HSBC Innovation Banking has today published its latest annual term sheet guide. These agreements outline the basic terms and conditions of a proposed investment, and the provisions included provide a unique window into the startup investment landscape.

In partnership with 27 leading law firms that advise on UK venture capital (VC) deals, the report analyses 588 completed term sheets with a combined value of £7.6 billion, comprising a third (33%) of UK VC deal volume, and 40% of total deal value in 2024. 

The most comprehensive study of its kind, the report demystifies an often opaque and technical subject, empowering founders to make informed decisions when seeking investment and enabling VCs to compare and benchmark against the wider industry.

Early stage deals grow in prominence

Seed and early-stage investments together comprised 75% of term sheets in 2024, a significant rise from 58% in 2021. Seed deals alone accounted for a third (32%) of term sheets in 2024, more than double the proportion in 2021 (14%). The rise reflects a healthy innovation pipeline and strong ecosystem, with a corresponding increase in participation in early-stage funding rounds from sophisticated and overseas investors. This is driving a competitive market characterised by higher valuations and founder-friendly terms, with the median value of seed (£4.1m) and Series A (£17.9m) rounds both at their highest levels since 2021.

Shifting dynamics for growth and late-stage funding

Late-stage funding as a proportion of total term sheets has gained momentum, with the proportion of Series C+ deals exceeding £30 million increasing to 11%, up from 7% in 2023. However, competition for funding has driven a fall in average Series C+ deal value, from £211m in 2023 to £192.9m in 2024 and has led to a meaningful shift in deal terms.

A key driver of these new dynamics is a notable fall in deal syndication, which decreased from 42% in 2023 to 33% in 2024. Having previously been as high as 49% in 2021, this trend reflects heightened competition for new deals and deployment pressure, with VCs writing larger cheques independently to secure allocations and put capital to work.

Growth-stage funding increasingly contingent on founder commitment

Fewer syndicated deals entail individual VCs taking on greater risk, leading investors to take a more cautious approach when structuring large growth and late stage deals. This includes an increase in founder vesting provisions, which incentivises long-term commitment by tying share options to a founder’s continued involvement.

Vesting provisions appeared in just 30% of Series B and C term sheets in 2023 but rose to 52% and 43%, respectively, in 2024. Even more strikingly, founder leaving provisions now feature in 40% of Series B term sheets – triple the 13% seen in 2023. These conditions are typically far more common at the early stage, and this increase indicates a growing recognition of the crucial role that founders continue to play even after their businesses have matured. Across all deal stages, ESG-related clauses rose for a third consecutive year, and were included in 26% of 2024 term sheets, up from 22% in 2023, and 16% in 2022.   

Demand for AI continues to drive global investment in UK Innovation

Start-ups focused on AI gained significant traction in 2024, with 14% of all term sheets relating to AI deals, up from 9% in 2023. AI is increasingly positioning itself as a third pillar of UK innovation, alongside longstanding areas of strength in fintech and life sciences. These three sectors combined accounted for 38% of term sheets in 2024, up from 25% in 2023.

The capital intensity of technologies like AI has led global investors with large pools of liquidity to take on greater prominence at the late stage. 80% of Series C+ deals into UK headquartered companies were led by cross border investors, up from just 51% in 2023. UK investor participation in Series C deals dropped from 49% to 20%, while European investors increased their share from 21% to 43%, and US investors from 23% to 27%.

However, domestic investors remain crucial providers of early-stage funding, with 70% of Seed and 59% of Series A investments led by UK-based VCs. This highlights the advantages of integration with the local ecosystem when identifying promising early-stage opportunities, and signals a persistent scale up gap, with maturing businesses remaining reliant on international investors to provide high levels of funding at scale.

Glen Waters, Head of Early-Stage Banking at HSBC Innovation Banking said: “Investment in UK startups remained robust in 2024, and there are plenty of reasons for optimism in 2025 and beyond. However, headline funding numbers never tell the full story. Behind every investment is a complex negotiation, with commitments required from both investors and founders.

“We’re proud to shine a light on the details behind the deals, providing founders with the transparency they need to demystify the terms required to secure the funding needed to achieve their goals. Founders already have plenty to focus on – from scaling their business to driving innovation, while also navigating the complexities of securing investment. That’s where HSBC Innovation Banking comes in, offering the clarity and support they need to understand and negotiate key terms.”

Simon Bumfrey, CEO of HSBC Innovation Banking UK added: “Our term sheet guide has become a must-read for founders, investors, lawyers, and operators across the ecosystem, and we’re proud to leverage our position at the centre of the innovation economy to help educate and impact crucial conversations around deals. The entire HSBC Innovation Banking team is excited about the prospects for UK innovation in 2025 and beyond, and we look forward to working with our partners across the country to help realise the UK’s incredible potential.”