Despite continuing uncertainty the value of venture capital investment in Scottish scale-ups increased in the third quarter of 2020.
The latest data KPMG Private Enterprise’s Global Venture Pulse Survey shows between July and September venture capital (VC) deal volume decreased from 22 in Q2 to 17, but the combined value rose from £62m to £71.6m.
The data, compiled by PitchBook, also compares favourably to the same period last year. In Q3 2019, there were 13 deals valued at more than £32m.
For the second quarter in a row, Edinburgh’s booming scale-up community took the lion’s share of funding support, with nine deals with a combined value of at least £56.5m.
The quarter’s largest deal involved the games developer Everywhere, which is planning to develop a new game under the same title.
Based in the capital, the company raised £32.7m of venture funding from NetEase, Makers Fund and Galaxy Interactive, putting its pre-money valuation at £111.4m.
Other deals including funding for a raft of innovative new products from biomedical developments to clean energy solutions.
Amy Burnett, senior manager with KPMG’s Private Enterprise Emerging Giants team in Scotland, said: “Despite facing an unprecedented period of economic challenge, the latest set of data reinforces the resilience of the country’s growth-hungry scale-ups and the confidence investors have in the Scottish market.
“However, the slight dip in deal volume suggests that investors are, understandably, slightly more cautious, investing in late-stage deals, which could have a long-term negative impact on entrepreneurial businesses and founders that require investment and support to take their products and operations to the next level.
“There’s undoubtedly more uncertainty ahead, but the mood right now is generally positive with both scale-ups and investors appearing committed to focusing on long term growth.”
Across the UK both deal volume and value are down, with a total of 294 deals valued at £2.3bn in Q3, down from 355 valued at £2.6bn in Q2.
However, despite the drop, industry observers believe the market has remained resilient in the face of unprecedented challenge.
Bina Mehta, Emerging Giants Centre of Excellence and KPMG UK board member said: “With more than 50% of funding coming from outside of Europe, low interest rates combined with the current exchange rate makes UK assets good value for global investors at a time when the UK has a strong global reputation for building innovative and disruptive businesses.
“While we’ve recorded a significant decline in deals, the businesses that have been able to secure funding stimulus throughout this period show there is plenty of capital to be deployed for later stage firms, with investors demonstrating a strong preference for well-established businesses with long track records.”
Meanwhile grant and investment funding of almost £25m has been committed to 90 early-stage businesses in Scotland whose growth ambitions were impacted by the covid-19 pandemic.
The awards were made via the Early Stage Growth Challenge Fund, part of a £38m package of early-stage support.
The fund, managed by Scottish Enterprise (SE), was established to help Scotland’s most promising emerging businesses continue to innovate through the pandemic.
Scottish Enterprise interim CEO Linda Hanna said: “There was concern among Scotland’s early-stage ecosystem that the coronavirus pandemic would cause investment levels to reduce dramatically, potentially wiping out a generation of Scotland’s up-and-coming businesses.
“The creation of the early-stage support package, developed by Scottish Enterprise on behalf of the Scottish Government, has proved to be an important intervention.
“Through the Early Stage Growth Challenge Fund, we’ve been able to provide several of Scotland’s most pioneering young companies with the financial support necessary to overcome obstacles to growth created by covid-19.”
In addition to the Early Stage Growth Challenge Fund, the early-stage support programme comprised £3m for pre-seed start-up companies and spin-out projects, and £10m for SE’s existing co-investment funds.