Early-stage capital feels scarcer. Here’s what’s really happening

The money hasn’t disappeared but it is concentrating into existing portfolios, familiar networks and proven founders.

In this interview, Laura Hood explains why early-stage capital feels harder to access, and what founders can do to adapt to a more selective, network-driven funding market.

“In 2025, 50% of the deals that went through our network were into existing portfolio companies.”

Laura Hood is COO of Angel Capital Group (ACG) in the East of England, a regional angel network investing across sectors from food and drink to deep tech spinouts.

If you’re raising pre-seed or seed right now, that stat will feel familiar. Capital is available, but it feels harder to access.

In 2025:

• Despite first-time raises increasing 23.6% from 2024, follow-on rounds outnumbered first-time fundraisings for the second year running the UK (3,398 vs 2,489)¹
• Total deal volumes fell 7.9% year-on-year but the total invested in the UK rose to £6.27b, a rise of 74.3%¹
• The average first-round amount rose to £2.62m¹

Each signal points to the same conclusion: capital is concentrating.

At the same time, NatWest and Beauhurst’s New Startup Index reported that 2025 was an eight year high for active businesses, with Companies House recording 832,000 new companies founded.

The result? Founders experience scarcity. Investors still describe caution, but are investing more into those they do back.

According to Laura, three forces are reshaping early-stage funding:

• Follow-on prioritisation
• Structural bias in who holds capital
• The fragility, and changing shape of regional funding

Understanding these forces matters. When the market tightens, knowing why helps you structure your raise. It improves your access to capital.

Why first cheques are harder to win

Angel investors are not sitting on their hands. They’re backing companies, just not always new ones.

“I think investors are cautious at the moment… if they’re happy with the progress their portfolio companies are making, they would rather support them. They feel there’s less risk than backing someone new.”

Half of ACG’s 2025 deals were follow-ons. That aligns with national trends, where follow-ons have overtaken first-time raises¹.

The structural shifts increasing investor caution

Post-COVID volatility reshaped risk appetite, a contributing factor to exit timelines having stretched — the median time to IPO is now 11.5 years³, meaning portfolio companies need more support for longer, and there’s a delay on returns before they can be reinvested.

And because later rounds now require more capital to maintain ownership, angels are pulled back into existing bets.

Couple these points with cyclical economic stagnation knocking confidence, and backing a known founder with proven progress feels safer than funding a fresh pitch.

What this means for your round

If half of deployable capital stays inside portfolios:

• Fewer first-cheque opportunities exist
• Screening bars are higher
• Time-to-close is longer

And investor readiness becomes non-negotiable.

Hood sees a few recurring issues: unrealistic forecasts, valuations that can’t be justified, missing team roles (particularly finance leadership), or founders trying to raise before meaningful validation.

Admittedly, the validation goalposts have moved over the past five years. The entry bar is higher than it was.

“Often we get companies applying too early… in reality you have to wait until you have something concrete, it makes a difference.”

In a selective market, evidence beats ambition. Traction doesn’t need to mean revenue, but it does need to show risk reduction.

Who gets access and who gets filtered out

Follow-on concentration doesn’t just change how capital flows. It amplifies who it flows through.

When more money stays inside existing portfolios, access increasingly depends on existing networks. That makes the structure of those networks more important.

Only around 14% of UK angel investors are women, a figure Laura highlights as both sobering and consequential⁴.

Why does that matter?

Because female angels disproportionately back female-founded companies. Studies suggest portfolios of female angels contain 25–50% female-founded businesses.

Investors shape which products reach market. If capital is concentrated within historically male-dominated informal networks, the pipeline narrows. This likely compounds down the line, as only 2% of UK VC funding goes to fully female-founded teams⁵.

“We need to fix the system, not the women,” Laura says.

This isn’t a men-versus-women issue. It’s structural. Wealth has historically concentrated among men and within specific networks. Fewer female exits mean fewer female angels. Fewer female angels mean fewer female-backed startups.

Even female investors, Laura notes, operate within inherited systems. The more opaque the system, the more advantage accrues to those already inside it.

Access to capital is a big issue for everyone. Addressing it is one of the biggest opportunities to strengthen the startup ecosystem — something Laura and ACG actively work on.

Why your postcode still shapes your access to capital

If network access matters, then local funding infrastructure matters too.

Outside London and Cambridge, another dynamic is playing out — infrastructure fragility.

Regional angel networks are often small teams. They are not highly profitable businesses. Many depend on local government backing to remain viable.

ACG itself was created through a local enterprise partnership tender. When regional funding structures shift, as they have in recent years, programmes pause, and ecosystem support slows down.

This matters because regional angels are frequently the first-cheque providers.

Meanwhile, equity remains geographically concentrated. London still accounts for roughly half of UK deals and over 60% of capital in recent data⁶. VC office density remains London-centric.

Early-stage dilution varies sharply by region, founders in the North East and Northern Ireland give up roughly double the equity compared to London founders⁷.

The loop is self-reinforcing:

Less local capital leads to fewer local exits — which leads to fewer future angels — and ultimately less capital.

As Laura notes, Cambridge, which is within ACG’s region, benefits from a recycling effect: exited founders become angels, reinvesting into the ecosystem. Outside such hubs, that flywheel is weaker and less resilient in the face of economic uncertainty.

The new shape of the early-stage market

When you put these strands together, a pattern emerges. Investors are prioritising follow-ons.

Structural issues still shape who accesses capital. Regional infrastructure remains fragile.

The early-stage market risks becoming more centralised and network-driven.

That benefits no one. Even London-based founders will feel the long-term effects if capital narrows.

For first-time or regionally based founders, that makes access strategy as important as pitch quality.

How to adapt your fundraising strategy in 2026

This is not a story of despair. It’s a story of adaptation. After a number of turbulent years, 2025 appears to have been a year of stabilisation.

Capital is flowing. But it is flowing with more caution, more selectivity and a stronger preference for familiarity. As Laura Hood puts it, “Investors are cautious at the moment… they feel there’s less risk supporting a company they already know.” Follow-on capital now absorbs a significant share of deployment.

That changes how you approach your round.

Fundraising can no longer be treated as a short campaign that begins when you “need the money”. In practice, that means:

• Meeting angels six to nine months before you open a round
• Sending short quarterly updates, even if they pass initially
• Building small advisory or angel tickets before seeking a larger syndicate lead

Familiarity reduces perceived risk. In a selective market, that matters.

Readiness is now binary

The second shift is readiness. Testing the market casually is rarely viable. Screening committees are sharper, expectations are clearer, and avoidable gaps are punished quickly.

“We often see unrealistic forecasting — not really being able to back up those figures with a clear go-to-market plan,” Hood explains.

Concretely, that means investors expect to see:

• A 12–18 month cash runway model, not a three-year hockey stick
• Clear unit economics, even if early projections (CAC, gross margin, payback period)
• Evidence of demand — pilots, signed LOIs, early revenue, or usage growth
• A plan to fill key gaps, such as fractional CFO support before Series A

Valuations that cannot be benchmarked against recent comparables will stall. Team gaps left unaddressed will raise risk flags. “Sometimes founders don’t have a plan to bring in a CFO. Most of our members would see that as a red flag.”

Investor readiness is not a soft signal, it is a hard gate.

Structured access, not scattered outreach

In a system where informal networks still provide an advantage, structured access becomes more valuable. Clear criteria, transparent comparisons and defined routes to investors reduce dependence on who you happen to know.

• Applying through organised angel networks rather than emailing individual angels cold
• Targeting investors beyond cheque size, sector and stage
• Seeking written feedback from rejections and adjusting your pitch accordingly

In other words, replacing 100 speculative emails with 20 well-matched conversations.

Geography also requires more strategic thought than many founders assume. Regional ecosystems remain uneven, and follow-on capital is often concentrated in London or Cambridge. As Hood notes, “The real issue for us is companies moving out of the region to access funding.”

Recent British Business Bank commitments to angel syndicates may strengthen regional investing, but some startups will always need to look beyond their immediate geography to access the right capital pools⁸. That should be factored into your plan early. Fundraising is not just about the first cheque.

The disciplined capital market

Many of the structural issues in fundraising are precisely the friction points ThatRound is trying to address. But regardless of platform or route, the underlying advice remains the same:

You do not need louder pitching. You need:

• Clear investor fit
• Evidence of risk reduction
• A defined outreach plan
• A repeatable follow-up system

Hood is optimistic about founders who adapt. “Companies who can really demonstrate need, market buyers and revenues are finding it easier to raise.” The capital is there, but it is disciplined.

As capital becomes more selective, structure becomes your advantage.

And the founders who understand how the funding system works, not just how their product works, are the ones who move forward.

References

1. The Deal 2026 | Beauhurst - https://www.beauhurst.com/research/the-deal-2026/
2. Startup Index Report 2054 | NatWest and Beauhurst - https://www.natwestgroup.com/news-and-insights....eight-yearhigh-at-566-million-natwest-and.html
3. Seed Under Pressure Q4 2025 | PitchBook - https://pitchbook.com/news/reports/q4-2025-pitchbook-analyst-note-seed-under-pressure
4. Women Angel Investors 2025 | Beauhurst - http://beauhurst.com/research/women-angel-investors-2025/
5. The Rise Report | Female Founders Rise - https://therisereport.co.uk/
6. The State of UK Investment H1 2025 | Beauhurst - https://www.beauhurst.com/research/state-of-uk-investment-h1-2025/
7. The Tech Nation Report 2025 | Tech Nation - https://report.technation.io/
8. British Business Bank and Haatch to invest £32 million in UK’s most promising and diverse angel syndicates | British Business Bank - https://www.british-business-bank.co.uk/news-and-events/news/british-business-bank-and-haatch-invest-ps32-million-uks-most-promising-and-diverse-angel

‍