VC funding slips in Q2 as Brexit keeps investors on edge

The volume of venture capital (VC) invested in Scottish start-ups fell dramatically in the second quarter from the first, with Brexit uncertainty resulting in cautious investment decisions, although the number of funding deals rose.

James Kergon of KPMG said venture capitalists remain attracted to Scotland's start-up community. Picture: contributed.

Figures released today by accountancy giant KPMG indicate a mixed landscape for Scotland’s emerging businesses in the three months to June, as total investment from VC dropped by more than £16.8 million to £23.8m.

Despite this slide in funding value, deal volume rose in the quarter with 16 firms attracting funding, compared to 14 in the prior three months.

The firm’s latest Venture Pulse Survey, based on figures from market researcher PitchBook, cited this as an indicator that investors are “becoming increasingly risk averse, as political and economic uncertainty continues to grow”.

The majority of start-ups benefiting from VC in the period were active in the tech or pharmaceutical sectors, with nine businesses sharing more than £16m in funding.

These included Aberdeen-based Enterobiotix, which attracted in excess of £2.4m in seed funding to help it develop pioneering new medicinal products. Enterobiotix harnesses bacteria from the human gut to prevent and treat infections and diseases.

Invergowrie-based agri-tech Intelligent Growth Solutions (IGS) also attracted a seven-figure investment to advance and export its “ground-breaking” vertical farming technology as it looks to tackle the global food shortage. IGS, which supplies tech to enable the efficient production of crops indoors, landed £5.4m to drive product development and create jobs in areas such as software development, engineering, robotics and automation.

KPMG said the bulk of VC investment focused on Edinburgh, with eight businesses attracting support. Elsewhere, financial backing was provided to five companies in Glasgow, two in Aberdeen and one in Dundee.

VC investment fell across the UK, with 279 deals valued at a £2 billion completed during the second quarter. This contrasts with 324 in the opening three months of the year, valued at a combined £2.4bn.

James Kergon, head of deal advisory at KPMG in Scotland, said: “While it’s reassuring to see such a wide range of Scottish businesses attracting VC investment from around the world, the dip in funding levels is slightly concerning.

“Whether they’re early-stage start-ups, or long-established businesses, every one of the 16 companies is doing something innovative and, in some cases, truly pioneering.

“The future success of the Scottish economy relies on a diverse ecosystem led by entrepreneurial companies at the forefront of technology and product development.

“However, there is hope on the horizon. While investment is down, it’s clear to see that, despite deepening economic uncertainty, venture capitalists remain attracted to Scotland’s tech-savvy, globally-focused start-up community.”