Scots Venture Capital in Q3 rebound with £202m deals

Graeme Williams, KPMG Head of Corporate Finance M&A for Scotland

The value of venture capital (VC) invested into Scotland’s start-ups rebounded significantly in the third quarter of 2023 due to a handful of high value deals, despite the overall market continuing to experience a slowdown, according to KPMG’s latest Venture Pulse report.

During the third quarter of this year, 28 deals worth a combined £202 million took place, the highest value quarter in Scotland since Q2 of 2022 when £325 million was recorded over 45 deals.

However, despite the spike in values in Q3, 2023 is set to be significantly quieter than previous years for Scottish VC investment.

The value of the first three quarters of this year stands at £335 million, significantly lower than the same totals for 2021 (£529 million) and 2022 (£623 million), when the market was extraordinarily busy following the pandemic.

Standout deals in Scotland during the quarter include alternative meat start-up ENOUGH which raised €40 million in equity to help bring more plant-based chicken, mince and dairy products to supermarkets and fast-food chains.

Elsewhere, Glasgow based chemistry pioneer Chemify secured £36 million of Series A funding to develop its technology to make complex molecules on demand.

And Oban based Oceanium secured $2.6 million in funding to scale up its technology to meet market demand for its seaweed material.

Graeme Williams, Head of Corporate Finance M&A for Scotland at KPMG UK, said: “Q3 has been an outlier for VC investment in Scotland this year, mainly due to a handful of higher value deals taking place.

“Given the uncertain environment including concerns about valuations, potential returns, the lack of exits, high interest rates, and other factors, the time to complete VC deals has slowed considerably across most regions of the world this year.

“Investors are adopting a more cautious approach, conducting additional levels of due diligence, and seeking companies with well-defined paths to profitability. However, businesses with a proven product, market fit, and strong customer data will continue to attract attention of investors.”

Amy Burnett, Head of KPMG Private Enterprise Access at KPMG UK, said: “Scotland remains an attractive destination for VC investors, especially given our diverse ecosystem of innovators and high performing sectors including healthcare, energy and tech.

“Investment is also finding its way beyond the central belt and north east of Scotland, with significant investments taking place in Oban, Dundee and Perth in the latest quarter.

“Scotland still has a glut of exciting scale up businesses which are continuing to push themselves to grow despite a tougher market.

“Support is there for Scotland’s innovators, including the announcement of a new £150m fund from the British Business Bank to support start-ups.

“Scottish VC fund, Par Equity, also launched a new £100m northern start-up fund earlier this year and Foresight has its own £60m fund.

“These are new avenues of funding which are undoubtedly being used, meaning the year’s final quarter could well result in a higher volume of VC deals as a result.”