MORE than half-a-billion-pounds of venture capital (VC) investment was secured by fast-growth businesses in Scotland in the first six months of 2022, despite a general trend towards caution amongst investors, KPMG figures show.
Over the two quarters up until the start of July, a total of £506 million of investments were completed.
There were 45 investments completed in Q2 2022, raising over £325m for Scottish scale-ups, and in the previous quarter, 41 deals worth £181m were recorded.
This compares favourably with last year when a total of £626m of VC investment was raised by Scottish business over the full 12-month period, making the first six months of this year look particularly encouraging.
The majority of deals in Q2 involved businesses in Edinburgh (24), followed by Glasgow (7), Aberdeen (3) and Dundee (2). Notable deals include Edinburgh’s Rooser start-up, which secured almost £17m in April and aims to speed up fish sales transaction and cut waste through an online platform for traders. Another standout was Resolution, a biopharmaceutical company developing cell therapying collaboration with the University of Edinburgh Centre for Regenerative Medicine to treat advanced liver disease, which raised a £10m extension to its Series A financing from Syncona.
But as investors become more and more cautious over the coming months, KPMG warned that investment may be weaker in the second half of the year, with levels decreasing, both in the UK as a whole and globally, in Q2.
VC funding levels globally saw a decline in Q2, falling to £100 ($120) billion (from £138/$165.3bn Q1 22), as the war in Ukraine, rising inflation and skyrocketing interest rates shook markets. Deal volumes also decreased significantly.
Amy Burnett, KPMG private enterprise senior manager in Scotland, said: “The value of investment in Scottish businesses continued at a healthy pace in Q2, despite global levels stalling.
“That’s great news for Scotland as we continue to see hot sectors such as FinTech and HealthTech attract the biggest investments, but we need to be mindful that investor behaviour is likely to change in the second half of the year.
“Companies that may have attracted funding from optimistic investors in the past, will likely face more challenges and require stronger business cases and paths to profitability to attract funding over the next few quarters. There are already some red flags on the horizon as the volume of UK deals being done in the first half of 2022 is down more than 11% year on year.
Graeme Williams, mergers and acquisitions director at KPMG UK, said: “The drop off at a UK level is a strong indicator that there continues to be a reasonable amount of dry powder in the market, with investors poised to spend.
“With our burgeoning tech and life sciences markets, Scotland offers attractive alternative options for investors looking to diversify their portfolios given global uncertainty.
“And as VC firms start to take a more cautious investment approach, activity from non-traditional investors could increase in niche areas of investment.
“Heading into Q3 22, we could see some high-net-worth individual investors stepping in to help fund Series A and Series B deals that might have been funded by institutional money in previous quarters.”
