Brexit uncertainty hits investment by venture capitalists

● Scottish deal value down sharply in Q1 as business confidence starts to waver

Brexit uncertainty is taking its toll on investment deals to fuel growth at cash- hungry companies in Scotland, according to new figures.

The value of venture capital investments completed in the first three months of 2019 fell sharply compared with the same period last year, down from £ 8.6 million to £ 4.8m according to the figures compiled by KPMG in its latest Venture Pulse report.

The six deals completed in the quarter included Swipii, a Glasgow- based customer loyalty app for small businesses, which received £ 1.9m in funding in a round led by Par Equity, alongside investors including the Scottish Investment Bank.

Edinburgh- based onli ne compliance service provider Amiqus Resolution raised £ 1.2m and Enterobiotix, an Aberdeen company harnessing bacteria from the human gut to prevent and treat infections and diseases, attracted £ 700,000 in funding.

James Kergon, head of deal advisor y at KPMG i n Scotland, said: “Scottish businesses have remained relatively resilient up to this point, but it is clear business confidence is starting to waver as we continue on this uncertain Brexit path. That said, investment continued in Scotland’s newer businesses, demonstrating the potential of the country’s future economy.

“Investors have been operating in an uncertain climate for well over a year now and with the economic and politi cal l andscape unlikely t o improve any time soon, we expect this trend to continue, with smaller amounts invested as an alternative to riskier large- scale investments, with investors hesitant to hold on to unspent cash.”

Across the UK, the picture showed that while deal volumes dropped by 57 per cent year- on- year, venture capital investors were willing to pay premium value for innovative UK businesses as more than £ 1.9 billion was invested in the first three months of the year – flat on the same period last year.

Tim Kay, director of startups at KPMG said: “The UK has a robust start- up ecosystem due mostly to its diversity – which keeps investors coming back. Whilst large volumes of VC investment are pumped into established start- up hubs in London and Cambridge, it was great to see the largest UK deal so far this year was in Bristol, for Ovoenergy.

“This diversity has helped keep overall VC investment in the UK strong until now and will hopefully continue once the uncertainty of Brexit has been resolved.”

Kay also said that although the strengths of the UK in AI, biotech and fintech will continue to drive deals in the traditional hubs of London, Oxford and Cambridge, as valuations rise he expects to see more funds casting their net wider across the UK for deal flow.

“Providing Brexit uncertainty can be curtailed, deal volumes should rebound as investors won’t want to sit on unspent cash and the UK still remains an attractive investment location,” he said.