Deal-wise, Scottish scaleups saw 14 completed deals in the first three months of this year, raising approximately £70 million — the lowest raised by Scots businesses in the opening quarter of a year since 2020.

Eight of those 14 deals involved Edinburgh-headquartered businesses, while the other six were Glasgow-based businesses, according to KPMG’s latest Venture Pulse Report.

Last year, £181m was raised in Q1 across 41 deals. Further, across all quarters of 2022, £700m was invested in Scotland, marking a record total.

KPMG have suggested that such volumes are unlikely to be repeated this year, pointing to investor hesitancy creeping into the Scottish deals market as activity returns to levels seen before the pandemic.

“As a result of the pandemic and the substantial changes ushered in by businesses and consumers, 2021 and 2022 saw a large appetite for VC investment into Scottish innovation and our fast-growth businesses,” said Amy Burnett, KPMG Private Enterprise Senior Manager in Scotland.

“This was a bit of an outlier period, and what we are starting to see now is VC investment returning to normal levels, albeit compounded by a challenging economic environment.”

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Like Scotland, total UK VC investment in Q1 (£2.9 billion) was the lowest raised by UK businesses in the opening quarter of a year since 2020, significantly down on the £8.2b raised in Q1 ‘21 and the £12.3b raised in Q1 ‘22.

Further, deal volumes were also muted, with just 402 deals captured in the data.

“The dip we’re seeing isn’t a trend confined to Scotland, as our data shows market uncertainty has caused VC investment to plummet across the UK and indeed globally,” commented Graeme Williams, Head of Corporate Finance M&A for Scotland, KPMG UK.

“As the cost-of-living crisis continues, investors are increasingly turning away from those sectors that rely on consumer spend to drive growth and doubling down on investments in sectors where technology is addressing big macro trends such as health tech and ESG.

“While VC investment is expected to remain soft over the next few months, we are expecting that some renewed activity will be seen in the second half of the year.”

In terms of some standout Scottish deals in Q1, Edinburgh-based fintech firm DirectID gained a €9m minority investment from IKEA’s investment arm, Ingka Investments; Glasgow-based blood test pioneer Dxcover secured almost £10m in Series A and grant financing; and Causeway Therapeutics, a University of Glasgow spin-out biopharmaceutical company specialising in tendon disease, raised £9m.