Scottish venture capital investment suffers first-quarter 'blow' as UK hits new record

Venture capital investment in Scotland’s fast-growing businesses cooled in the opening months of 2021 in a “blow to the entrepreneurial scale-up sector”.

The latest KPMG Venture Pulse survey – published today – reveals that there were 21 venture capital (VC) deals north of the Border between January and March this year, down from 23 deals in the previous quarter. Meanwhile the combined value of those deals fell to £64.3 million, from £97.6m previously.

The news comes after the entrepreneurial scale-up sector bucked the wider downward trend last year, in the face of the pandemic, with record levels of investment and deals in Scotland

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Experts said that with Covid restrictions easing and the economy gradually re-opening, a return to higher confidence levels from investors should see a return to the upward trend in the country’s “increasingly important start-up and scale-up space”.

Amy Burnett, senior manager with KPMG private enterprise in Scotland: 'The figures for Q1 are relatively subdued and disappointing'
Amy Burnett, senior manager with KPMG private enterprise in Scotland: 'The figures for Q1 are relatively subdued and disappointing'

The lion’s share of deals in the past quarter were in Glasgow, with seven deals, followed by Edinburgh (five) and Aberdeen (three).

Amy Burnett, senior manager with KPMG private enterprise in Scotland, said: “The figures for Q1 are relatively subdued and disappointing, but it’s clear investors still have an appetite for Scottish scale-ups. To some extent, we bucked the global trend towards the end of 2020, with significant deal volume and value, and we’re now seeing that steady off and balance itself out.

“Once again, the data demonstrates that investors are keen on Scotland’s increasingly key sectors – low-carbon energy, pharma and tech. For entrepreneurial business leaders, that provides a golden opportunity to adapt and embrace future opportunities.

“The country’s economy may be easing its way out of the pandemic, but we’re about to witness some radical transformation away from high carbon and heavy manufacturing. It’s the perfect time for the Scottish scale-up community to shine on the global VC stage.”

Across the UK, a record £5.1 billion of VC investment was directed into fast-growth businesses during the first quarter – up from a previous high of £3.9bn raised in the closing three months of 2020.

The latest VC figures come just days after it emerged that business angel activity had bounced back in Scotland.

In the first quarter of 2021, some £9.7m was invested by angels north of the Border – the second highest on record after the fourth-quarter peak in 2019, according to figures from Linc Scotland, the business angel association.

Over the past two years, the angel syndicates have been increasingly successful in attracting co-investors into their deals, including venture capital and corporate venturing firms, Linc noted.

KPMG said a scale-up was defined in its research as a business that has received at least one round of institutional/series A investment to be used for growth purposes.

Bina Mehta, chair of KPMG UK and head of the firm’s “emerging giants” practice, said: “The UK continues to be the powerhouse of Europe when it comes to attracting investment in fast growth innovative companies.

“The fact that the amount of VC investment coming into the UK from overseas increased in this post-Brexit environment is encouraging, as was the continued strength of corporate VC investment.”

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