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A total of 115 Scottish firms received over £359m worth of Venture Capital (VC) investment in 2023 compared to record investment levels seen in 2022 and 2021, which were £707m and £628m for Scottish scale up respectively, according to a new global report by KPMG.
During the last quarter of 2023, a total of 45 deals were recorded for Scottish innovators, with a value of just over £71m. Deals during this period were mainly centred around firms in three areas – Glasgow, Edinburgh and Dundee.
Standout deals across the entire 12 month period included alternative meat start-up ENOUGH which raised £31m in equity, Manus Neurodynamica, which closed a £2.6m funding round to support the commercialisation of its NeuroMotor Pen, and Fintech firm DirectID, which attracted a £7.69m minority investment from IKEA’s investment arm.
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 compared 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 a 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.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 to growing their businesses, and to fundraising.”
Meanwhile, London attracted the lion’s share of UK VC investment in 2023, at £10.7bn across 1,495 deals. However, this was still significantly down on the £22.3bn raised by London businesses across 2086 deals in 2022.
London-based businesses accounted for five of the 10 largest European fundraises in the final quarter of 2023, including the £788m raised by communications firm DAZN, whilst the £141.6m raise by Manchester-based Castore also made it to the top 10 largest deals in Europe.
Commenting on the findings, Nicole Lowe, UK Head of KPMG UK’s emerging giants practice, said: “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. Given the global economic climate, VC is shifting from a ‘growth at all costs’ model to prioritising innovative companies with robust unit economics.
“This new focus on strong gross margins and effective customer acquisition strategies underscores a balanced approach in risk management and value creation, favouring sustainable growth and financial stability over rapid cash burn and scale.”
