Scottish businesses attracted more than £500m of venture capital (VC) investment in the first half of 2022, despite investors becoming more cautious globally.
The latest KPMG data showed that there were 45 investments completed in the second quarter, raising over £325m for Scottish scale-ups.
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 suggested 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 the last few months.
Amy Burnett, KPMG's private enterprise senior manager in Scotland, said: “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.“
The lion’s share of deals in the second quarter involved businesses in Edinburgh (24), followed by Glasgow (7), Aberdeen (3) and Dundee (2).
Standout deals include Edinburgh based start-up 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 therapy in 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.
KPMG’s Venture Pulse report also found that UK businesses attracted £7.2bn in VC investment between April and July, down on the £8.5bn raised in the opening quarter of the year.
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 the second quarter of 2018.
Overall, the volume of 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 investors renew their focus on late-stage deals and take longer to conduct due diligence on their investments.
VC funding levels globally saw a decline, falling to £100bn from £138bn quarter-on-quarter, 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, 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, while those businesses championing ESG continue to whet investor appetite, including the £266m raise by cleantech firm Newcleo.
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