Venture capital investment cooled over the summer, though Scotland benefited from a switch from consumer-facing firms to tech-led companies which are well represented north of the border.

KPMG’s latest Venture Pulse Survey reveals that Scotland’s scale ups attracted £117m of venture capital investment across 41 deals in the third quarter of 2022 – a 40% drop on the same period in 2021, with volumes also down by 28%.

However, even though the second half of 2022 looks set to be quieter, a record breaking £623m has already been invested in the first nine months of this year, almost surpassing the £626.9m total invested in 2021. 

KPMG’s Pulse Report indicates a more stable environment in Scotland in Q3 compared to the UK as a whole which fell dramatically and the volume of deals was at its lowest since Q3 2016.

The volume of VC investment into scale-ups outside London outpaced the capital for the first time in eight years during Q3.

The lion’s share of Scottish deals were in Edinburgh (18), followed by Glasgow (8), Aberdeen (4) and Stirling (3). Most deals were late-stage VC (19), with nine seed round, seven early-stage VC and six angel investments taking place.

Standout deals during the quarter include Stirling-based Integrated Graphene. It announced plans to invest up to £8m to scale its manufacturing process for the commercial production of wonder material, graphene, which is used in human diagnostics and energy markets.

Edinburgh-based pureLiFi secured £10m from the Scottish National Investment Bank. The optical communications firm plans to target a global roll out of its wi-fi compatible technology.

Amy Burnett, KPMG private enterprise senior manager in Scotland, said: “Despite strong fund-raising activity in the first half of the year, global economic turmoil has seen VC investment decline across all markets, including in Scotland where the value and volume of completed deals fell slightly in Q3. 

“As the cost-of-living crisis deepens, investors are increasingly turning away from those sectors that rely on consumer spend to drive growth and doubling down on investments in those sectors where technology is addressing big macro trends such as health tech and ESG. 

“With an abundance of these businesses being nurtured outside of London, it is good news for Scotland’s deep tech and health tech firms.”

Research published last week by the British Private Equity and Venture Capital Association (BVCA) showed that Scotland benefited from £895m of investment in 2021 when both private equity and venture capital are included, but the BVCA gave no update on this year’s figures.