Scottish growth firms see VC backing leap in Q1, says KPMG

Venture capital (VC) backing for some of Scotland’s most exciting firms – from a games developer to a private bank – almost trebled in the first quarter of the year, according to new figures.

Scottish scale-up businesses struck 41 financing deals totalling £181 million during the first three months of 2022, KPMG’s latest Venture Pulse report out today has revealed. The figure raised was almost triple that achieved in the same quarter last year and was also significantly higher than the £97.6m raised in the final three months of 2021.

The biggest deals include backing for Edinburgh’s Build a Rocket Boy, the games business founded by former Rockstar North president Leslie Benzies, which is developing the Everywhere game. According to the data provided by PitchBook it raised £94m during the quarter, although it appears there was no public announcement about the transaction at the time.

Other significant transactions included £12.3m of fourth round funding for private bank Hampden & Co, which is also based in the Scottish capital, and a £5.1m investment for Glasgow-based Katrick Technologies.

The lion’s share of deals in Q1 2022 were in Edinburgh (20), followed by Glasgow (11), Dundee (4) and Livingston (2).

Amy Burnett, KPMG’s private enterprise senior manager in Scotland, said the figures showed continued resilience north of the Border despite economic concerns and rising interest rates, while fintech, business-to-business-focused services and healthtech remained the top areas for investment.

“The power of our disruptive businesses to deliver impact on a global scale is more important than it’s ever been, and our innovators are a real success story. The collective focus on nurturing and supporting the Scottish scale-up ecosystem is great to see,” she said.

KPMG's Amy Burnett said the latest figures highlighted Scotland's resilience amid a difficult economic backdrop. Picture: contributed.

“It will no doubt help develop more exciting businesses in cities across Scotland and attract further global VC interest and investment.”

Whilst KPMG’s latest report shows the bulk of VC investment continues to flow into London (£5.2 billion), the rest of the UK also saw buoyant levels, with more than £1.7bn invested across 334 deals. Such investment in UK innovators based outside London has more than doubled since the onset of the pandemic, the report also said.

Trends

UK-wide, some of the largest funding rounds seen in the first quarter were in healthtech, energy, fintech, e-commerce and cybersecurity, and KPMG said those trends are likely to continue this year.

However, given the high level of global uncertainty at present the report said it was difficult to predict how the VC market as a whole will respond over the long term. But it said the significant amount of “dry powder” available signals that investment is expected to remain relatively steady heading into the second quarter.

Jonathan Boyers, UK head of corporate finance for the Big Four accountant, said: “Given some of the current geopolitical and macroeconomic uncertainties, we are seeing deal speed starting to slow as VC investors conduct more due diligence related to potential deals.

"We are already starting to see IPO levels decline, and we would expect activity to remain subdued in Q2 with the ongoing volatility in the capital markets,” he added.

"The closure of the IPO window could drive interest back to traditional [mergers and acquisitions] and the downward pressure on valuations could mean companies taking a wait-and-see approach with the hope that valuations bounce back.”