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Report reveals rise in risk capital

Later stage funding rises as investors back growth

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Nicola Sturgeon opens trading with LSE chief executive Xavier Rolet

More Scottish growth companies are securing vital later stage capital, according the latest data on business investment.

A new report shows that risk capital invested in Scottish companies rose 20% to £244 million last year, almost doubling over five years and close to the highest recorded level of £250m in 2001.

The number of companies receiving investment above £2m, an ongoing issue with growth firms, has risen significantly.

First Minister Nicola Sturgeon unveiled the figures during a visit to London with Scottish Enterprise Chief Executive Lena Wilson, which included a series of engagements at the London Stock Exchange with a number of business people from the City and Scotland.

Among those attending were Gordon Stuart of Informatics Ventures, Marie Macklin of Klin Group and Andrew Wallace, chief executive of Pyreos, the Edinburgh-based infra-red sensor developer based in the Scottish Microelectronics Centre at the University of Edinburgh.

The report, The Risk Capital Market in Scotland, commissioned by Scottish Enterprise and undertaken by Young Company Finance, found that 2014 was a record year for business angel investment in Scotland, in terms of both the overall amount of investment (£26m) and the number of new companies receiving investment (31).

The report, the latest in a series from Scottish Enterprise, aims to provide comprehensive analysis of the early stage risk capital market in Scotland.

Key findings from the 2014 report include:

  • While not unique to Scotland, 2014 was characterised by a number of very large investments, with the top three deals accounting for 34% of total investment.
  • More companies continue to secure later stage investment above £2m. In 2014 there were 66 investment deals in which international VCs and other institutional investors participated, compared with 37 in 2013 and 38 in 2012. International investors in 2014 included Sofinnova Ventures, Morningside Ventures, and IKEA Greentech.
  • While investment into existing investee companies continued to grow, investors are also backing new ventures: 52 companies received investment for the first time during 2014, compared with 41 in 2013 and 30 in 2012.
  • The ICT and Life Sciences companies attracted the highest overall amounts of investment, illustrating the strength of these sectors in Scotland.

Commenting on the report, the First Minister said: “We have established ourselves as the most prosperous part of the UK outside of London and the south east – but London is still a key driver to help growing our business north of the border.”

Jonathan Harris, editor of Young Company Finance and director of research and communications at LINC Scotland, added: “Levels of investment in early stage companies are very volatile – not just in Scotland, but worldwide – and the totals are highly influenced by a relatively small number of high value deals.

“However, the underlying trends in Scotland are up across the board, and have been so for some time. This gives hope that Scotland’s young companies will continue to be able to access a widening range of funding sources, offering finance in all market sectors and at various stages of company development.”

Kerry Sharp, head of the Scottish Investment Bank, the investment arm of Scottish Enterprise, said: “Having a strongly performing risk capital market in Scotland helps companies to grow to a level where they can attract international investment to successfully compete in global markets.”

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