Science and technology innovators are no strangers to investment challenges. Yet the 2025/26 tax year has introduced fresh headwinds: higher borrowing costs, shifting investor appetites and evolving tax relief rules. UK business investment dipped by 1.9% in Q4 2024, although it remains 1.8% higher than a year earlier. Against that backdrop, founders must present stronger evidence of resilience, scalability and sound governance. This blog explores the current funding climate, pinpoints the most pressing investment challenges and sets out clear actions to attract sustainable capital.
The evolving funding climate
Venture capital (VC) raised by UK tech companies fell by 12% in 2024, according to multiple industry trackers, as funds re-priced risk in response to higher interest rates. The Office for Budget Responsibility forecasts average real business-investment growth of just 1.3% per annum to 2029. Slower growth does not spell the end of opportunity – but it does alter the calculus.
- Higher hurdle rates: Investors demand faster paths to positive cashflow.
- Stringent due diligence: Boards must demonstrate robust governance from day one.
- Selective deployment: Capital is still available, but only for propositions that solve clearly defined problems at scale.
Investment challenges: What has changed for science and tech?
- R&D tax relief reform
- Qualifying R&D expenditure reached £46.7bn in 2022/23, up 4% year on year.
- A merged scheme has replaced the small and medium-sized enterprises (SME) and research-and-development (R&D) expenditure credit (RDEC) regimes. Many early-stage companies must now show that projects are UK-centric and data costs are traceable. Understanding this shift early avoids unpleasant surprises during funding rounds.
- Dilution anxiety
Increased market volatility has made founders wary of down rounds (offering shares at a lower prices than previously). Careful modelling of dilution scenarios – and frank conversations with prospective investors – will strengthen trust. - ESG scrutiny
Environmental, social and governance (ESG) metrics increasingly influence term sheets. A credible net-zero pathway is no longer just “nice to have”; it is a gateway requirement for many institutional funds. - International competition
The United States, Germany and Singapore have expanded grant schemes for semiconductors, artificial intelligence (AI) and clean tech. UK firms must articulate why retaining an HQ here benefits both investors and the wider economy.
These investment challenges require a sharper funding narrative, grounded in evidence and compliance.
Building a compelling financial story
A persuasive deck is still valuable, yet sophisticated investors interrogate far beyond the slide pack. We recommend that founders do the following.
- Produce integrated forecasts: Profit-and-loss, balance sheet and cashflow must reconcile for at least 36 months.
• Explain underlying drivers: Show how customer acquisition cost feeds revenue growth and margins.
• Stress-test assumptions: Model a two‑percentage‑point rise in borrowing costs or a six‑month delay in a product launch.
• Highlight tax advantages: R&D, patent box, capital allowances. Our team at Richardsons models scenarios in line with HMRC guidance, reducing deal-friction.
A clear, data-led narrative addresses many investment challenges before they arise.
Alternative funding routes
While equity remains vital, founders should map the full capital stack.
Innovate UK and Horizon Europe grants
Non-dilutive funding can de-risk commercialisation, making later equity rounds less punitive.
Venture debt and asset-backed lending
Facilities linked to intellectual property or contracted recurring revenue provide bridge finance without immediate dilution.
Angel syndicates and family offices
Local high-net-worth groups often back science and tech ventures overlooked by larger venture capital funds. Their value lies in sector expertise and mentoring as much as capital.
Employee ownership trusts (EOTs)
For profitable scale-ups, partial EOT structures can release shareholder value and align teams – an elegant response to certain investment challenges around retention.
Each option carries tax and legal implications. Early advice from our specialist science and tech teams minimises risk.
Preparing for due diligence
Investors no longer tolerate post-term-sheet surprises. A proactive approach ensures momentum.
- Corporate housekeeping: Companies House filings must be up to date.
- Intellectual propertyP documentation: Assignments, licences and freedom-to-operate reports filed and searchable.
- Share-option compliance: Enterprise management incentivesEMI or company share option plan valuations agreed with HMRC before grant.
- Data-room discipline: One source – not speculation – will reassure investors.
- Cashflow control: Weekly variance analysis highlights issues before they turn into headline investment challenges.
Tax incentives still matter
Despite policy changes, UK incentives remain attractive when correctly structured.
- R&D tax relief: Qualifying costs can reduce corporation tax liability or generate credits.
- Patent Box: 10% effective rate on profits derived from qualifying patents.
- Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS): Income tax and capital gains reliefs that mitigate investor risk.
By integrating these reliefs into forecasts, founders offset perceived investment challenges while demonstrating command of the UK regime.
Come to us for help with investment challenges
Securing growth capital in 2025/26 demands more preparation than at any time in the past decade, yet the outlook is far from bleak for disciplined founders. The UK still offers a deep bench of venture capital, a sophisticated angel network, generous tax incentives and a government keen to accelerate innovation. Businesses that prevail are the ones that convert perceived investment challenges into concrete proof points: robust cashflow models, transparent governance, defensible intellectual property and measurable ESG gains. Treat every conversation with a lender or investor as an opportunity to demonstrate that you have already solved the problems they worry about most – from dilution risk to regulatory uncertainty.
Remember, funding is a relationship as much as a transaction. Cultivate open communication with potential backers well before you need the money; offer data, not hype; and show how their capital will translate into jobs, exports and long‑term value.
Ready to strengthen your capital strategy? Speak to our science and tech specialists about overcoming investment challenges and building a funding plan that endures market cycles.
