of this scale up on a meaningful way? Yeah, that's really interesting. Scale-up capital, again, that's a long-term problem that we've had in the UK. People call us like the incubator Britain. I think it's a phrase or something like that. Cost efficiency, very different now compared to what was five years ago because, you know, the AI business model metric is very different.

7:21We're seeing lower margins, higher costs, and then, yeah, the capital concentration. And so if we take, let's just say, the scale up capital, it feels like we've seen a lot of progress since five or 10 years ago. We're seeing more and more funds here in the UK and across Europe raise larger rounds. How do you think we fix that? Yeah, I mean, I think that that's a combination of multiple things. Right. But I think for us to get back to that equilibrium, I think part of it is the exit markets. We have to see a return on liquidity to the LPs that will kind of dip into larger funds. and then you just see a level of kind of sustained recovery.

7:56I think there's also just that general support. I think part of why NatWest has jumped in is how do we help partner and scale and provide that funding kind of gap in partnership. So I think bringing in some of the typical sort of debt structures alongside an equity raise to sort of help bridge that gap. And I think you'll see over the next couple of years more and more where venture debt and this growth finance are much more prevalent in the U.S. the UK will tend to push in that direction as well. Interesting. You mentioned like exits in the exit market. We're starting to see the US IPO market open up a bit.

8:31We're seeing some IPOs, some very successful, some not so. Do you think that's going to have a knock-on effect on kind of the UK market? Yeah. So if you look at 2024 and some of the listing reforms, I mean, those have the opportunity to make tangible impacts. And, you know, if the rumored IPOs in the US happen this year, I think that will be a trickle-down effect where we can then kind of take the stage AI will likely, if we're going to open the floodgates, that will probably be the test. But I think we will have to, you've got the private capital markets that think about AI in one lens, and then the public markets of balance sheet and profitability and those good unit economics, and how do those come closer together to close that gap?

9:12Because we really need those companies to be successful as they go public and list and tell that broader narrative story. And what role do you see the increasing use of secondaries playing in the exit market? I think it's another tool as you think about kind of recycling capital in the ecosystem. But it's not kind of a single bullet that will fix everything. I think we need to have healthy exit environments. Secondaries play a role in that and helping to get, you know, early employees, investors. But there's still a lot of dry powder on the sidelines, about 24 billion at year end. Wow. So I think there's a lot of dynamics at play there, but really kind of we need to, ultimately we need exit environments to open up to return some liquidity to the LPs.

9:58So the liquidity provided by secondaries isn't going to plug that gap for VCs and LPs? Not full stop. And I think if you look at how secondaries work, it's generally at a slight discount. So it's not going to be kind of the saving grace, if you will. But I do think as the private life cycle is taking longer, it is a meaningful way to help. And it's interesting because now we're seeing companies do it almost yearly. I think Synthesia did one in January. It was like their third in three years, Revolut, and now doing one every single year. And it's becoming part of the, I don't know, the approach for business is just every year, one of a new one.

10:38Well, I think part of it, if you look at sort of cap table management as well, so if you are gearing up for an exit, there's some good fundamental hygiene that you can do through a secondary to gear yourselves up in preparation for that exit. Yeah, and anchoring investors, I guess. Yeah. Yeah, it's interesting. We're seeing that gap increase of private market valuations and public market valuations. It's hard to discern whether that's just private versus public, whether it's AI versus non-AI, whether it's hype, really exciting companies, and whether it's more traditional SaaS companies that people are sort of criticizing or saying they're not going to survive the AI age.

11:12I think it's going to be really interesting because we're definitely going to, you know, people like OpenAI, SpaceX, you know, all looking at potential trillion dollar IPOs this year, whether or not that will really unlock and open the floodgates. And, you know, in the UK, we've got companies like Revolut supposedly doing another secondary at close to$100 billion valuation. Rumored hired a full team to help. I mean, exactly. It's really interesting. And it's hard to know, is that company going to, you know, he's spoken about going public in two to three years, but he said two to three years, two to three years ago.

11:41So we don't quite know. And the second bottleneck that you mentioned, the cost efficiencies, that's a real bottleneck. How do you think founders should be thinking about that? Yeah, I mean, I think it's turned sort of starting a company on its head, right? Because you now sort of, when we talk to founders, they think about how big are their teams? What can we leverage AI for? What does this mean? And I think from an investor's standpoint perspective, there should be better capital efficiency, better unit economics, faster to scale at that earliest stage. And I think from a sort of AI of the future, these next wave of companies will see more on that AI enablement and kind of entering into niche segments that are kind of secondary knock-on effects of AI.

12:28And so I do think it'll shift fundamentally. Is it different for AI versus non-AI founders at the moment? You're right, because we say that these are all important things for AI, but really they're important fundamentals for any good company and sort of those good hygiene factors that they all need to focus on. AI does enable you to somewhat find the right fundamentals from the get-go. Yeah, it's interesting because you have these AI native businesses that are building AI products. Then you have sort of non-AI products that are still AI first in the sense that they have to build their business, leveraging all the tools available to make them as lean, as cost efficient as possible.

13:12And it's an interesting dynamic because the AI companies are able to tap into a lot of this, I don't know, like the point about capital concentration and the hype of AI. Whereas these companies probably have slow growth, but they're still having to be capital efficient to kind of catch up with the AI companies. And I spoke to a lot of non-AI founders who are trying to fundraise and the challenges of fundraising in the current market not being AI. And how are you thinking about that? Yeah, you know, I as someone who came up from a health care and life science background, it's somewhat near and dear to my heart that these good companies continue to get funded.

13:46You know, good companies are still getting funded. And I think while AI is a headline of today, you are seeing meaningful changes in the life science landscape where AI is deployed to create better, faster, more efficient companies. They're just deploying a therapeutic or whatever it may be in a greater scale much quicker. And so they're still getting the funding. Good companies, the fundamentals are there. And I do think where UK is, we do see this continuing to be kind of a rich environment for those companies to grow. It's really interesting, even since the report covers data up pretty much until the end of last year, even when you look since then, there's been a lot of changes.

14:27And companies like Olex, the semiconductor company, raising I think 100 million or 200 million, becoming a unicorn. There's Ineffable Intelligence, which is raising apparently a$1 billion seed at a$4 billion valuation. so even when you look out of the AI application layer the UK seems to be doing really interesting stuff going into deeper harder technologies which is not something I would have expected a year or two ago yeah I completely agree and I think that I think that plays into what the UK does well with like the academic research institutes there's there's good regulatory tailwinds behind them there's good global infrastructure to support and so as a result I do think we'll see more from a kind of a deep tech, life science, kind of health tech perspective continue to grow and emerge.

15:11And I think if they can kind of leverage the broader AI to drive some of those efficiencies, then those companies that typically were very capital intensive could potentially become more capital efficient through the use of deploying some of the technology. And when you look at the UK landscape, where do you think we are particularly strong? I mean, I think, again, it's like the healthcare, the life science, deep tech. We've got the world class best universities. We've got the smartest individuals. You've got investors that are deeply connected to the ecosystem. So there's a lot to be proud of.

15:46You also look at the five new minted unicorns this year. They're operating on a global scale. They're getting attention, cross-border attention. So you do see that there's a lot to be proud of across really all sectors. Yeah, I always, yeah, I think the UK is really firing on all cylinders. I love it. And I think that the breadth is also really powerful. I think like Stockholm at the moment is doing amazing stuff at the application level. You've got like Munich, which is doing really well in defense. You come to London, there's actually this really broad mix of like consumer, fintech, AI, hardware, deep tech, which I think is really amazing.

16:23Yeah, I mean, in London, but I also think the regions, when you look at Q3 last year, you saw about 25 % of equity raises outside of London. You continue to see, if you look at kind of 2025 as a whole, I mean, a little less than half happened outside of London. That's amazing. You continue to, I mean, Cambridge Aerospace, like you're seeing these great companies, you know, kind of coming up across the country. You see kind of industrial strategy play out, the Scottish enterprises. So I think we've got the depth across a small country, but to do quite amazing things and you've got a supportive kind of government to to help deliver that and how how do you think about supporting founders outside of london it feels like london is like can be quite insular and have all the hype and excitement but you're right there's amazing companies coming from from across the uk how do you think about finding helping and you know pushing those founders forward yeah so i mean the uk is part of who we are and supporting companies founders entrepreneurs at every single stage is has been part of the nat west kind of story and legacy.

17:24But in standing up this business, we really wanted to play into that depth of the regional presence. So we have hired individuals across the country. So I've got individuals here in London, but then also Bristol, Oxford, Cambridge, Manchester, Scotland, boots on the ground. There's co-located in many locations with our accelerators. So really from that ideation stage, we wrap around the founder, make sure that we connect them to the capital flows, elevate the good companies both in the UK, cross borders, so that we can help these companies to really scale, but provide them the guidance and support that they need.

17:59And when you look at those regions, those sort of like regional hubs that you've built your team in, are there hubs that you see as like, wow, these are really fast growing tech hubs around the UK? Yeah. So last week I spent the time out in Bristol at the BBB conference, which was like a shot in the arm. And I think it was, you know, kudos to the British Business Bank for pulling together. I mean, there was a number of world-class investors in Bristol for the day talking about kind of the Southwestern Wales broader network and how they can help support. So that there's, you know, they're deeply rooted in who they are.

18:36And it matters to those founders and matters to investors that they're local to that ecosystem and what can they deal. But they're not, they're dealing with the same challenges that a London founder are dealing with as well, of how do I compete? How do I scale? How do I do so efficiently? Where do I get talent? Which and when and what AI solution do I bring in? It's kind of a great equalizer. I was also in Manchester last week and spent quite a bit of time with industry stakeholders, and we had a dinner across a bunch of investors as well. Again, a lot of optimism around that triangle north of England and you are seeing quite a few companies kind of emerge in that landscape as well.

19:17Yeah, it's interesting. I think it felt like founders used to flock to London and now it feels like founders are more confident staying in the cities that they are in anyway, whether it's Oxford or Cambridge or Manchester or Bristol. I don't know if it's AI tools or leaner teams or remote, but you're seeing these founders stay quite happy where they are and especially as capital has become a lot more accessible. They can raise great rounds from Manchester or Bristol, they don't need to necessarily come to London, which I think is quite an interesting change in the ecosystem. Yeah. I mean, I think perhaps it's newly minted in the UK.

19:51The train system is quite incredible and you can get really anywhere in the country pretty efficiently, either through plane, train, automobile, however you want to go. And so I think if you, you know, and there's also, again, the really great thing that the UK does is It's got depth across the regions and it's got accelerators and incubators and investors and networks. So you can build your company and then, you know, you just need to find the right partners at the right stage to help get you to where you want to go. Amazing. And when you look at the future of the UK ecosystem, where do you think we'll be in five, 10 years?

20:25I think we'll continue to mint great companies. I think we've got good fundamentals. I hope that we find a way to sort of solve that scale-up gap so we can help companies confidently grow here. Yes, I think they continue to need to bring global capital in. I think it's good, prudent. It helps them, as we talked about before, kind of figure out the ecosystem and grow in each of those markets. But I hope we can solve for that. And I hope that we continue to kind of mint great unicorns, but help them succeed and really realize full potential. on the global and kind of public scales. Amazing. And if you could take away one key thing from the report that you've released, if there was one message that you could get out that you could push for everybody, either it's a bit of data or an overall theme or message, what do you think it would be?

21:14I think it's, you know, positive momentum. UK is really a pivotal moment of growth. And with the right supporters, founders, industry folks like yourself, we can continue to shout about it, but also have the fundamentals behind it to prove it. Amazing, yes. There's a combination of like optimism, but also, yeah, there is something unique about the UK ecosystem where we do have like solid fundamentals. We're a great market. So yeah, things are looking good, I think. Yeah, I think so. Well, thank you so much for joining me. It's been great chatting. Thank you for having me.