“We need a holistic approach to investment in the U.K.,” says James Codling. “It can’t remain as an amazing market for Seed and Series A, but with nothing when you get to growth. That just doesn’t work.”
Codling is the Managing Partner at Volution Ventures, a London-based VC that has just announced the launch of a $100 million fund focused on supporting companies in sectors such as fintech and enterprise software. Created in partnership with Japanese investment company SBI, the fund is intended to play a part in addressing a thorny problem that afflicts the United Kingdom’s venture ecosystem – namely, a relative shortage of growth-stage capital.
It’s a problem ackknowledged by, the British Venture Capital Association in its latest report on U.K. VC finance. As the report points out, U.S. firms raise twice as much capital as their British counterparts, with the gap being much larger at later funding rounds. The BVCA also notes that the dominant presence of overseas investors at later stages is a factor in British startups relocating abroad, just at the point when they begin to generate real value.
And even the jump from Series A to Series B can be difficult. Volution cites Dealroom figures suggesting that conversion rates have dropped by 50% in five years. “The growth journey from Series A onwards is one of the toughest that any founder will ever go on,” says Codling.
Why Growth Finance Is A Challenge
So why is that the case? Well, at least partly because founders often struggle to meet the expectations of VCs. As Codling points out, once a company moves beyond series A, investors are looking for tangible evidence of execution and delivery.
“Founders get very excited when they raise Series A, but to attract growth finance, they need to be ten to twenty times Xing where they are at Series A,” he says.
It’s not just about revenue growth and profits. Codling says companies need to build out their systems, processes and teams, along with their sales and distribution models if they are to successfully scale the funding ladder.
However, there are also structural factors at work. Successive UK governments have taken action to encourage investment in startups, with the tax system playing an important role. Initiatives such as the Enterprise Investment Scheme, British Patient Capital and the regulation of Venture Capital Trusts have all provided tax breaks for investors. This has generally been considered to be a good thing, but it can skew the market. “These schemes don’t really support late-stage investment,” says Codling.
And as he sees it, there is a need to encourage support for businesses at every stage. “The UK is phenomenally good at driving the creation of companies that can access Seed and Series A. But if the funnel isn’t bigger, we won’t be able to support companies as they grow,” he says.
This, he says, should be of concern not just to founders but also to the government and citizens alike. If taxpayer money is poured into supporting early-stage companies who struggle to raise the finance they need at a later point in their development, there is a risk that the cash will be wasted.
Holistic Investing
So Codling argues for a more “holistic” approach to investment on the part of VCs. Rather than seeing themselves as specialising in Seed, Series A, Series B, they should provide funds for good companies throughout their journeys. In other words, they should become less stage-focused.
That might be a big ask at a time when VCs are adapting to a market in which valuations have fallen and exits are thin on the ground. So what is giving Volution the confidence to invest across stages with the aim of supporting companies from Seed to growth?
Well, there are opportunities. Codling says Volution’s approach is to align with the government’s emerging “industrial strategy.” What that is, isn’t yet entirely clear, but it is likely to include fintech, AI, defence, energy, biotech and deeptech. These are sectors that will drive growth in the UK while also having the potential for international sales. Currently, the fund favors businesses with revenues between $5 and $20 million, with a current focus on fintech and AI-driven enterprise software.
Stepping back to look at policy, Codling says current business support strategies could be better directed. “There should be more emphasis on venture going towards a long-term growth strategy,” he says. “Taxpayers’ money might be better spent on growth drivers.” By that, he means businesses that could contribute significantly to boosting the U.K.’s flatlining growth.
The government is addressing later-stage funding through its Mansion House accord, an agreement with pension funds aimed at directing more institutional money into scaleups. However, Codling says current regulations on fees make it difficult for institutions to align with VCs.
The launch of Volution’s fund is just part of a bigger and quite complicated picture. While late stage finance is recognised as a problem, figures published by HSBC Innovation Banking and Dealroom suggest that in first quarter of 2025, breakout deals (Series B and C) accounted for the bulk of capital raised ($1.8 billion) while later-stage financing amounted to $1.7 billion. The same report notes that the UK has created 185 unicorns. However, these headline figures can disguise the problems faced by individual companies. Looking forward, the creation of a framework that supports more growth-stage companies remains the next step in the evolution of the U.K.’s innovation economy.
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