The Walking Funded: Inside the UK's Zombie Company Problem

UK equity funding appears to be hitting an equilibrium. Deal flow is improving and the pipeline looks steadier than it has in years. But look closer, and there’s another story to be told.

Across the UK’s private markets, a different picture is unfolding. And it involves thousands of companies that aren’t dead, but aren’t growing either. They’re still trading, still burning cash, still on investor cap tables. They raised money in 2021 or 2022, hired a team, built a product, and then the market turned. Now they’re generating just enough revenue to stay open; they’re functionally operational but not economically viable. They use all their income to cover basic operating costs and existing debt interest, meaning they have no excess capital left to invest in growth, research, or hiring.

These are the zombie startups, aka the walking funded.

The top line

On the surface, the UK investment market reads as resilient. According to The Deal 2026, total funding reached £24.0b in 2025, a 3.43% increase on the previous year. New company registrations remain near record highs (832k in 2025). The AI boom has injected energy and genuine capital into parts of the ecosystem.

But aggregate funding totals flatter the situation. Strip out the mega-rounds (e.g. Wayve, Quantinuum) and the picture is far more fragmented.

For example, out of the 10,259 Seed-stage companies that raised equity funding in 2019-2022, 34% still remain at Seed-stage. The journey from Seed to Series A now takes an average of 29 months (up from 18 months in 2019). That’s a 60% increase in the time companies spend in limbo. For many, that extended runway is a sign that the next round isn’t coming.

Where the companies went

The funding slowdown story has been told. What hasn’t been told is where all those companies went.

To understand that, we looked at three of the promising UK companies in Beauhurst’s database that raised equity funding between 2019 and 2022 and tracked their subsequent journeys — across funding activity, headcount signals, sector, stage, and broader growth indicators.

Aardvark Petcare

Aardvark Petcare produces insect-based dog and cat food, aiming to provide pet owners with a low-carbon meat alternative. After raising £670.6k through two Crowdcube equity rounds and reaching a £3.17m valuation by 2022, Aardvark Petcare appeared to be building strong early momentum.

But recent accounts suggest a sharp reversal: net assets have fallen from £78k in 2023 to -£31k in 2025, total assets have more than halved from £550k to £212k, and headcount has dropped from four employees back to one. Combined with a hitting two of Beauhurst’s Risk Signals, the figures point to a company that may be struggling to convert early-stage funding into sustainable growth — a pattern increasingly associated with the UK’s post-boom “zombie startup” cohort.

easyFood

easyFood is an online service which allows users to order food from restaurants. After raising £137.5k in equity funding in 2019 at a £4.26m valuation, easyFood initially tracked a typical early-stage growth path, but its financial position has since become highly volatile.

Net assets swung from £91k in 2021 to -£328k in 2023, before a brief return to £100k in 2024, alongside a collapse in total assets to just £100 and a fall to zero employees, indicating a potential wind-down or minimal-activity state. With additional Beauhurst Risk Signals, the company’s trajectory suggests a shift away from scaling growth towards operational fragility and stagnation following its initial funding round.

Hippie Turtle Herbal Co

Hippie Turtle Herbal Co offers CBD products and other natural supplements. After raising approximately £169.5k across two early equity rounds, Hippie Turtle Herbal Co initially showed signs of early-stage expansion, with assets growing from £12.9k in 2022 to £43.3k in 2023. However, that momentum has since reversed, with assets falling back to £14.1k by 2025 and cash reserves declining to zero, alongside a shift from a modest net asset position of £13.2k to a deficit of -£1.15k.

Despite maintaining a consistent single-employee structure, the lower valuation in its second funding round, combined with weakening liquidity and a deteriorating balance sheet, suggests a business that has struggled to sustain early investor-led growth and may now be operating in a constrained, capital-preservation state rather than a scaling one.

The bigger picture

But that’s just one snapshot of a tiny percentage of companies that raised in Seed-stage and never progressed to Venture-stage. Out of UK Seed-stage companies that last raised in 2019–2022, only 34% have progressed onto Venture, Growth or Established-stages. Over 76% show a flat or declining headcount (25 employees or less). And 12% hit one of our Risk Signals.

Part of this reflects how much the market has changed since the post-pandemic boom. Consumers are spending differently, businesses are taking longer to buy, and many sectors that saw rapid growth in 2020–2021 have slowed down significantly. For Seed-stage companies built around those earlier growth expectations, progressing to the next stage has become much harder.

Breaking it down by industry

The sector breakdown is revealing too. Fintech and SaaS (the categories that attracted enormous seed capital in the post Covid-19 boom) show a disproportionate, but predictable, representation among stalled companies. When we look at our data we can see that 61% of companies that raised in 2019-2022 and remain at Seed-stage were in the tech industry. SaaS companies make up 17.8% of that, and fintech companies equate to 6.4%.

Those industries were hit hardest by the market reset. Many companies raised money at a time when investors were prioritising growth above all else. But expectations have changed quickly. Investors now want clearer routes to profitability, stronger financial discipline, and evidence that businesses can grow sustainably (not just quickly). For a lot of startups built around the conditions of 2021, that has been a difficult adjustment to make.

Breaking it down by location

Geography plays a critical role in where stalled startups accumulate. Rather than being a dispersed UK-wide issue, “zombie” or stalled companies are heavily concentrated in London, making up 49%. The capital’s dominance in venture funding means it also hosts the largest pool of post-2021 companies that raised once, scaled quickly on paper, and then plateaued.

Outside London, the number of stalled startups is much lower, largely because fewer startups raised significant funding during the boom years. London simply saw more companies grow fast, raise at high valuations, and chase aggressive expansion plans.

When the market cooled, many of those businesses struggled to keep momentum. The result is a much bigger backlog of companies in London that raised capital successfully once, but have not been able to reach the next stage of growth.

The impact of zombie companies

The conventional wisdom on zombie startups treats them as a cleanup problem, in other words, a hangover from the 2021 boom that will eventually resolve itself through attrition.

That isn’t the full picture, though. Zombie startups don’t just fail, they end up distorting the ecosystem around them. They occupy cap table positions that prevent investors from recycling capital. They retain talent that can’t fully commit to growth — or leave, draining institutional knowledge. They hold onto IP and market positions that could, in other hands, generate real value. And critically, they consume the attention of founders who are spending the majority of their time fundraising rather than building.

Consider what the data shows about bridge rounds. In Q2 2025, 16.6% of all venture capital raised on Carta came through bridge rounds, up from 11.8% the year before.

Bridge rounds are meant to keep companies alive long enough to reach the next milestone. But at this scale, they suggest something broader: investors are spending more time preserving existing bets than making new high-conviction ones. This is less a sign of confidence than a market delaying difficult decisions.

And there’s another dimension to this that rarely gets discussed: what zombie startups reveal about the underlying health of the VC funds that backed them. Analysis from Coriche Growth Advisors suggests that up to half of the startup funds that existed at the peak of the 2021 bubble have effectively become zombie investors themselves — managing legacy portfolios, collecting management fees, unable to make new bets. When the fund is a zombie, the portfolio company often becomes one too. There’s no one with fresh capital and active conviction pushing for a resolution.

The impact of zombie companies

At some point — and 2025 and 2026 are shaping up to be that point — a wave of zombie startups will reach the end of their runway simultaneously. The bridge rounds will run dry, and the market will face a reckoning that has been building for three years.

Despite concerns about “zombie” companies, startup insolvency rates actually fell in 2025 — the first decline after four consecutive years of increases. PwC found that venture-backed startup insolvencies dropped in 2025 after rising every year between 2021 and 2024, suggesting investors and founders are increasingly prioritising survival and capital discipline over aggressive growth.

That sounds counterintuitive, but it makes sense: the companies that were going to fail have been failing, slowly, for years. What remains in the zombie cohort are the ones with just enough cash, just enough customers, and just enough hope to keep going.
The harder question is: of those companies, how many have a genuine path forward? When we look at the Seed-stage companies that raised in 2019-2022, we can see that 32% are now either in Dead or Zombie-stage (by this definition), or have exited (4% of those through an acquisition). That’s just 2% less than those that have progressed.

This isn’t a sudden collapse, it’s happening slowly. Much of the weakest cohort has already filtered out slowly, but what remains is a group of companies kept alive by extensions, not momentum.

As bridge funding runs out and follow-on capital stays selective, these outcomes will stop being spread over time and start landing all at once. With roughly a third of post-2019–2022 seed companies already dead, stalled, or exited, and a similar share still moving forward, the market is now split, and the next phase will simply decide which side the rest fall into.

What the data is really showing

This isn’t a story about companies that failed, it’s a story about companies that got stranded.

The difference matters. Failure implies a clear endpoint. Stranded implies something still unresolved — decisions that have been delayed by capital extensions, cautious investors, and founders trying to hold things together for one more round.

“Markets are generally efficient at recognising risk, but much slower at recognising stagnation. The companies that emerge strongest from this period won’t necessarily be those that survive the longest, but those that make decisive choices earliest.”

Beauhurst tracks those signals across the UK private market — funding patterns, growth trajectories, and stalled progression — and what it shows is a market that hasn’t fully dealt with the aftermath of the last funding cycle.

That creates a gap between perception and reality. And as that gap closes, the advantage will sit with those who understand what’s actually happening beneath the headline data, and act on it early.

The impact of zombie companies

At some point — and 2025 and 2026 are shaping up to be that point — a wave of zombie startups will reach the end of their runway simultaneously. The bridge rounds will run dry, and the market will face a reckoning that has been building for three years.

Despite concerns about “zombie” companies, startup insolvency rates actually fell in 2025 — the first decline after four consecutive years of increases. PwC found that venture-backed startup insolvencies dropped in 2025 after rising every year between 2021 and 2024, suggesting investors and founders are increasingly prioritising survival and capital discipline over aggressive growth.

That sounds counterintuitive, but it makes sense: the companies that were going to fail have been failing, slowly, for years. What remains in the zombie cohort are the ones with just enough cash, just enough customers, and just enough hope to keep going.

The harder question is: of those companies, how many have a genuine path forward? When we look at the Seed-stage companies that raised in 2019-2022, we can see that 32% are now either in Dead or Zombie-stage (by this definition), or have exited (4% of those through an acquisition). That’s just 2% less than those that have progressed.

This isn’t a sudden collapse, it’s happening slowly. Much of the weakest cohort has already filtered out slowly, but what remains is a group of companies kept alive by extensions, not momentum.

As bridge funding runs out and follow-on capital stays selective, these outcomes will stop being spread over time and start landing all at once. With roughly a third of post-2019–2022 seed companies already dead, stalled, or exited, and a similar share still moving forward, the market is now split, and the next phase will simply decide which side the rest fall into.