Behind the figures of Scotland's equity investment market

by Kerry Sharp, our Director of Entrepreneurship & Investment

Our recently published Risk Capital Market report provides analysis of Scotland’s equity fundraising environment. Scotland’s performance is benchmarked against the nations and regions of the UK, and the report confirms our position as the best performing market outside the Golden Triangle (London, the southeast and east of England) for overall investment value, investment raised by spinout companies and venture capital (VC) deal participation.

Scottish companies secure ￡575 million of investment

Although, in line with global trends, deal numbers and investment value fell in 2023, Scottish companies still raised an impressive ￡575 million across 354 deals. This is similar to investment levels in 2019 and allowed Scotland to retain its position as the top performing market for investment value outside the Golden Triangle.

Scotland’s underlying market (investment value below ￡10 million) remained stable in 2023, with investment value falling by just 2%, compared with a 13% drop at the UK level. This resilience stands us in good stead and points to a strong pipeline of early-stage opportunities that are attracting international investment. This is evident from Scotland’s diverse range of investors. Even in a more subdued global market, Scottish companies continue to appeal to investors, with 84 deal participations by VC & private equity (PE) investors taking place, more than any other area outside the Golden Triangle.?

Strong performance for Spinouts

Investment into spinouts continues to reflect the research excellence in our universities. In 2023, Scottish spinouts captured?11%?of all UK spinout?investment, again, coming in after the Golden Triangle.? At ￡3.4 million, the average deal size for Scottish spinouts was also behind only the Golden Triangle, where the average deal size was ￡6.5 million.

Optimistic outlook ahead

Looking to the future, despite the recognised strengths in the Scottish market, we of course cannot be complacent and must recognise the ongoing challenges we face. The 2023 Scottish Risk Capital Market report provides important signals on where we should focus our combined efforts.

This year, however, Scotland’s quarter 1 (Q1) results do provide a case for optimism. ￡269 million was invested into 89 deals this quarter, an increase of 142% on Q1 2023 investment value and a 2% increase on deals. In Q1, Scotland has already seen one deal worth ￡87 million into Edinburgh-based video game developer Build A Rocket Boy, which is very encouraging to see and supported Scotland being placed as the third top performing of the nations and regions of the UK for investment value in Q1 for the first time since our analysis began, replacing the East of England. Scotland has also disrupted the Golden Triangle’s dominance in VC & PE deal participations, this time replacing the South East as the third top performing market.

Q1 also saw encouraging trends in spinout investment with ￡64 million invested into 21 spinout deals, compared with ￡23 million across 10 deals in Q1 2023.

While it is clearly too early to say how the year will turn out, Q1 results certainly provide a positive indicator of a potential upturn in the market. ?We will continue to monitor and share trends in the risk capital market as the year progresses. Great to hear how others are seeing the current market trends.

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To find out more about how we support ambitious businesses in Scotland find sources of finance, engage with funders and secure investment, please visit our website.