KPMG has reported a total of £705 million of venture capital (VC) invested in some of Scotland’s most promising businesses during 2022, including several in the north and north-east.
The amount was the largest on record, according to the professional service giant’s latest Venture Pulse Survey.
Despite investor activity dipping in the final quarter, Scotland’s overall performance in 2022 bucked global and UK trends as investment volumes grew by 12% year-on-year.
By comparison, VC investment across the UK fell by almost one-third (30%) in 2022.
Standout north deals during the last quarter include Forres-based spaceflight firm Orbex securing £40.4m in a funding round led by the Scottish National Investment Bank (Snib).
It will allow the company to scale up resources as it counts down to the first vertical launch from UK soil, possibly in the first half of this year, from Space Hub Sutherland.
Notable VC deals in the north-east centred on firms including subsea technology company Verlume, which raised £2.5m.
Verlume’s funding round was led by Edinburgh-based VC firm Par Equity, which had taken an initial stake in the business when it led a £1.6m investment phase in 2020.
Aberdeen-based Verlume, formerly EC-OG, has developed an innovative a subsea battery energy storage and management system,
It said the latest investment round was oversubscribed and would help it “rapidly accelerate its growth”.
Well-Safe’s third investment round raised £50m
And staying in the north-east, decommissioning specialist Well-Safe Solutions raised the cash it needed to fund the purchase of its third rig.
The Aberdeen-headquartered company announced the completion of its third investment round last year, saying it yielded £50m.
As well as covering the cost of the WilPhoenix semi-submersible rig, the money will be used to broaden the capabilities Well-Safe offers to clients globally.
Trojan Energy, the Aberdeenshire company behind a pioneering on-street charging system for electric vehicles, received £9m of backing from Snib last autumn.
This latest investment followed previous backing for the business from Ebico, Shancastle Investments, Scottish Enterprise, Equity Gap, Alba Equity members and SIS Ventures.
Stonehaven-based Trojan was one of the first companies supported by the Opportunity North East (One) Enterprise Fund, which helps businesses at the forefront of developing practical solutions to deliver energy transition.
Trojan Energy has since repaid the One loan in full, having used the cash to bridge a short-term funding challenge.
Q4’s 34 Scottish deals netted £82m
Scotland’s scale-ups attracted £82m of VC investment across 34 deals in Q4 2022 – 15% less than was invested during the same period in 2021.
Despite the sluggish Q4, last year’s total VC investment in Scottish businesses surpassed 2021’s figure of £626m – the previous highest level on record.
And the 2022 figure looks even more impressive when you consider the volume of deals was down by 5% year-on-year.
Amy Burnett, private enterprise senior manager in Scotland, KPMG, said last year cemented Scotland’s reputation as a place where “exciting young companies are born and where investors are backing promising start-ups”.
She added: “Unlike the rest of the UK, Scotland posted record-breaking VC volumes in 2022.
“While certainly not recession-proof, Scotland’s breadth and depth of scale-up sectors did provide some cover during a challenging 2022.
“Globally, investors have increasingly turned away from sectors that rely on consumer spend to drive growth and are instead doubling down on investments in those sectors where technology is addressing big macro trends such as health tech and ESG (environmental, social and governance).
“With an abundance of these businesses being nurtured outside of London, it is good news for Scotland’s deep tech, clean tech, and health tech firms.”
We know there is still dry powder out there waiting to be deployed.”
Graeme Williams, director, mergers and acquisitions, KPMG
According to KPMG, VCs became “increasingly cautious” and invested funds into less risky asset classes during the final quarter of last year.
KPMG UK mergers and acquisitions director Graeme Williams added: “Most investments in Q4 across Scotland were for later stage funding, suggesting investors backed more established firms to shield from risk.
“We know there is still dry powder out there waiting to be deployed, and while we’re expecting a quiet start to 2023, the Scottish market is likely to see soft growth, especially if a recession is shorter than expected.”
New energy uptick
Mr Williams continued: “Soaring energy costs sparked a significant uptick in VC investment in new energy alternatives, electric vehicles, and clean tech last year.
“The acceleration of investment in energy alternatives is particularly exciting as such investment is critical for meeting the world’s climate change targets.”
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