UK venture capital matches US returns, study finds

UK venture capital has matched US returns over the long term and outperformed the rest of Europe, according to analysis from the British Business Bank.

For 2002-2021 vintages, UK venture capital funds recorded a pooled Total Value to Paid-In Capital return of 1.78x, matching the US and exceeding the rest of Europe at 1.67x. On distributions to investors, the UK remained below the US but was in line with European peers.

Newer UK funds delivered the strongest relative performance. For vintages launched between 2020 and 2024, UK venture funds posted pooled TVPI returns of 1.40x, compared with 1.24x in the US and 1.27x in the rest of Europe.

The figures suggest the market has held up despite weaker fundraising conditions and a tougher exit environment across global venture capital. They also indicate the UK has strengthened its position beyond its traditional advantage in early-stage investing.

Late-stage shift

One of the sharpest changes was in late-stage performance. Among 2014-2019 vintages, UK late-stage funds lagged US peers by 0.78x on a pooled TVPI basis. For 2020-2024 vintages, that gap narrowed to 0.05x.

UK generalist funds also compared favourably with the US over the same recent period, generating pooled TVPI returns of 1.91x versus 1.20x for US peers.

Early-stage investing remained a relative strength for Britain. Across funds launched between 2002 and 2024, UK early-stage venture funds produced pooled TVPI returns of 1.85x, compared with 1.81x in the US and 1.84x in the rest of Europe.

The findings add to a broader debate over whether domestic institutional investors are allocating enough money to British venture capital. Pension fund investment in the asset class has been a recurring concern for venture managers and policymakers, who argue that UK retirement savings are less exposed to fast-growing private companies than those in some other markets.

"For many years, US venture capital has been seen as the world leader. This research shows the UK is increasingly closing the gap, matching US returns overall and outperforming among the latest generation of funds. It underlines the quality of the UK's venture sector and its ability to support innovative businesses from startup through to scale-up," said Leandros Kalisperas, Chief Investment Officer at the British Business Bank.

Michael Moore, Chief Executive at UK Private Capital, linked the performance data to the investment choices of large domestic asset owners.

He said: "Strong returns from British venture capital should be celebrated, but they also highlight an opportunity that domestic institutional investors are missing by underinvesting in this asset class. UK pension funds have real scope to seize more of this opportunity, enabling British pension savers to benefit from a world-class VC industry that scales ambitious startups into internationally competitive businesses. We hope Mansion House signatories see this and act to make sure they do not miss out on backing the next generation of British unicorns."

Repeat performance

The report also examined performance persistence in venture capital for the first time. Looking at more than 800 fund progressions globally across 390 fund managers, it found that 39% of successor funds to top-quartile vehicles also delivered top-quartile performance.

According to the analysis, that was around one-and-a-half times the level expected by chance. More than 70% of successor funds from top-quartile managers remained above the median, reinforcing the importance investors place on track record when selecting venture managers.

Bank-backed funds

The British Business Bank's Enterprise Capital Funds programme continued to outperform the wider domestic market on distributions. ECF-backed funds generated a pooled Distribution to Paid-In Capital of 0.67x, compared with 0.50x across the broader UK venture market.

On total value, ECF-supported funds also edged ahead of the wider market, producing a pooled TVPI of 1.73x against 1.71x for the UK market as a whole.

The programme focuses on backing emerging fund managers and areas of the venture market that can be harder to finance through private capital alone. Several funds in the portfolio produced DPI returns of more than 2x.

The latest figures are likely to be read as evidence that the UK venture market has become more competitive across the funding cycle, with recent gains at later stages narrowing one of the clearest historical differences with the US.