The frenzy around the potential of AI is helping to pull VC capital and risk appetite back to the UK, according to a new report on UK VC term sheets from HSBC Innovation Banking UK, which shows the percentage of deals at seed, Series A+ and Series C+ stage are on the rise.
These findings, based on the analysis of 588 anonymised VC term sheets issued in 2024 from 27 law firms, show that seed deals as a percentage of total deals have more than doubled since 2021, accounting for 32% of term sheets in 2024, while later-stage VC deals rose from 7% of term sheets in 2023 to 11% in 2024.
AI’s most in-demand founders are securing favourable terms from the VC community, but deals at Series C+ are becoming more complex and structured (in other words, more investor-friendly), according to the report.
“The power dynamics are heavily on the side of the investor who negotiates deals for a living. On the other hand, how many times does a founder fundraise?” says Glen Waters, head of early stage tech and life sciences banking at HSBC Innovation Banking UK. “It is well known that some investors will tell founders that their terms are market standard but what is market standard can alter depending on who you speak to with as terms vary significantly depending on market conditions, industry trends and investment stage.”
With survey participation up by 38% in 2024, the report is based on the biggest sample of term sheets to date, representing 33% of the UK VC market by deal volume over £500k, and 40% by investment value.
“Understanding what the priorities are for VC investors is important for founders, then we can see if that can align at the term sheet stage,’ says Keith Bradbury, cofounder of tax startup Ember. “VC relationships can be longer than many marriages. You have to set the relationship off on the right footing and this guide can help with that.”
So, what should founders know about term sheets in 2025?
1/ Growth capital is back, but expectations are muted
After a turbulent 2022-2023, money is back on the table for growth. Deal volumes at Series C+ are growing, but valuations are lower and terms are more investor-friendly. In 2024, average valuations dropped 9% from the year before, to £192.9m.
Good companies would have kept growing but founders in this market may have to be price-takers.
“In 2021, the market was really frothy, valuations and due diligence went out the window and then came the crash,” says Sophie Winwood, cofounder and CEO of unlock VC (previously WVC:E) and operating partner at Foxe Capital. “Good companies would have kept growing but founders in this market may have to be price-takers.”
2/ European investors are white knights for UK later-stage
Founders of companies in the £30m+ space may want to look to Europe for capital to plug the growing ‘scaleup gap’ in the UK venture ecosystem.
The HSBC guide finds many UK funds are capping out at Series B (£20m-£30m investment size), while there has been an expansion of deeptech and impact tech growth capital funds in Europe looking to UK startups.
Continental Europe HQ investors accounted for 43% of UK later-stage deals, doubling 2023 numbers.
3/ AI, life sciences and fintech lead the charge at seed stage
Term sheets featuring startups focused on “pure AI” — GenAI and large language models — accounted for 14% of term sheets last year, up from 9% in 2023.
The sector's popularity with VCs also means investors are offering founder-friendly terms to AI startups.
US investors are taking notice of our incredible track record in healthcare and medical research and innovation.
For example, non-participating preference shares are seen in 95% of AI term sheets, compared with 88% of tech excluding AI sector term sheets. This means that in a liquidity event investors in AI startups would have to choose between getting their original investment back plus any agreed-upon dividends, or convert their preference shares to common shares and take their pro-rata share of the exit proceeds.
The key thing to know is that non-participating structures are less aggressive than participating structures, so AI deals are being done on more friendly terms as it is currently a more competitive environment.
There's also been a revival of interest in the UK’s life sciences and biotech sector, focused on the Golden Triangle between London, Oxford and Cambridge, Walter says.
“US investors are taking notice of our incredible track record in healthcare and medical research and innovation,” he says. He adds that fintech came back into favour, possibly fuelled by a more accommodative interest rate environment and more realistic valuations.
Together, AI, life sciences and fintech accounted for 38% of term sheets in 2024, up from 25% in 2023.
4/ ESG and DEI riding high in 2024, but will priorities change?
Clauses dedicated to diversity and inclusion (DEI) were flat at all stages, included in 11% of term sheets, while there was a four percentage point uptick of term sheets which included ESG or sustainability clauses from 2023 to 2024.
But Winwood is concerned over how the US president’s rhetoric on DEI initiatives could manifest in UK VC funding deals.
Ultimately, we need more gender and ethnic minority representation in decision-making roles in the VC companies themselves to make the difference.
“We know the research on the financial benefits of diverse teams and the importance of creating inclusive companies. The trajectory has been positive over the past few years and still the challenge to address the gender and race balance is enormous. Today, less than 2% of equity capital goes to fully-female founded businesses,” she says.
“Ultimately, we need more gender and ethnic minority representation in decision-making roles in the VC companies themselves to make the difference.”
Read about further shifts in the economics of term sheets and the state of the secondary market in the report here.
