The risk capital market in Scotland 2012-2013

The purpose of this report is to provide a detailed and comprehensive analysis of the early stage risk capital market in Scotland for the calendar years 2012 and 2013. The report aims to improve the understanding of the scale and characteristics of the early stage risk capital market in Scotland as the economy started to recover from the economic turmoil in the wake of the banking collapse in 2008. It identifies the contribution made by risk capital investment to business ventures in Scotland and provides evidence for the development and evaluation of policies to stimulate the market.

The methodology consisted of two stages: data collection and analysis. The data collection stage involved the compilation of a list of known investment deals over the period 2012-2013, using deals listings from Young Company Finance (YCF), LINC Scotland, and the Scottish Investment Bank, alongside data from the Companies House database. The analysis stage involved the creation of formulae to count the number of deals and give total investment amounts, with the resulting information charted in order to have a visual representation of patterns and trends as the basis for commentary.

The study found that there has been a sharp increase in the total investment in this market, although deal numbers have stayed relatively constant. Investment totals are dominated by a small number of large deals. From 2009 to 2012, the top 20 deals per year accounted for two thirds of all investment. In 2013 that proportion rose to three quarters. Other findings to emerge included: that angel investment has stayed at a steady level, with angels and angel groups having invested between £14m and £17m per year; the middle investment band – between £100k and £2m – is largely the domain of angels, but some institutional investors are now investing at this level; although the number of deals in the ICT sector has not increased significantly, ICT companies have taken the lion’s share of investment; this is because they benefited more than other sectors from some mega-investments; the number and amount of investment in companies securing external equity for the first time having remained significant, increasing considerably from 2012 to 2013, with most being relatively new start-ups; and companies in the east of Scotland secure the most investment, taking over half (53%) of the total equity funding in 2013, while the West trails well behind (despite an increase in deal numbers from 2012 to 2013, the amount of investment fell).

No recommendations were made.