KPMG: Scottish innovators attract record Venture Capital investment in Q3

KPMG: Scottish innovators attract record Venture Capital investment in Q3

Global Venture Capital (VC) investors deployed record amounts of money into Scottish scaleups over the summer, with more than £197 million raised according to Venture Pulse, a quarterly report published by KPMG Private Enterprise.

The research, published using data supplied by PitchBook, recorded 57 transactions totaling £197m invested into fast growth Scottish businesses in Q3 of 2021.

The roll out of Scotland’s COVID-19 vaccination programme and greater business confidence in the post-Brexit environment and opening up of most sectors, resulted in a busy summer of transactions.

Year on year, Q3’s figures also point towards growing investment in Scottish firms. During Q3 2020, £71.6m was invested, and in 2019’s third quarter £32m was invested. Looking back on the year to date, 20 deals valued at £64m were recorded in Q1 2021, and Q2 finished with 60 deals with a value of £258m.

Scotland’s largest deals during Q3 include Edinburgh based remote healthcare developer, Current Health, which raised £32m in Series B funding led by Northpond Ventures. The firm has since been acquired in October by a listed US business.

Renewco Power, an Edinburgh based developer of utility scale renewable power projects across Europe, attracted £24 million of corporate financing from FTSE 100 energy company, SSE plc via Corran Capital. In another significant deal, Snappy Shopper a Dundee based developer of a delivery app raised £19.5m in Series A funding led by PayPoint.

Later stage deals continued to attract the most investment in Scotland, but interest in earlier stage deals grew with more businesses beginning to raise Series A and smaller rounds.

Amy Burnett, senior manager, KPMG private enterprise, said: “A busy summer of deals with growing levels of volume and investment has once again cemented Scotland’s credentials as an incubator and rapid developer of exciting, innovative businesses. As we emerge from the pandemic it’s clear to see that several scaleups have flourished in areas of growing consumer demand, including remote healthcare technology, home delivery services and renewables.

“Scotland’s vibrant tech community and highly skilled workforce continues to be a draw for investors hungry to invest in our pool of fast growth businesses. To maintain these record levels of investment, it’s important that we continue to support start-ups and scale ups to be as attractive as possible for VC investment, and to ensure their long-term growth.”

Graeme Williams, director, corporate finance M&A, KPMG UK, added: “Investors are alive to the fact that the UK, and Scotland have a real glut of innovative companies operating within a tech ecosystem which continues to mature and build recognition on the world stage. A busy summer of transactions gives a clear signal that investor confidence is returning generally, and that interest in VC deals is growing year on year in Scotland.”

The rest of the UK also continued to deploy record amounts of money into UK scaleups with over £6.5 billion invested in Q3 2021.

While fintech was the hottest area of investment in the UK, a diversity of other companies also attracted funding – such as virtual event platform Hopin (£330m), electric vehicle subscription service Onto (£175 million), AI/ML accelerator company Graphcore (£162m), and flower delivery service Bloom & Wild (£125m).

Later stage deals involving well-established scaleup businesses took the bulk of funding from VC investors, but seed deal value remained steady. More than £290m was invested in the UK at seed level over Q3 21, a slight decline from the record levels of investment seen in the first half of the year. Seed level investment remain significantly lower than pre-pandemic levels however, by both number of deals closed, and total amount raised.

Corporate Venture Capital (CVC) investment in UK innovators also reached a new high of £2.8bn in Q3 21, a 9% increase in value from Q2 21 - as innovation continues to dominate boardroom priorities following the pandemic.

Bina Mehta, chair of KPMG UK and Head of the firm’s UK Emerging Giants Centre of Excellence, said: “The strength of the UK innovation brand is flying high with areas such as artificial intelligence (“AI”), cybersecurity and FinTech attracting interest and finance from greater numbers of new players to the UK market, driving up valuations for our most sought-after innovators.

“Our recent CEO survey found that disruptive technology was cited as the biggest threat to large corporates, so it is unsurprising that in order to accelerate their digital transformation or boost their digital capabilities, many are now partnering with, investing in, or acquiring innovative scale up businesses.

“Corporate Venture businesses have driven some of the largest rounds of funding for UK innovators. The increased dependance we all have on technology has seen large amounts of funding flow towards fast growth businesses with a success story to tell around new products and services that are helping us all to adapt to a new remote world.”

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