Business Services: The UK's £300bn Overlooked Bet
Yesterday, I attended in London the UK Investor Forum for Professional and Business Services, hosted by Innovate UK and ScaleX Invest. The event brought together venture capitalists, corporate venture arms, institutional investors, family offices, and public funders to address a question that has been quietly nagging at the UK's innovation economy: why does a sector worth £300 billion a year attract so little dedicated investment capital?
Speakers examined the investment case from different angles: what is driving specialist investment in PBS and what is holding it back; how to mobilise capital for UK growth; and how to recycle capital through stronger exit pathways and secondary markets. The speakers were great and shared their views based on their own experience. The analysis was, in large part and as I intepreted it, correct. But as I listened, I kept noticing what was not being discussed. And it is, I would argue, the most important piece of the puzzle.
Nobody talked about positioning. And almost nobody talked about the demand side. I say this, because most most of the goverment’s recent annoucement have been supply-side policy and of Government as an innovator and investor in chief.
The supply-side consensus
The event's diagnosis was clear and largely shared across all three panels. The UK's professional and business services sector sits within a tech ecosystem valued at over $1.2 trillion (Tech Nation Report 2025), with more than 150 unicorn companies, global leadership in legal and financial services, and a regulatory framework that combines stability with a willingness to innovate. AI is transforming the delivery model of professional services in ways that are creating genuinely investable, scalable propositions for the first time. And yet the sector attracts a fraction of the venture funding that comparable sectors receive.
The data points that were shared were striking. PBS was characterised as being in a 'pre-fintech' phase: the opportunity is visible, the market is multi-trillion, but funding remains disproportionately small. A speaker shared that legal tech globally attracts roughly £1.5 to £3 billion in venture funding. The wider PBS sector sees £15 to £25 billion. Set against a multi-trillion addressable market, these are rounding errors.
The structural barriers were well-rehearsed. One speaker noted that the UK produces approximately six unicorns for every thousand startups; the US produces 90. Later-stage domestic capital is insufficient, with 80% of UK growth-stage funding coming from foreign investors. Pension fund participation in venture sits at roughly 10% of LP capital, compared to approximately 70% in the US. And the cultural dimension was clear, as one investor at the forum put it, UK founders reaching £10 million in revenue tend to optimise for profitability, while their US equivalents at the same stage are pushing for £50 or £100 million.
All of this is correct. And all of it is about the supply side: how to get more money into the system, how to keep it circulating, and how to build the exit pathways that give investors confidence they can get it back out.
The demand-side gap
What struck me, sitting in that room, was that almost nobody addressed the other half of the equation. And it is a gap I have been thinking about for some time, not just for PBS specifically, but for the UK's innovation economy as a whole.
The UK has built an elaborate supply-side architecture for venture capital: the British Business Bank, British Patient Capital, the British Growth Partnership, the Sovereign AI Fund, EIS and VCT extensions, Innovate UK grants and catapult centres. The supply-side investment case is strong and is getting stronger. But the demand side, getting UK corporates to actively invest in domestic innovation through corporate venturing, open innovation, and strategic partnerships, remains almost entirely unaddressed.
Consider the numbers. Only 49 of the FTSE 100 use corporate venture capital as a strategic tool, with only 28 having a formal CVC unit. Only 8% of UK VC funding comes from corporate venture capital. Only 14% of corporate-backed funding rounds in the UK come from solely domestic corporates, and 41% of corporate-backed rounds have no UK corporate investor in them at all. The UK sits 6th in the Global Innovation Index but 31st in commercialising that innovation. That gap is structural, not accidental, and it persists because no policy mechanism exists to incentivise UK corporates to invest in the startups and scaleups that the supply side is so effectively producing.
This matters for PBS specifically because the sector's investment case rests on enterprise adoption. A legal tech startup does not scale by winning more VC funding. It scales by winning enterprise clients. An accounting innovation platform does not grow by raising a bigger Series B. It grows by being adopted by the firms and corporates that use accounting services at scale. The demand side, the corporate buyers and investors who validate these technologies in the market, is the critical missing link. And it was barely discussed.
The visibility gap is a positioning problem
One phrase from the first panel deserves more attention than it got: the 'visibility gap.' Companies in PBS are routinely reclassified as SaaS or AI investments to clear traditional venture hurdles. An expenses management system serving HR functions gets repackaged as an AI play. A legal workflow tool gets classified as enterprise software. The sector's identity dissolves into adjacent categories.
This is not a capital problem. It is a positioning and perception problem. And it has consequences that ripple far beyond individual investment rounds.
When a sector lacks a clear identity in the minds of investors, it becomes invisible in portfolio allocation discussions. It does not appear in thematic fund mandates. It does not feature in LP reports. It does not get its own analyst coverage. Capital flows to named categories. PBS does not yet have a name that capital markets recognise.
Fintech did not become an investment category because the technology was intrinsically superior to what came before. It became a category because a group of entrepreneurs, investors, and ecosystem builders created a narrative, a positioning, and an identity that made it legible to capital markets. They defined the category, named it, built events around it, produced benchmarks, and created a shared vocabulary. The technology followed the positioning, not the other way around.
PBS has not yet had its fintech moment. Not because the technology is missing, but because the positioning is.
Trust as strategic capital
There was one theme that surfaced repeatedly across all three panels: trust. Multiple speakers framed their investment theses around it. In a world where foundational AI models threaten to commoditise vertical-specific tools, the defensible moat is not technology alone. It is trust: deep client integration, workflow embedding, and the social proof to provide the verification layer that AI outputs require.
From the practitioner side, the message was equally clear. Professional services firms, particularly in law, are extraordinarily risk-averse. A startup can have the best technology in the world, but if the firm's information security team says no, it is dead on arrival. Understanding the infrastructure, the confidentiality requirements, and the decision-making culture of the organisations you are selling into is a prerequisite for even getting off the ground.
And at the macro level, the UK's competitive advantage as an investment destination rests on the same foundation: trust in the rule of law, trust in regulatory stability, trust in jurisdictional predictability. In a world of geopolitical uncertainty, the UK's reputation as a safe, stable, and sensibly innovative jurisdiction is a tangible economic asset.
The numbers bear this out. The UK's professional and business services sector is not just an economic engine. It is an extension of the UK brand and a pillar of British soft power. UK legal services contributed a record £38 billion to the UK economy in 2024 and achieved a trade surplus of £8.9 billion, with exports passing £10 billion for the first time in 2025. The UK is the largest legal services market in Europe and the second largest globally. English law governs approximately 40% of all global business and financial transactions and underpins the legal systems of approximately 27% of the world's 320 jurisdictions.
The UK is the world's largest net exporter of financial services and a major international centre for management consulting, with net exports reaching £25.3 billion.
When international businesses choose English law for their contracts, when sovereign wealth funds route transactions through London, when governments seek advisory expertise on regulatory frameworks, they are choosing the UK not just for competence but for trust. That trust, built over centuries and reinforced by the rule of law, judicial independence, and regulatory stability, is the foundation of the UK's soft power in professional services. It is also the foundation upon which the PBS investment thesis should be built, because it is the one competitive advantage that cannot be replicated by technology, undercut on price, or relocated to a lower-cost jurisdiction.
There is a further dimension that deserves attention. The UK's courts are the world's preferred venue for resolving international commercial disputes, with 72% of Commercial Court cases and 80% of Patents Court cases involving at least one international party. Parties from 93 countries appeared in English courts last year. They choose London not because they have to, but because they trust a judiciary that is genuinely independent from the political system. In a world where that independence is under pressure elsewhere, the UK's position as the world's court is a strategic asset that government should be actively leveraging, not taking for granted.
But here is the challenge: trust is not self-evident. It does not market itself. It requires deliberate, strategic positioning to translate institutional trust into investor confidence, to make the case not just that the UK is a good place to invest, but that UK PBS specifically offers a combination of technology maturity, regulatory environment, and enterprise readiness that other markets cannot match.
Mansion House: the right ambition, the wrong speed
The second panel addressed the mobilisation of capital, and the Mansion House reforms were a recurring reference point. The original Mansion House Compact (July 2023) saw 11 pension providers commit to investing 5% of DC defaults in unlisted equities by 2030. The Mansion House Accord (May 2025) went further: 17 providers managing around 90% of active savers' DC pensions committed to allocating 10% to private markets, with at least 5% directed to UK assets. The government has stated it will monitor progress and reserves powers to mandate allocations if voluntary commitments prove insufficient.
The ambition is right. The US-UK comparison is stark: in 2022, international pension funds committed approximately £432 million to UK venture and growth equity funds, while UK pension funds committed just £48 million (BVCA, 2024). In 2024, BVCA data showed no recorded commitments from UK pension funds to venture capital at all. Non-UK pension schemes invest 16 times more in UK private capital funds than domestic schemes do. By contrast, US public pension funds allocated a median of 13.5% of their portfolios to private equity in 2024, with private equity delivering the best returns of any asset class in public pension portfolios every year since 2012 (American Investment Council, 2025). Closing even a fraction of this gap would represent a transformational injection of patient capital into the UK ecosystem.
But the forum discussion revealed the practical challenges. Progress is expected to focus on building operational capabilities, establishing asset manager partnerships, and putting infrastructure in place, rather than on significant allocation activity, which is not expected to ramp up meaningfully until 2028-2030. Fund manager fees remain a barrier: venture fund economics (typically 2% management fee, 20% carry) sit uncomfortably with DC pension schemes accustomed to passive investment fees. There is also a tension between the government's ambition for the Accord and the Pension Schemes Bill's controversial 'backstop' clause, which threatens to mandate allocations if voluntary progress is deemed insufficient, a measure that has drawn strong opposition from the pensions industry.
The Mansion House reforms are necessary. But they are supply-side reforms. They address where capital comes from but not where it goes or how it gets deployed effectively. If UK corporates are not investing in domestic innovation through CVCs and open innovation, then pension capital channelled through the British Growth Partnership into venture funds will still face the same commercialisation gap: funded startups without corporate customers, without corporate investors, and without the route to market that scales technology businesses.
This is where Treasury has a lever it has not yet pulled. Reducing friction for UK corporates to establish CVC vehicles, whether through targeted tax incentives, enhanced R&D credit treatment for corporate equity investments in startups, or simply regulatory clarity on how CVC sits on a corporate balance sheet, would cost the exchequer very little while creating the demand-side infrastructure that connects pension-funded venture capital to the corporate customers and partners that startups need to scale. Countries like Germany, South Korea, Japan, and Singapore have done exactly this, and at minimal public cost. The UK has not.
PISCES: a promising innovation, not yet proven
The third panel yesterday introduced what may be the most genuinely innovative element of the UK's capital markets reform programme: PISCES, the Private Intermittent Securities and Capital Exchange System. This is a new type of regulated trading platform, operating within an FCA sandbox, that enables intermittent one-day auctions of existing shares in private companies through the London Stock Exchange's Private Securities Market.
The concept is simple. PISCES bridges a real gap between remaining fully private and pursuing a full IPO. Companies can schedule trading windows (monthly, quarterly, or ad-hoc), set floor and ceiling prices, control which investors can participate, and manage their cap tables without the ongoing compliance burden of a public listing.
Transfers of shares on PISCES are exempt from stamp duty and SDRT. The first transaction on the PSM, a permissioned auction involving Oxford Science Enterprises (a £1.3 billion investment company commercialising University of Oxford research), is scheduled for 25 March 2026. JP Jenkins has also been approved as a second PISCES operator.
The secondary markets data discussed at the forum provided the context for why this matters. According to secondary market investors in the room, there is approximately $5 trillion in private tech assets globally, yet venture and growth secondaries represent only 4-5% of primary capital flows, compared to roughly 20% in private equity buyout. The market has also become top-heavy: the most recognised companies trade at 15-20% premiums, while everything below the top 30 trades at significant discounts. Companies that lack visibility and narrative struggle to access secondary liquidity regardless of their underlying quality.
This is where the demand side reasserts itself. Market infrastructure creates the possibility of liquidity, but it is awareness, credibility, and strategic positioning that convert that possibility into investor interest. Companies that invest in how they are perceived, not just in what they build, are the ones that attract capital on favourable terms. The plumbing is being laid. The question is whether companies and policymakers recognise that positioning is what turns infrastructure into outcomes.
This, again, is a positioning problem. PISCES provides the infrastructure, but companies still need to be visible, credible, and strategically positioned to attract investor interest in their trading windows. The market infrastructure is a necessary condition for liquidity, but it is not sufficient. The demand side, investor awareness and confidence, requires the same deliberate strategic work.
The international dimension nobody mentioned
Perhaps the most striking absence in the day's discussions was any substantive treatment of international positioning. The UK was compared to the US, repeatedly, but there was almost no discussion of how UK PBS should position itself to investors in the Gulf, in Asia, or in Europe.
Consider the GCC states, where sovereign wealth funds and family offices are actively diversifying their technology portfolios and where the demand for professional services innovation is growing rapidly. Or Japan, where the government is actively encouraging inbound investment in technology services and where trust-based business relationships are the fundamental currency of commercial life. Or Singapore or Malaysia in Southeast Asia, where professional services firms are grappling with the same technology transformation questions.
These markets do not lack capital. They lack trusted intermediaries who can position UK PBS innovation in a way that is relevant to their strategic priorities. Countries like Germany, South Korea, Singapore, and Japan have addressed this through national strategies that reduce friction for companies to establish CVCs, incentivise corporate investment in innovation, and connect corporate demand to the venture ecosystem, often at minimal cost to the exchequer. The UK has not.
What needs to happen next
The Investor Forum did what it was designed to do: it brought the right people into the room, surfaced the investment case, and created connections that will lead to capital flowing into the sector. But if PBS is to have its ‘fintech moment,’ three things need to happen simultaneously.
First, positioning. PBS needs a clear, investable identity that capital markets can recognise, allocate to, and build thematic mandates around. The UK's trust and regulatory advantages need to be positioned as central to the investment thesis, not as background context. And that story needs to be told internationally, particularly in markets and jurisdictions where UK professional services already have credibility and where capital is actively seeking trusted deployment opportunities.
Second, demand-side policy. The government needs to complement its impressive supply-side architecture with policy that incentivises UK corporates to invest in domestic innovation. That means reducing friction for companies to establish CVCs, creating fiscal signals that corporate venturing is valued as a growth tool, and building a commercialisation bridge between publicly funded startups and corporate customers. The Mansion House reforms channel pension capital into venture funds; the missing piece is ensuring those venture-backed companies have corporate customers and corporate investors waiting on the other side.
Third, market infrastructure. PISCES is a genuinely innovative addition to the UK's capital markets toolkit, and the secondary market developments discussed at the forum are encouraging. But infrastructure without awareness or confidence is underutilised infrastructure. Companies and investors need to understand what is available, how to use it, and how to position themselves to benefit from it.
The UK's professional and business services sector is not short of innovation, talent, or opportunity. What it is short of is a positioning strategy that matches the scale of the opportunity, and a demand-side policy that turns the supply of capital into the adoption of innovation. The capital will follow the narrative. And the narrative will follow the demand.
Julio Romo is founder and principal adviser at Twofourseven Strategy, an independent advisory practice working across investment, government, and technology. He was a Specialist with the UK Government's Department for Business and Trade since 2016 and today works with investors, corporate ventures, and family offices on cross-border strategy, positioning, and trust.
For the full analysis or to discuss the implications for your organisation, please get in touch via twofourseven.co.uk/contact.
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