Scottish start-ups given cold shoulder by investors as virus bites

Scottish start-ups have recorded their lowest first quarter for fundraising in more than two decades as the onset of the coronavirus crisis dented investor confidence.

Companies north of the Border raised just £2.1 million of venture capital during the first three months of 2020 with five rounds completed. Picture: Jon Savage

Companies north of the Border raised just £2.1 million of venture capital during the first three months of 2020 with five rounds completed. The largest funding deal was for Edinburgh-based biotech outfit MiAlgae, which raised £1.1m.

The £2.1m total was down from the £6.3m raised in the first quarter of 2019, from four deals, according to new research from Refinitiv.

Deal volumes and value were also substantially down from the closing three months of 2019, which saw £36.2m of venture capital raised from ten deals.

The Scottish picture contrasts sharply with the UK as a whole, where companies raised the highest amount of any first quarter on record with £2.1 billion from 137 rounds.

Cornelia Andersson, mead of mergers and acquisitions (M&A) and capital raising at Refinitiv, said: “It’s been a torrid first quarter for enterprise in Scotland as coronavirus continues to take its toll on start-up investment as we’ve already seen with global M&A.

“Despite the easing of lockdown, we expect investment to continue to fall into Q2 and beyond as the economy and business environment slowly begins to recover.

“With huge expected demand for products and services to cope in this new normal, it wouldn’t be surprising to see investors pivot more towards ‘Covid-proof’ start-ups that enable remote working or connectivity and pharmaceuticals.”

According to the study, the most active investor in Scotland during the first quarter was Scottish Enterprise Glasgow, which invested £258,400 in two deals.

Across Europe, venture capital activity totalled £4.3bn invested across 294 rounds during the first three months of 2020. While this marked a 24 per cent fall in values and a 29 per cent decline in volumes from the same period last year, it remained the second strongest opening quarter on record from a value perspective.

Volumes, on the other hand, continued their downward trend and this represented the least active first quarter since 2009.

Funds located within the borders of Europe invested £2.4bn into domestic start-ups in the first quarter, accounting for 62 per cent of total disclosed investment.

Funds located within the United States contributed a total of £1.2bn, or 30 per cent, up from a 29 per cent share throughout the entirety of 2019. Asia-based investors saw their share drop from 8 per cent to 5 per cent with £212.1m contributed.

European venture-backed exits totalled £9.4bn across 35 transactions in the first three months, according to Refinitiv, formerly the financial and risk business of Thomson Reuters, and one of the largest providers of financial markets data and infrastructure.