LAST YEAR (2022), the total value of equity investments made in the Scottish business network amounted to £953 million. It represents a 26% increase on the previous year’s (2021) total of £754 million.
Although the total value of investment is up, the number of deals comprising the overall 2022 portfolio was down. In 2021 the deal count was 424, but in 2002, it fell slightly to 407.
The reason for the apparent inconsistency between numbers and values is that there was a larger number of deals, each valued at £50 million or more.
There were three deals in particular that pushed the total higher. They were:
GoFibre – the trading name for “Borderlink Broadband,” a Scottish independent broadband builder and provider who announced an expansion of rural broadband in Scotland, incorporating an additional 82,000 premises. This was the biggest deal of the three, worth £164 million, underlining the importance of rolling out a state-of-the-art fibre broadband infrastructure.
TauRx Pharmaceuticals – specialists in the treatment of neurodegenerative diseases, who saw the second biggest deal worth £101.3 million, indicating the need for treatments and remedies for illnesses like Alzheimer’s in an increasingly worldwide ageing population.
Well-Safe Solutions – offshore well decommissioning specialists who received the third largest investment at £50 million, helping to preserve the underwater marine conservation through the environmentally safe abandonment of depleted wells.
In terms of business sectors, this is what happened on a sector-by-sector basis.
The Digital and IT Sector in Scotland – This sector realised a reduction in the number of deals year to year from 206 in 2021 to 189 in 2022. A decrease of 8% – in keeping with the general trend in the majority of sectors seen across the UK as a whole.
The Technology and Engineering Sector in Scotland – This was Scotland’s second-best performing sector as far as deals went, with 163 deals in 2022 – an increase of 2% over the number of deals in 2021.
The Business Services Sector – This sector fared third best but nonetheless received a 13% drop in the number of deals, amounting to only 144 in 2022.
The worst affected sector in Scotland, as regards the number of deals, was the Fintech sector, which perhaps speaks volumes for financial fears following the Russian invasion of Ukraine and worries over the rising cost of living. This sector’s deal count fell by 68%.
The other sectors significantly affected by a drop in the number of deals were the aerospace and satellite sectors which saw an approximate 50% drop in deal numbers.
The majority of the deals in 2022, which totalled 119 in number, were driven by the UK government. They represent a 4% drop when compared to 2021, and value-wise, at £275, they represent a 10% drop.
Angel Networks were responsible for driving 88 deals, 19% more than in 2021. The increase in value over 2021 was 9%, taking their contributed total to £122 million.
Then came the private equity and venture capital companies. They drove 87 deals, 5% lower in number but 17% up in value, totalling £428 million.
According to the Director of Entrepreneurship and Investment at Scottish Enterprise, Kerry Sharp, investors are concentrating on their existing portfolios, are becoming more selective and appear to be changing their attitudes towards risk. Having said that, she then went on to say the Scottish economy is being very successful at securing excellent investments for companies that are ambitious and that strive to lead the way in terms of innovation.
The success of Scotland in terms of attracting investors places them second after London’s so-called “Golden Triangle.” However, there a still challenges ahead, particularly the need to attract investment into start-up and early-stage businesses that pose higher risk but that deliver on promises made.
By the same token, Scotland needs more start-ups and early-stage companies to join in the fight for equity funding. Against this, the quantity of Scotland’s first-time deals was 29% down on the previous year. It was the lowest it has been for five years.
The slowdown was most noticeable in the second half of 2022. With investors focussing on existing investments and realigning reactions to risk, it meant innovative technology companies were having to work harder to acquire funding. According to Beauhurst, CB Insights, and Pitchbook, stricter deal terms, lower valuations, and less exits are becoming more commonplace. It all combines to put a squeeze on new investment opportunities.
It’s important that with less investment available and more competition for what is available, start-ups and early-stage enterprises should take prompt action when preparing to raise finance and that they seek proper advice. There is compelling proof that those who do seek appropriate advice tend to be more successful at securing the full funding they require.
The good news is that as part of their “Investing in Ambition” initiative to continue the growth of the Scottish Economy, the team at Scottish Enterprise are able and willing to offer the necessary support to high-growth businesses in order to help them upscale.
