INSIGHTS / Blog

The intersection of private investment and government funding is a key driver of innovation and disruptive technologies in the UK.

To explore this, we sat down with Ana Wolsztajn, Investor Ecosystem – Digital & Tech Lead from Innovate UK’s Business Connect team, to discuss disruptive technologies, venture capital, the future of AI and the evolving investor ecosystem.

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The role of Innovate UK in driving investment

At Innovate UK Business Connect, I’m the lead for disruptive technologies as part of the Investor Ecosystems team. So, what does that actually mean? We engage with angel investor groups, venture capitalists, and corporate venture partners, to grow a community of impactful investors interested in innovation and syndication. A meaningful part of our team activities are related to Innovate UK’s Investor Partnership program – whose mission is to align private investment with government grants to support UK-based innovative businesses. This blended funding approach helps de-risk investments and supports businesses in scaling beyond initial grant funding.

The team is structured to address different sectors and geographies. Some focus on regional investment within the UK, while others engage with foreign investors, particularly in Europe, the US, and increasingly in Asia and the Middle East. Specific sector experts concentrate on emerging sectors in the Future Economy, with a particular emphasis on Net Zero, Health and Agriculture, Digital and Technologies. As a team, we are focused on building a community that navigates the resources required to finance the Future Economy.

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What are disruptive technologies, and how is AI evolving?

Our recent report, ‘Welcome to the Future: Innovate UK’s 50 Emerging Technologies’ set out to identify the top 50 emerging technologies, and these were categorised into seven technology families.  Whilst these might not be getting investment or policy interest right now, our analysis shows that each emerging technology we identified has economy and society-shaping potential. Of course, technologies themselves have no intrinsic value. It’s only when they are put to use that their value manifests and even greater value is created when multiple technologies are combined.

The report identifies AI, digital, and computing as some of the most transformative sectors. The field of AI is evolving rapidly, with computing power catching up to demand and businesses understanding better how to integrate AI effectively. Going forward, the majority of disruptive technologies will be AI-driven, creating lots of potential and opportunities for UK businesses within wider use of Machine learning and Artificial Intelligence.

AI is following a similar trajectory to ‘digital’ marketing back in the 2000s. First, we had regular advertising and marketing – billboards, TV, newspapers. Then, as the internet became popular,  we added “digital” to it, which was a new thing. After a year or two, everyone stopped using digital in front of marketing because it was obvious that you cannot have marketing without the digital part.

I believe what is happening with AI now (with it becoming a buzzword while also a sought-after feature) resembles the story of marketing turning “digital”. At the moment, everyone’s adding “AI-driven”, if there is a machine learning approach within the code or if it’s a vertical AI solution for the data set.  In a year or two, no one will need that. It will just become a given that you’re using AI agents to optimise productivity because everyone’s doing it. Following the boom, we are now settling into the next AI generation.

As AI adoption increases, so do concerns about its environmental and energy impact. The data infrastructure requires more, cheaper power if we want this to be a long-term solution. So, whilst there is huge potential for AI to support, for example, health and advanced manufacturing with robotics, we also need to start thinking about the impact that it has on our energy sector and our climate.

As the Open AI CEO and founder Sam Altman said at Davos last year, we now need to see disruption within the energy sector for future AI, which will consume vastly more power than people have expected.

Now is the right time to zoom out and look at where the most significant potential for UK companies is to have this long-term impact. There’s definitely huge potential within AI that the AI Opportunities Action Plan recognises clearly, aiming to position the UK to be an AI maker, not an AI taker by supporting those building frontier AI. The UK understands the need to have true national champions at critical layers of the AI stack so that the country benefits economically from AI advancement and has an influence on our future AI’s values, safety and governance (Section 3).

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The importance of blended funding

Grant funding is often the first step before commercialisation for deep tech start-ups and university spin-outs. However, scaling these innovations requires private capital. Aligning grants with venture capital investments ensures start-ups are better positioned for long-term success.

A blended funding approach benefits investors and founders by combining grants, innovation loans, and equity capital. Start-ups gain access to non-dilutive funding early on, reducing financial strain while proving their commercial potential. Investors, in turn, benefit from de-risked opportunities as government-backed grants validate the start-up’s innovation potential.

Hardware and deep tech solutions, traditionally seen as riskier investments due to longer development timelines, particularly benefit from this approach. As blended funding becomes more mainstream, venture capitalists are increasingly open to funding these sectors.

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What’s attracting investment?

Certain sectors are particularly appealing to investors right now. AI-driven solutions -especially AI agents and vertical AI applications in legal, finance, and healthcare – are attracting substantial interest. These industries can access vast datasets that enhance AI learning and deliver valuable insights.

AI infrastructure, requiring large-scale funding from major players like Microsoft and BlackRock, contrasts with the investor appetite for AI applications that optimise operations and increase efficiency. Cybersecurity is also gaining traction, given the growing focus on AI ethics, data protection, and responsible AI deployment.

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Investment trends in the UK vs the US & Asia

Investment attitudes differ across global markets. The US venture capital market is known for its fast decision-making, higher valuations and even higher risk tolerance among venture capital funds. Meanwhile, the UK and European ecosystems have a stronger emphasis on blended funding and government-backed initiatives to support startups, often spin-out from universities created by academics with the aim of commercialising research.

Despite these differences, AI and deep tech are areas of global interest, with UK companies holding strong potential in vertical AI and cybersecurity advancements.

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How deep tech founders can navigate the investment landscape

For founders in deep tech, staying informed is crucial. The innovation landscape evolves rapidly, and keeping track of funding trends, investor priorities, and technological breakthroughs is essential for securing investment.

While large-scale AI infrastructure projects receive attention, start-ups should focus on solving real-world problems with unique data-driven solutions. Strong, protected datasets can create a sustainable competitive advantage and attract investment, even in a challenging market.

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Government and university initiatives supporting innovation

Government and university initiatives provide crucial support for both founders and investors. Programmes like the Digital Catapult and BridgeAI help early-stage AI start-ups, while university-led initiatives such as ICURe support commercialisation.

Innovate UK’s Invest-Ability Programme plays a key role in preparing start-ups for investment. Through intensive training, advisory support, and pitch panels, this program helps founders become investment-ready, increasing their chances of securing funding.

SETsquared also has a range of sector-based programmes and business acceleration centres, which are vital to spin-outs, start-ups and scale-ups in the South and South West for getting investor-ready, raising investment and building the foundations for growth.

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Looking Ahead

The UK’s innovation ecosystem is evolving, with blended funding becoming a key strategy for scaling disruptive technologies. While challenges exist, particularly in securing long-term funding for deep tech and AI infrastructure, opportunities for founders and investors continue to expand.

By leveraging government support, staying informed, and aligning with investors who understand the value of disruptive technologies, UK start-ups can navigate the path to success in an increasingly competitive global market.

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Ana led a critical challenges roundtable at our Investment Futures event late last year: Disruptive technologies – risky or fundable? Is it all about AI? You can download the content from this critical challenge and the other roundtables from Investment Futures.