Standout transactions give cause for optimism after slowdown in investment
Although the latest figures reveal a sharp slowdown in venture capital investment this year, a clutch of funding deals in recent weeks has given cause for optimism that the tide may be turning for Scotland’s start-ups.
Food technology business Enough and digital chemistry spin-out Chemify together attracted more than £67 million in two of the standout transactions during a generally quiet summer for the Scottish deals market.
They came after a very subdued second quarter for venture capital deals which saw a total of only £63m raised – down 80 per cent on the same period last year – according to KPMG’s latest Venture Pulse report.
However, Mark Beaumont, partner at Fife-based innovation investor Eos Advisory which has backed both Enough and Chemify, believes there is now cause for optimism after what he describes as a “difficult few years for entrepreneurs”.
“Having spent much of the last month in the US and Canada meeting investors interested in Scottish science and technology companies, it is clear to me that there are green shoots appearing from what has been a subdued period in early-stage VC markets,” he says.
As well as the Enough and Chemify deals, another Eos company involved in cancer diagnostics is expected to announce an over-subscribed Series A funding round shortly.
“All of these stories help turn the tide on what have been some difficult years for entrepreneurs. There is plenty to be optimistic about for specialist investors into areas including life sciences, food security and sustainability,” says Beaumont.
Enough, which was founded in 2015 on the back of work by Craig Johnston and David Ritchie of the University of Strathclyde, secured £34m to accelerate production of its meat-free protein alternative.
The fresh funding round was co-led by climate technology venture capital group World Fund and food technology investor CPT Capital with other previous investors including Scottish Enterprise following on.
International investors were also prominent in Chemify’s fundraising which saw it attract more than £33m in a funding round led by US-based Triatomic Capital. New investors including Hong Kong and US-based venture capital firms also came on board.
Other Scottish funding deals included a £3.5m seed funding round for Edinburgh’s Rhizocore Technologies, which produces special fungi to aid reforestation, and £2.5m for Dundee fish farming technology specialist ACE Aquatec from new investor Earth Capital.
Amy Burnett, head of private enterprise access at KPMG UK, says the flurry of recent deals highlights the appeal of promising businesses in Scotland for both domestic and overseas investors.
“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,” she says. “This is especially true in the tech and medtech sectors, where we’re seeing robust growth.”
Burnett also highlights AI and generative AI – such as ChatGPT – as a particularly resilient area for investment in the current market.
Claire Trachet, of business advisory firm Trachet, also believes that the innovations offered by generative AI will “reignite the interest and confidence of investors to pursue deals while providing companies with diverse exit strategies”.
“This renewed optimism among investors signifies a promising future for the M&A [mergers and acquisitions] sector. There is now a growing number of investors sat on a dry powder pile having deferred investments in 2022,” she says.
“Indicators suggest early-stage start-ups will have an advantage in this market, as growth investors are seeking to invest in earlier stages, from seed to series A, with smaller amounts of capital to sustain their businesses. These start-ups have a lower burn rate, giving them the potential to come out as dominant competitors if they can withstand the challenges.”
Elsewhere in the Scottish deals market, the oil & gas sector has seen significant activity in recent months with the headline transaction being an agreement for major North Sea operator Neptune Energy to be sold to Italy’s Eni for £3.9bn.
Neptune, which has its operational base in Aberdeen, is owned by the sovereign wealth fund China Investment Corporation, as well as funds advised by private equity groups Carlyle and CVC Partners.
The energy services sector has also seen significant activity, with two of the North East’s best-known names changing hands.
Pipeline technology specialist STATS was acquired by Japan’s Mitsui & Co, which will combine the Scottish operation with its iron and steel business unit. The deal saw growth capital investor BGF exit what was the first investment it made in Scotland back in 2012. STATS had quadrupled in size to a £60m-turnover business since BGF’s first investment.
Aberdeen-headquartered ASCO Group, which provides outsourced logistics services, was also acquired by UK private equity firm Endless in a deal aimed at strengthening the Scottish firm’s position in the renewables and new energy markets. l