Venture capital market shows signs of caution
There is a “noticeable sense of caution prevailing” within Scotland’s fundraising market, experts have warned, after a sharp drop in venture capital activity in recent months.
During the second quarter of the year, 28 venture capital (VC) funding deals totalling £63 million took place, marking an 80 per cent plunge compared with the same period last year when £325m was invested across 45 deals, according to KPMG’S latest Venture Pulse study. The total for the first half of 2023 came in at £133m - significantly down on H1 totals for 2021 (£332m) and 2022 (£506m), when the market was extraordinarily busy.
Graeme Williams, headofcorporatefinance M&A for Scotland at KPMG UK, said: “There’s been a visible slowdown in VC fundraising globally, and Scotland is no different.aftertwoyearsofexceptional activity, the market has reached a more stable point. However, there is a noticeable senseofcautionprevailing,with VC investors more wary about committingtobiggerdeals.the smaller investments in seed, angel, and series A stages are holding steady.
“Looking ahead, it's likely that venture capital investment will maintainitsstabilityinthethird quarter of 2023. Despite ample funds, well known challenges includinggeopoliticalcomplexities, and the potential for further interest rate rises will persistently influence the volume of deals taking place.”
Standout deals in Scotland during the second quarter include Man us N euro dynamic a, which develop sand markets products and technologies for neuromotor assessment. The company closed a £2.6m funding round to support the commercialisation of its Neuromotor Pen - a medical device to aid diagnosis and monitoring of neuromotor disorders including Parkinson’s. The quarter’s largest VC investment went to Glasgow-based chemistry pioneer Chemify, which secured £16 min later stage funding to develop its technology to make complex molecules on demand.
Amy Burnett, head of KPMG private enterprise access at KPMG UK, said: “Despite the slightly downbeat figures for Q2, we continue to see promising businesses in Scotland secure investment and attention both home and abroad. This is especially true in the tech and medtech sectors, where we’re seeing robust growth. Investment in AI and generative AI remain one of the few resilient areas of investment in the current market. As is always the case, those with a proven product, market fit, strong customer data, and clear paths to profitability will continue to gain attention from seed and series A investors.”
Meanwhile, a start-up support programme run by Codebase will embark on a nationwide investor roadshow for Scottish start-ups next week, visiting Edinburgh, Glasgow, Dundee and Inverness between August 21 and 25. Tech founders are being promised the chance to “engage with top investors and experts” from the north american venture capital scene.