Higher VC investment builds on support for early stage firms
Well-Safe Solutions was among the big VC recipients
More evidence of growing support for early stage companies has emerged in new figures showing venture capital investment in Scottish scale-ups almost doubled last year.
Fast growth businesses received an estimated £197.7 million, up from about £100m in 2018, driven by a busy fourth quarter and a clearer direction with regard to Brexit.
However, the funding was dominated by a £66m investment in Aberdeen-based Well-Safe Solutions, to fund the next phase in its growth strategy as a well decommissioning company.
The data, revealed in the Global Venture Pulse Survey by KPMG Private Enterprise, follows figures from business angel group LINC showing a record year of investment for syndicates.
The Pulse survey reflects a UK-wide surge in investments with more than £9 billion pumped into growth-hungry companies. Later stage businesses, particularly in the financial services, biotech and healthcare sectors, drove the majority of the deals completed.
Commenting on the findings, Amy Burnett, manager at KPMG Private Enterprise in Scotland, said: “It’s been a fantastic year for Scotland’s scale-up businesses.
“Despite the political uncertainties, entrepreneurs have attracted investment from all over the world, closing significant deals and drawing the attention of VC investors focused on later stage companies.
“While it’s an overwhelmingly positive picture, there is some concern that early and seed stage deals aren’t always getting the support they need to grow, which could slow innovation in the long-term and put Scotland at a competitive disadvantage. But, right now, we’re in a healthy, confident position with strong investor appetite.”
One setback for Scotland’s growth sector is the absence of any entrants to the latest Tech Nation growth programme. The UK network for ambitious tech entrepreneurs has revealed the 30 companies joining its Upscale programme for the UK’s “most exciting and fastest growing” scaleup tech companies. Thirty per cent are from outside London but none is based in Scotland.
On the international stage, Pulse found a record number of VC-backed unicorns, (companies valued at $1 billion), with 110 new unicorns created globally, including the UK’s Babylon Health and Cambridge-based CMR Surgical.
The US accounted for more than two-thirds of these unicorns, with 73 in total including Ripple, Bright Health, Duolingo, Scopely, and Next Insurance.
“Europe set a new record, with 18 new unicorns in 2019 compared to 12 in 2018 and only six in 2017. Brazil showcased its growing importance in the Americas with a record three unicorn births in 2019, including QuintoAndar, Loggi, and Wildlife Studios.
The breadth and diversity of Europe’s VC market and growing innovation ecosystems continued to be on display this quarter, with six countries, including the UK, accounting for the top ten deals in the region.
“Europe shattered its previous annual high of VC investment, attracting $37.5 billion in VC investment in 2019 compared to $28.2 billion in 2018. Germany, France, and Spain reached new annual records for VC investment in 2019.
Political and economic uncertainty is expected to remain fairly high in several regions. However, VC investment across Europe is forecast to remain strong, and while the IPO market may see some increased activity, M&A and the trend to stay private longer, will likely continue to dominate.
Late stage deals with a focus on companies which have strong business fundamentals and sustainable global growth models are likely to lead the way.
Tim Kay, director with KPMG Private Enterprise, added: “As the UK enters negotiations about its future relationship with the EU, disruptive businesses in the UK will be watching closely to ensure the essential flow of talent to the UK continues.
“Whatever outcome Brexit may ultimately have, the fact that negotiations are now moving may have assuaged some investor concerns in terms of their willingness to participate in deals, and we can expect to see large volumes of investment continue to find its way to our innovative ecosystems across the UK.”
Investment rises as farming confidence grows
Farming confidence has begun to grow after years of stagnation in recent years amid Brexit uncertainty, according to specialist lender UK Agricultural Finance.
Co-founder Rob Suss explains: “Where there is political indecision, people sit on their hands, but with the election now behind us and a Conservative majority in Parliament things are starting to happen.
“We’ve had more enquiries over the past two weeks than in any two months last year; since the election there is a realisation that the country can now move forward.”
With investment having slowed down considerably since the EU Referendum vote in 2016, pressure has been building on farmers to allocate fresh capital, he adds. Combined with renewed confidence since the recent election, this has triggered a spate of interest in new loans this year.
“Farmers still face considerable uncertainty given the complexities of Brexit and emerging trade deals, but they can’t put plans on hold indefinitely,” says Mr Suss.
“The future of our farming landscape is yet to become clear and farmers will need advice as they look to introduce new revenue streams and underpin their existing farming enterprise.
“The uncertainty of Brexit will be a continued key driver for diversification in the agricultural community throughout 2020 and beyond as farmers look at strategies to buffer the potential change in subsidies,” he adds.
“Sustainability is a key word, with farmers having to grow and innovate their businesses to ensure they remain competitive and profitable in the future.”