Edinburgh Ranks Among Top VC Hubs in New Report

Tom Quinn

05 December 2024, 10.24am

“Venture capital already makes a huge contribution to the wider economy, and the UK is home to one of the largest hubs for the industry in the world,” said Michael Moore, BVCA chief executive.

Scotland now counts 9,000 employees across venture capital (VC) backed businesses, and last year 7% of all companies that received VC funding were based in Scotland, according to a new report from the British Private Equity & Venture Capital Association (BVCA).

According to the industry body’s latest annual report, Edinburgh in particular stands out as having developed a strong VC ecosystem that fosters entrepreneurship, being named along with Oxford and Cambridge as a regional hub and focal point for innovation.

BVCA’s report names the Scottish capital as one of the UK cities driving growth in the tech sector across Europe, alongside seven other UK cities including Manchester, Leeds, Nottingham and Bristol that are home to two or more unicorn companies.

Part of the reason lies with what the report calls the ‘rising prominence’ of the Scottish spinout ecosystem, with the Universities of Edinburgh and Strathclyde highlighted as maintaining a strong dealflow in 2023, although ranking in sixth and tenth place respectively among the top academic institutions by number of equity deals secured by spinouts.

The data shows that Scotland is benefiting from the increasing trend of VC investment going to companies located in the UK’s nations and regions, with almost half (49%) of VC backed firms last year located outside of London.

Almost one in five (18%) of VC backed businesses outside London were located in the East of England, followed by the South East (16%) and Scotland (14%).

The report found that tech-driven sectors have attracted the largest amount of VC investment, with application software (16%) and SaaS (8%) the top sectors of 2023, standing out due to their ability to scale and recurring revenue streams.

Over the last year, however, the market share for these technologies has dropped as investors move to take advantage of rapid growth in areas such as cleantech (7%), fintech (5%), and AI (5%).

Across the UK, the BVCA found that early-stage companies make up around 85% of all venture backed companies in recent years, noting that although this positions the UK as a hub for startups, it also demonstrates that firms are still facing barriers when it comes to scaling-up.

Although the UK represents 27% of European venture fundraising, and 30% of European venture investment, the number of venture funds successfully fundraising in France was almost 50% higher over the last 3 years compared to the UK.

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Despite that, the BVCA claims that VC-backed businesses are vital to the UK economy, with over 8,000 firms employing 315,000 people, around 1% of the country’s workforce.

While 95% of these firms are SME’s, the report notes that a few, such as Revolut and Gousto, have grown to employ thousands of people, helping to generate £20 billion of GDP in 2023 alone.

“Venture capital already makes a huge contribution to the wider economy, and the UK is home to one of the largest hubs for the industry in the world. However, firms continue to find fundraising challenging, especially from domestic sources,” said Michael Moore, BVCA chief executive.

“It’s important that the very promising reforms to the UK pensions system outlined by the chancellor in her Mansion House speech increase the opportunity for pension savers to benefit from investing in our vibrant venture capital sector.”