Scottish innovators attract half a billion during first six months of 2022

Investment in Scottish innovators hits £325 million in second quarter of 2022, according to KPMG’s Venture Pulse Survey

Investment in Scottish innovators hits £325 million in second quarter of 2022

  • Investment in Scottish innovators hits £325 million in second quarter of 2022, according to KPMG’s Venture Pulse Survey
  • Investment in Q2 up by 25 per cent compared to same time last year

Fast-growth businesses in Scotland attracted over half a billion pounds of venture capital (VC) investment in the first half of 2022, despite investors becoming more cautious globally, according to the latest figures from KPMG UK.

45 investments completed in Q2 2022, raising over £325 million for Scottish scale ups.

In the previous quarter, 41 deals worth £181 million were recorded, taking the total for the first half of 2022 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.

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 Q2.

The lion’s share of deals in Q2 2022 involved businesses in Edinburgh (24), followed by Glasgow (7), Aberdeen (3) and Dundee (2).

Standout deals during Q2 include Edinburgh based start-up Rooser, which aims to speed up fish sales transaction and cut waste through an online platform for traders. It secured more than £17 million from investors in April. Resolution, a biopharmaceutical company developing cell therapying collaboration with the University of Edinburgh Centre for Regenerative Medicine to treat advanced liver disease also raised a £10m extension to its Series A financing from Syncona.

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 percent year on year.

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Graeme Williams, M&A Director, KPMG UK, explains: “The drop off at a UK level is a strong indicator that there continues to be a reasonable amount of dry powder in the market, with investors poised to spend. With our burgeoning tech and life sciences markets, Scotland offers attractive alternative options for investors looking to diversify their portfolios given global uncertainty.

“And As VC firms start to take a more cautious investment approach, activity from non-traditional investors could increase in niche areas of investment. Heading into Q3 22, we could see some high-net-worth individual investors stepping in to help fund Series A and Series B deals that might have been funded by institutional money in previous quarters.”

UK picture steady but caution gathering

KPMG’s Venture Pulse report found that UK businesses attracted £7.2 ($8.6) billion in VC investment during April – July 2022, down on the £8.5 ($10.2) billion raised in the opening quarter of the year.   VC investment for the quarter was up however year on year, with £7 billion ($8.4) raised in the same period last year.

More than £15.7 ($18.8) billion of VC funding has been invested in UK businesses in the first half of 2022, upon the £14.6 ($17.5) billion 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 percent on the first half of last year (1768 versus 1568) 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 Q2 22, falling to £100 ($120) billion (from £138/$165.3 billion Q1 22), 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.

ENDS

Scotland VC deal data

Quarter

Value

Volume

Q4 21

£97m

32

Q3 21

£197m

57

Q2 21

£258m

60

Q1 21

£64.3m

20

 

Quarter

Value

Volume

Q2 22

£325

45

Q1 22

£181

41

 

For Media Enquiries:

Rory Brown, Corporate Communications Manager, Scotland

M: +44 (0) 751 0374 794

rory.brown@kpmg.co.uk

 

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 15,300 partners and staff.  The UK firm recorded a revenue of £2.43 billion in the year ended 30 September 2021.

KPMG is a global organisation of independent professional services firms providing Audit, Legal, Tax and Advisory services. It operates in 145 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.

Venture Pulse Methodology

KPMG uses PitchBook as the provider of venture data for the Venture Pulse report.  Data is correct as of 02 July 2022.

PitchBook defines venture capital funds as pools of capital raised for the purpose of investing in the equity of startup companies. In addition to funds raised by traditional venture capital firms, PitchBook also includes funds raised by any institution with the primary intent stated above. Funds identifying as growth-stage vehicles are classified as PE funds and are not included in this report.

A fund’s location is determined by the country in which the fund is domiciled; if that information is not explicitly known, the HQ country of the fund’s general partner is used. Only funds based in the United States that have held their final close are included in the fundraising numbers. The entirety of a fund’s committed capital is attributed to the year of the final close of the fund. Interim close amounts are not recorded in the year of the interim close. Mega-funds are classified as those of $500 million or more in size for the following fund categories: venture and secondaries.

The Venture Pulse does not contain any transactions that are tracked as private equity growth. PitchBook defines a PE growth round as a financial investment occurring when a PE investor acquires a minority stake in a privately held corporation. Thus, if the investor is classified as PE by PitchBook, and it is the sole participant in the recipient company’s financing, then such a round will usually be classified as PE growth, and not included in the Venture Pulse datasets.