Tech investment isn't slowing down, but the pattern of investment is changing. As investors grow increasingly selective, the capital ecosystem has become polarised. More capital is being concentrated in fewer companies while the market for exits remains difficult
Financial news recently added another dimension to that discussion. AI-related shares fell last week after Anthropic CEO Dario Amodei called for a slower approach to the development of increasingly capable AI models. Nvidia finished the day down 3.4%, SoftBank fell 10.7% in Tokyo and the Nasdaq closed 0.6% lower. Other factors were also moving markets that day so the falls cannot be attributed to AI concerns alone, however it does sit alongside some significant changes in private investment.
Additionally, the Bank of England is predicted to increase interest rates later this year, which could affect the North West's tech funding landscape by raising the cost of capital across the board, compressing valuations, pushing investors toward profitability over growth-at-all-costs, and lengthening fundraising cycles as investors favour safer fixed-income returns.
The British Business Bank's 2026 Small Business Equity Tracker found that equity investment into UK smaller businesses fell 4% to £12.3bn in 2025. Seed deal numbers fell 27% and venture deals fell 13%. AI companies attracted 44% of all investment into smaller businesses while the ten largest fundraises accounted for 23% of the total invested.
Beauhurst recorded £14.4bn of UK equity investment across 2,799 deals in the first half of 2026 but three AI companies accounted for 29% of all the capital raised. Those very large rounds can make the overall market look stronger than it feels to businesses raising at seed or Series A.
Pressure on liquidity
There is also pressure around exits.
Beauhurst's analysis shows that UK equity investment more than doubled between 2017 and 2021 to £32.2bn while annual exits remained at around 400 to 500. An exit takes a median of four years from a funding round.
The British Business Bank's 2025 review of venture capital returns found that 54% of the 50 UK fund managers it surveyed described the exit market as poor or very poor. There was some optimism too with 68% expecting conditions to improve over the following year.
Slower exits mean slower distributions back to investors. That can make it harder for funds to raise their next pot and can affect how selective they are about new investments.
Ben Davies, Marketing Director at PXN Group, said:
“The volatility across the market is obviously something we have to be mindful of, but we’re seeing signs of liquidity returning. We’ve exited six businesses in the last 12 months with a combined valuation of £410m, most of which were based in the North. That includes Manchester PropTech Street Group, where the transaction valued the business at more than £200m. While exit volumes remain lower than we would like, there are early signs that the market is picking up.
“The fundraising picture is more mixed. We’re seeing fewer rounds raising larger sums, which will help those businesses compete nationally and internationally. But we also need to make sure enough companies secure early-stage funding to build the pipeline behind them. There is far more syndication between investors, and rounds are taking longer than they once did. New angel networks establishing themselves in the North, such as FhundeD Angels, will hopefully help support more of that early-stage activity.
“For founders expecting to raise in 2027, the message is to start preparing early. Give yourself enough time, build investor relationships before you need the money and be clear about the customer demand behind your business. Market uncertainty makes that evidence more important than ever.
“As a funding ecosystem, we need to be more ambitious and match the talent of our founders. We’d like to see more companies start and scale in Manchester, supported by local funders for longer in their journey. Otherwise, the value created here will be captured elsewhere.”
How dependent has the market become on AI?
AI investment increased by 48% in 2025 according to the British Business Bank. It represented 26% of smaller business equity deals but 44% of the value invested.
There is also a big difference between a small number of highly valued AI companies and the wider market. Beauhurst puts the average pre-money valuation of UK AI companies raising investment in the first half of 2026 at £70.2, while the median was £3.4m.
There’s a strong possibility that AI investment could become more selective as investors get a clearer view of which businesses have sustainable models and genuine differentiation.
Even a return to more normal levels of AI investment would have a noticeable effect on the national funding figures because AI now represents such a large share of the market.
Dr Vikas Shah MBE, entrepreneur, investor and board director, said:
“As an angel investor, the market is certainly getting more active with the number of ventures seeking investment growing.
“However, the advent of vibe-coding has created more ’slop’ in the market, but has equally created exciting new business models which are addressing impactful niches in the market.
“AI tools have also given founders increased access to early validation of their businesses, and the tools to develop really robust business plans and models.”
What does this mean for Manchester?
The North West tech sector had a strong 2025. Figures from the British Business Bank shows equity investment for the region increased by 82% while investment across the UK fell 4%. However, the Bank also notes that the regional increase was driven by a relatively small number of large AI and energy deals.
The bigger issue for Manchester’s tech businesses is later-stage capital. The British Business Bank's Nations and Regions Tracker found that growth-stage deal numbers outside London fell 12% between 2023 and 2024 while investment value fell 24%. Across 2022 to 2024, London attracted more than three times the equity investment per 100 high-growth businesses than the average across the rest of the UK.
Manchester has a much stronger investor base than it did a decade ago and a substantial M&A and private equity market, both of which are still growing. The 2025 North West Corporate Finance Review from pro-manchester and Experian MarketIQ found that Greater Manchester accounted for more than 43% of North West deal volume.
The gap is still most obvious when successful businesses need much larger growth rounds and become more dependent on national or international capital.
A diverse economy matters
Greater Manchester is not reliant on one technology or one part of the digital economy. Across the region, there are established strengths here across software, cyber, fintech, ecommerce, AI, health and life sciences, energy, advanced manufacturing, creative technology and deeptech.
There is a strong case for regions concentrating on areas where they have genuine capability. Critical mass matters. But there is also a risk in taking geographic specialisation too far.
Manchester's sectors do not operate separately. AI is being applied in financial services, health, cyber and manufacturing. Software businesses sell into almost every part of the economy. Skills, investment and expertise move between sectors.
Katie Gallagher OBE, Managing Director of Manchester Digital, said:
"Manchester has always benefited from having a diverse tech economy and I think that is particularly important now.
"We absolutely should build on the areas where we have genuine strength and critical mass but I would pause before assuming that increasingly narrow geographic specialisation is the answer.
"One of the things that makes Manchester work is that those strengths overlap. AI isn't a standalone sector here. It is being applied in health, financial services, cyber, manufacturing and many other parts of the economy.
"Different sectors will move through different investment cycles. Having that breadth gives Manchester some resilience and we should recognise that as a strength."
What should businesses planning to raise do now?
The funding data does not suggest good businesses will suddenly be unable to raise. The British Business Bank's survey found that 79% of UK fund managers rated the quality of UK investment opportunities as good or very good and 85% were considering investments in digital and technology businesses.
It does suggest founders should allow for a more selective market and should start investor conversations earlier. Businesses should understand their runway figures if a round takes longer than planned to ensure they do not run out of money.
They should be able to show customers, revenue and repeatable demand and be realistic about valuation and consider the full range of funding available rather than assuming equity is the only option.
Most importantly, be clear about what the investment will allow the business to achieve.
Nobody knows whether 2027 will bring a wider financial correction.
What is already visible is a market with fewer early-stage deals, a high concentration of investment in AI and continued pressure on exits.
Manchester enters that environment with a stronger investment ecosystem than it has had before and a broad technology economy. The focus now should be on helping more of the businesses created here get through the difficult stages of growth and stay here as they scale.
