KPMG data

Investment in scaleups falls as caution prevails

Enough Food
Meat company Enough was among that raised funds last year

New data has revealed the extent of the slowdown in investment during a year of rocketing interest rates.

The number of Scottish scale up firms receiving funding plunged to £359 million in 2023 from £707m in 2022 and £628m in 2021, according to KPMG’s Venture Pulse Survey.

Graeme Williams, head of corporate finance M&A for Scotland at KPMG UK, said: “It is fair to say that figures for 2023 have revealed a slowdown, especially when compare to the record breaking results of the previous two years.

“After two years of exceptional activity, the market has reached a more stable point and what we are seeing not just in Scotland but globally is caution for investors who are little more wary of the types of deals they commit to being part of.

“Looking ahead, it’s likely that venture capital investment will remain stable at the very least in the face of challenges such as geopolitical complexities.

“However, from the deals that we have seen take place, there is evidently still strong interest in Scottish firms and investing in them.”

Amy Burnett, KPMG private enterprise senior manager in Scotland, said: “We continue to see investors focus on new emerging technologies such as cleantech, AI and wider life sciences including medtech – all strong areas in Scotland where we are seeing IP rich businesses spun out of universities.

Amy Burnett
Amy Burnett: ‘There has been a re-levelling in the markets

“I am hopeful that this knowledge and expertise sets Scotland in good stead for 2024, and beyond, when it comes to our talented businesses raising venture capital.

“There is no doubt that there has been a re-levelling in the markets, but I am hopeful that the renewed focus of investors on sustainable and profitable business models will be welcomed by our Scottish founders, who have historically taken a canny approach growing their businesses, and to fundraising.”

London attracted the lion’s share of UK VC investment in 2023, at £10.7 billion across 1,495 deals. However, this was significantly down on the £22.3 billion raised by London businesses across 2,086 deals in 2022.

The decline in investment is consistent with other measures that show Scotland still accounting for a minority of private equity deals. The Global Financial Centres Index, published last week, showed London accounted for 56.3% of theb total invested, followed by the East Midlands (13.8%), the South East (6.9%), and the West Midlands (5.6%). Scotland received just 2.2%.

Nicole Lowe, UK head of KPMG UK’s emerging giants practice, said: “Whilst there is a real craving for normalcy and a period of stability this year to help boost the environment for fundraising, it is unlikely that the conditions improve much over the next 12 months. 

“With the headwinds remaining challenging, UK businesses looking to raise funds will need to ensure they have really strong business models and management teams in order to attract VC investment.”

The increased caution from investors is said to be behind recent postponements and cancellations of set-piece conferences. The EIE event did not take place in Scotland last year, while a big tech summit planned for Edinburgh in May this year has been postponed.

Standout deals among 115 in Scotland last year included:

* Alternative meat start-up Enough which raised £31m in equity to help bring more plant-based chicken, mince and dairy products to supermarkets and fast-food chains

* Manus Neurodynamica, which develops and markets products and technologies for neuromotor assessment. The company closed a £2.6 million funding round to support the commercialisation of its NeuroMotor Pen – a medical device to aid diagnosis and monitoring of neuromotor disorders including Parkinson’s disease

* Fintech firm DirectID, which provides data to optimise credit and risk decisions. It attracted a £7.69 million minority investment from IKEA’s investment arm, Ingka Investments



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