The UK venture market has entered a markedly different phase from the challenging conditions that characterised much of the period between 2022 and 2024. Funding activity has recovered, larger rounds are returning and investors continue to compete for the highest-quality opportunities, particularly in AI, DeepTech and other technology-led businesses capable of demonstrating genuine scale and market leadership. What is striking, however, is that improved market conditions have not resulted in a material softening of deal terms.
Published: 28 August 2026
Authors: Alistair Hammerton
One of the defining features of the current market is the concentration of capital around a smaller number of businesses. Shoosmiths is seeing increased investor appetite for companies with proven execution, differentiated technology and a credible route to scale. Whilst funding conditions have improved, competition for capital remains highly selective, with the strongest AI-led businesses attracting a disproportionate share of investor attention. Yet despite this improving funding environment, Shoosmiths’ proprietary data shows little evidence that investors have relaxed their approach to founder alignment, governance or downside protection.
The result is a more mature venture market. Capital is available for strong businesses, but investors remain highly focused on how value is protected, how management teams are incentivised and how future liquidity can ultimately be achieved.
Market trends emerging from Shoosmiths' deal data
Technology, including AI, remains the largest sector across Shoosmiths’ dataset, accounting for 48% of all deals in 2026. However, the trend is more nuanced than a simple story of technology dominance. Technology represented 60% of all deals in 2024 and 56% in 2025, before reducing to 48% in 2026. The position differs significantly by deal size. Technology represents 67% of the £5m–£10m segment in 2026 but only 33% of transactions exceeding £10m. That suggests larger venture transactions in Shoosmiths’ dataset are drawing in a broader range of sector themes than earlier-stage rounds. However, that does not mean capital is becoming more evenly distributed. Shoosmiths continues to see strong investor appetite for AI, DeepTech and other technology-led businesses with clear routes to scale. Whilst interest in sectors such as energy, infrastructure, healthcare and advanced manufacturing is increasing, much of that activity is itself being driven by technology and AI-enabled innovation.
More interesting, however, are the trends emerging from deal terms.
Founder leaver provisions remain a standard feature of venture transactions. They appear in 83% of all deals in 2026 and in every £5m–£10m and £10m+ transaction in the dataset for that year. More revealing, however, is how those provisions are structured. Across all deals, two-category leaver frameworks have become the dominant approach, appearing in 67% of 2026 transactions. The same trend is even more pronounced in the £0–5m and £5m–£10m brackets, where two-category structures appear in 78% and 100% of deals respectively. By contrast, the £10m+ market shows greater sophistication, with three-category leaver structures appearing in 83% of deals in 2026.
The same emphasis on management commitment can be seen elsewhere in the data. In 40% of Shoosmiths’ ECVC transactions recorded so far in 2026, 100% of the relevant founder shareholding remained at risk if the founder ceased involvement with the business. Whilst lower than the 66% recorded in 2024, it nevertheless demonstrates that investors continue to treat long-term founder retention as a core investment consideration rather than a peripheral governance point
That distinction is significant. Smaller and mid-market transactions continue to favour relatively straightforward good leaver/bad leaver frameworks, whereas larger transactions increasingly adopt more nuanced approaches that distinguish between different circumstances of departure (at least partially) and seek to reward value built to date. As cheque sizes increase, investors appear more willing to tailor founder retention mechanics rather than rely on a single, binary outcome.
Exit control is another area where investor discipline remains clear. Across all deals, drag thresholds set at 50–59% increased from 44–45% between 2023 and 2025 to 61% in 2026. At the same time, investor consent rights remain highly prevalent, appearing in 83% of all deals in 2026 and in all £5m–£10m and £10m+ transactions within the dataset. Investors appear increasingly focused on ensuring that successful businesses have a practical route to liquidity whilst retaining an appropriate degree of control over when and how that liquidity event occurs. As businesses remain private for longer and shareholder bases become more complex, exit execution continues to be an important consideration in venture deal structuring.
Liquidation preferences remain prevalent across the market, with non-participating preferences representing the clear market standard for most of the period covered by the data. Across all deals, non-participating preferences accounted for 54% of transactions in 2023, rising to 57% in 2024 and 64% in 2025. The trend is even more pronounced in larger transactions, where non-participating preferences appeared in 86% of £10m+ deals in both 2024 and 2025.
The 2026 figures present a more mixed picture, although caution is required when drawing conclusions from a partial-year dataset. Participating preferences account for a higher proportion of the 2026 data than in previous years. However, the broader trend continues to point towards non-participating preferences as the prevailing market position, particularly in larger transactions..
Other terms reinforce the same theme. Vesting arrangements remain widespread, with the market continuing to converge around three- to four-year vesting periods. In 2026, 47% of all deals with vesting provisions used a 37–48 month period, with a further 33% adopting a 25–36 month period. Option pools also remain an important feature of venture transactions. Whilst the precise mechanics vary by deal size and stage, the underlying objective is consistent: ensuring management teams remain committed to long-term value creation and that businesses retain sufficient equity to attract future talent.
How this compares with the wider market
The trends visible in Shoosmiths’ data are consistent with what we are seeing more broadly across the venture ecosystem. Funding conditions have improved significantly, but much of that capital is flowing into a smaller number of higher-quality businesses with a strong AI bias. Investors continue to focus on companies with differentiated technology, strong execution and clear routes to scale, whilst larger and later-stage transactions are attracting increasing levels of international capital. The market's recovery has therefore been highly selective rather than broad-based.
That helps explain why deal terms continue to exhibit a high degree of discipline. Investors are prepared to commit capital, but they remain focused on governance, founder retention and liquidity. The data suggests that improving market sentiment has not materially reduced the importance of those issues. If anything, larger and more competitive financing rounds often involve more sophisticated alignment and control mechanisms than smaller transactions.
Another notable development is the growing focus on liquidity. As companies remain private for longer, investors, founders and employees are increasingly exploring structured liquidity opportunities alongside primary fundraising rounds, such as secondary transactions and the emergence of PISCES. That trend helps explain why issues such as drag rights, shareholder alignment and exit mechanics continue to feature prominently in venture transactions. The ability to secure an eventual liquidity event is becoming a more important consideration from the outset, particularly in larger and later-stage financings.
What happens next?
The next phase of the venture market is likely to be characterised by continued selectivity rather than indiscriminate growth. AI and DeepTech businesses will continue to attract significant investor attention, but strong companies operating in other sectors should also benefit from improving market conditions but only where they can demonstrate genuine differentiation and a credible path to scale.
For founders and management teams, the message is clear: governance, alignment and liquidity planning are no longer secondary considerations. Investors are paying close attention to founder retention mechanisms, exit rights and downside protection from the outset of a transaction. For investors, the challenge will be balancing that discipline against competition for the highest-quality opportunities.
The market has undoubtedly recovered. Shoosmiths' proprietary data suggests, however, that investors have not forgotten the lessons of the last few years. Capital is flowing again, particularly towards AI, DeepTech and other high-growth technology businesses. Shoosmiths' data suggests, however, that investors have not responded by relaxing the underlying mechanics of the deal. Founder retention, investor protection and exit execution remain central themes. The flow of capital may have changed, but discipline remains firmly embedded in venture deal terms.