The second quarter saw 45 investments completed, raising more than £325m for Scottish scale-ups, with 41 deals worth £181m recorded in the first three months of the year taking the total for the first half to £506m, the professional services giant has found in its latest Venture Pulse Survey.
KPMG said the first half of this year looked “particularly promising” after a total of £626m of VC investment was raised by Scottish business across 2021. However, it also predicted that the rest of 2022 might not be quite so buoyant as investors become increasingly cautious, with investment levels retreating across the UK as a whole and globally during the second quarter.
The lion’s share of deals that took place between April and June involved businesses in Edinburgh at 24 in total, followed by Glasgow (7), Aberdeen (3) and Dundee (2). KPMG, as an example of a “standout” deal, cited start-up Rooser, which is based in the Scottish capital and aims to speed up fish sales transaction and cut waste through an online platform, and which secured more than £17m from investors in April.
The Big Four accountant also mentioned Resolution, a biopharmaceutical company focused on treating advanced liver disease that 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 per cent year on year.”
KPMG found that UK businesses saw 1,568 deals completed in the six-month period, down from 1,768 12 months ago, with 667 completed in the latest quarter – the lowest volume recorded by the report since the same period in 2018.
VC funding levels globally fell to £100bn from £138bn in the second quarter, as the war in Ukraine, high levels of inflation, and rising interest rates “shook global markets”, according to KPMG.
Graeme Williams, director of mergers and acquisitions at KPMG UK, said: “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.”