Regarding Scottish startups, 28 deals totalling a value of £63 million took place in Q2 ‘23 — representing an around 80% drop compared to the same period last year. Specifically, in Q2 ‘22, £325m was invested across 45 deals. A year prior, in Q2 ‘21, £258m was invested across 60 deals.

The value total for the first half of 2023 stands at £133m, which is also significantly down on H1 totals for 2022 (£506m) and 2021 (£332m). However, KPMG have noted that the market was extraordinarily busy following the pandemic.

Amid the decrease in both deal value and volume, the tech sector in Scotland has continued to boast some of the quarter’s standout deals.

For instance, the quarter’s largest VC investment was put into Chemify, the University of Glasgow spinout. It received £36m in funding — led by US-based Triatomic Capital, with participation from venture firms in Hong Kong and the US, as well as Scottish investment firm Eos — to develop its technology to make complex molecules on demand.

Manus Neurodynamica, the Edinburgh-based company which develops and markets products and technologies for neuromotor assessment, also closed a £2.6m funding round for the commercialisation of its NeuroMotor Pen. The medical device has been developed to aid with the diagnosis and monitoring of neuromotor disorders, such as Parkinson’s disease.

Speaking on the report’s findings — as well as investment into the Scottish tech sector — Amy Burnett, head of KPMG private enterprise access at KPMG UK, said: “Despite the slightly downbeat figures for Q2, we continue to see promising businesses in Scotland secure investment and attention both home and abroad. This is especially true in the tech and MedTech sectors, where we’re seeing robust growth.

“Investment in AI and generative AI remain one of the few resilient areas of investment in the current market. As is always the case, those with a proven product, market fit, strong customer data, and clear paths to profitability will continue to gain attention from seed and series A investors.”

Recommended reading

• VC Investment in UK Scaleups off to a Strong Start in 2022
• Q1 VC Funding at Lowest Level Since Pre-Pandemic
• Scottish-based VC Firm Par Equity Announce B Corp Certification

Looking at the UK as a whole, £3.2 billion was invested in UK businesses during Q2 ‘23, with 551 deals completed. Investment was down £0.39 billion on the opening quarter (£3.62 billion), and the number of deals completed fell by 23% from 715 in Q1 ‘23.

Further, more than half of the VC investment made into the UK during Q2 ’23 flowed into London, with £2.2 billion raised by businesses based there across 288 completed deals.

Commenting on the slowdown and its impacts on Scotland and more broadly, Graeme Williams, head of corporate finance M&A for Scotland at KPMG UK, said: “There’s been a visible slowdown in venture capital fundraising globally, and Scotland is no different. After two years of exceptional activity, the market has reached a more stable point.

“However, there is a noticeable sense of caution prevailing, with VC investors more wary about committing to bigger deals. The smaller investments in seed, angel, and series A stages are holding steady.”