Fast-growth businesses in Scotland attracted over half a billion pounds of venture capital (VC) investment in the first half of 2022, despite investors becoming more cautious globally, according to the latest figures from KPMG UK.

There were 45 investments completed in Q2 2022, raising over £325 million for Scottish scaleups.

In the previous quarter, 41 deals worth £181m were recorded, taking the total for the first half of 2022 to £506m. Last year a total of £626m of VC investment was raised by Scottish business, making the first six months of the year look particularly promising.

However, KPMG suggests that a strong first half of 2022 may not be replicated in the second half as investors become increasingly cautious, with investment levels dipping across the UK as a whole and globally during Q2.

The lion’s share of deals in Q2 2022 involved businesses in Edinburgh (24), followed by Glasgow (7), Aberdeen (3) and Dundee (2).

Standout deals during Q2 include Edinburgh-based startup Rooser, which aims to speed up fish sales transaction and cut waste through an online platform for traders. It secured more than £17m from investors in April.

Resolution, a biopharmaceutical company developing cell therapying collaboration with the University of Edinburgh Centre for Regenerative Medicine to treat advanced liver disease also raised a £10m extension to its Series A financing from Syncona.

Amy Burnett, KPMG Private Enterprise Senior Manager in Scotland, said: “The value of investment in Scottish businesses continued at a healthy pace in Q2, despite global levels stalling. That’s great news for Scotland as we continue to see hot sectors such as Fintech and Healthtech attract the biggest investments, but we need to be mindful that investor behaviour is likely to change in the second half of the year.

“Companies that may have attracted funding from optimistic investors in the past, will likely face more challenges and require stronger business cases and paths to profitability to attract funding over the next few quarters. There are already some red flags on the horizon as the volume of UK deals being done in the first half of 2022 is down more than 11% year on year.”

UK picture steady but caution gathering

KPMG’s Venture Pulse report found that UK businesses attracted £7.2bn in VC investment during April – July 2022, down on the £8.5bn raised in the opening quarter of the year. VC investment for the quarter was up, however, year on year, with £7bn raised in the same period last year.

More than £15.7bn of VC funding has been invested in UK businesses in the first half of 2022, up on the £14.6bn raised in the first half of last year.

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However, deal volumes were down significantly, with 667 deals completed in the latest quarter – the lowest volume of UK VC deals recorded by the report since Q2 2018.

Overall, the volume of VC deals completed in the UK in the first half of 2022 is down by over 11% on the first half of last year (1,768 versus 1,568) as increasingly cautious VC investors renew their focus on late-stage deals and take longer to conduct due diligence on their investments.

Global drop-off

VC funding levels globally saw a decline in Q2 2022, falling to £100bn (from £138bn Q1 22), as the war in Ukraine, high levels of inflation, and rising interest rates shook global markets.

Fintech remained the UK’s hottest area of investment in April – July 2022, led by a £522m raise by SumUp and a £260m raise by GoCardless.

Health and biotech also continued to attract attention, in part because of their resilience to inflation compared to other sectors, whilst those businesses championing ESG continue to whet investor appetite including the £266m raise by cleantech firm Newcleo.