The value of venture capital (VC) invested into Scotland’s start-ups rebounded significantly in the third quarter of 2023, due to a handful of high value deals.
This comes despite the overall market continuing to experience a slowdown, according to KPMG’s latest Venture Pulse report.
During the third quarter of this year, 28 deals worth a combined £202m took place – the highest value quarter in Scotland since the second quarter of 2022 – when £325m was recorded over 45 deals.
Despite the spike in values of late, 2023 is set to be significantly quieter than previous years for Scottish VC investment. The value of the first three quarters of this year stands at £335m, significantly lower than the same totals for 2021 (£529m) and 2022 (£623m), when the market was extraordinarily busy following the pandemic.
Standout deals in Scotland during the quarter include alternative meat start-up ENOUGH, which raised €40m in equity, while Glasgow-based Chemify secured £36m of Series A funding.
Graeme Williams, head of corporate finance for Scotland at KPMG UK, said: “The third quarter has been an outlier for VC investment in Scotland this year, mainly due to a handful of higher value deals taking place.
“Given the uncertain environment including concerns about valuations, potential returns, the lack of exits, high interest rates, and other factors, the time to complete VC deals has slowed considerably across most regions of the world this year.
“Investors are adopting a more cautious approach, conducting additional levels of due diligence, and seeking companies with well-defined paths to profitability,“ she continued, adding: “However, businesses with a proven product, market fit, and strong customer data will continue to attract attention of investors.“
Amy Burnett, head of KPMG Private Enterprise Access, said: “Investment is finding its way beyond the central belt and north east of Scotland, with significant investments taking place in Oban, Dundee and Perth in the latest quarter.
“Support is there for Scotland’s innovators, including the announcement of a new £150m fund from the British Business Bank to support start-ups.
“Scottish VC fund, Par Equity, also launched a new £100m northern start-up fund earlier this year and Foresight has its own £60m fund – these are new avenues of funding which are undoubtedly being used, meaning the year’s final quarter could well result in a higher volume of VC deals as a result.”
Meanwhile, the value of VC investment into UK businesses remained stable during the third quarter, despite the volume of deals falling by over a third quarter-on-quarter.
A total of £4.17bn was invested in UK businesses between July and September, down marginally on the £4.49bn raised in the second quarter. Deal volumes continued to fall though, with 469 deals completed during that period, down 34% on the 713 deals completed in the second quarter, and 44% down on the same period last year (845 deals).
Half of the VC investment made into the UK during the third quarter – $2.6bn – flowed into businesses based outside of London, across 219 deals.
The KPMG report noted that VC investment is expected to remain relatively soft heading into the fourth quarter, given ongoing uncertainties in the global market and a heightened level of investor caution.
Energy, cleantech and artificial intelligence-based businesses, however, are expected to remain highly attractive to VC investors across much of the world.
Source: Insider.co.uk
