The volume of venture capital (VC) invested into Scotland’s start-ups fell significantly in the second quarter of 2023 as the deals market continues to experience a slowdown, according to KPMG’s latest Venture Pulse report.
During the second quarter of the year, 28 deals totalling £63 million took place — a drop of 80% compared with the same period last year when £325 was invested across 45 deals.
KPMG said the total for the first half of 2023 now stands at £133 million – significantly down on H1 totals for 2021 (£332m) and 2022 (£506m), when the market was “extraordinarily” busy following the pandemic.
Standout deals in Scotland during the quarter included Manus Neurodynamica, which develops and markets products and technologies for neuromotor assessment. The company closed a £2.6 million funding round to support the commercialisation of its NeuroMotor Pen – a medical device to aid diagnosis and monitoring of neuromotor disorders including Parkinson’s disease.
The quarter’s largest VC investment went to Glasgow based Chemistry pioneer Chemify which secured £16 million in later stage funding to develop its technology to make complex molecules on demand.
Graeme Williams, Head of Corporate Finance M&A for Scotland at KPMG UK, said: “There’s been a visible slowdown in venture capital fundraising globally, and Scotland is no different.
“After two years of exceptional activity, the market has reached a more stable point.
“However, there is a noticeable sense of caution prevailing, with VC investors more wary about committing to bigger deals. The smaller investments in seed, angel, and series A stages are holding steady.
“Looking ahead, it’s likely that venture capital investment will maintain its stability in the third quarter of 2023.
“Despite ample funds, well known challenges including geopolitical complexities, and the potential for further interest rate rises will persistently influence the volume of deals taking place.”
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.”