Fast-growth businesses in Scotland attracted over half a billion pounds of venture capital (VC) investment in the first half of 2022, according to new figures.
Research from professional services network KPMG UK shows that 45 investments were completed between April and June in Scotland, raising over £325 million for the nation’s scale-ups.
From January to March, 41 deals worth £181 million were recorded, taking the total for the first half of the year to £506m.
Last year a total of £626 million of VC investment was raised by Scottish business, making the first six months of the year look particularly promising.
Investors are becoming more cautious globally
However, KPMG suggest that a strong first half of 2022 may not be replicated in the second half as investors become increasingly cautious, with investment levels dipping across the UK as a whole and globally during the second quarter.
The majority of deals in the second quarter involved businesses in Edinburgh (24), followed by Glasgow (7), Aberdeen (3) and Dundee (2).
Standout deals during the second quarter include Edinburgh-based startup Rooser, which aims to speed up fish sales transaction and cut waste through an online platform for traders. It secured more than £17m from investors in April.
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 per cent year on year.”
UK picture steady but caution gathering
KPMG’s Venture Pulse report found that UK businesses attracted £7.2bn in VC investment during April – July 2022, down on the £8.5bn raised in the opening quarter of the year.
VC investment for the quarter was up however year on year, with £7bn raised in the same period last year.
More than £15.7bn of VC funding has been invested in UK businesses in the first half of 2022, up on the £14.6bn raised in the first half of last year.
However, deal volumes were down significantly, with 667 deals completed in the latest quarter – the lowest volume of UK VC deals recorded by the report since Q2 18.
Overall, the volume of VC deals completed in the UK in the first half of 2022 is down by over 11 per cent on the first half of last year (1,768 versus 1,568) as increasingly cautious VC investors renew their focus on late-stage deals and take longer to conduct due diligence on their investments.
Global drop-off
VC funding levels globally saw a decline in the second quarter of 2022, falling to £100bn – rom £138bn in the first quarter – as the war in Ukraine, high levels of inflation, and rising interest rates shook global markets.
Fintech remained the UK’s hottest area of investment in April – July 2022, led by a £522 ($626) million raise by SumUp and a £260 ($312) million raise by GoCardless. Health and biotech also continued to attract attention, in part because of their resilience to inflation compared to other sectors, whilst those businesses championing ESG continue to whet investor appetite including the £266 ($318.75) million raise by cleantech firm Newcleo.