The risk capital market in Scotland: annual report 2015

The 2015 report is the latest in the series to be published by Scottish Enterprise. The work was undertaken on behalf of Scottish Enterprise by Jonathan Harris, Young Company Finance. SE commissions the research to consider the scale of new investment flows annually.

This evidence base informs the nature of SE interventions in the Scottish early stage risk capital market including the Scottish Co-Investment Fund and Scottish Venture Fund.

While a low percentage of SMEs seek and secure equity finance in any single year, from an economic perspective these are the companies who are capable of making a disproportionately positive impact on Scottish growth. 2015 was a year of continued strong investment. Total investment increased to £430m in 2015, an increase of 70% from the previous year and an almost fourfold increase since 2012. This was mirrored by an increase in private sector leveraged investment arising from Scottish Enterprise co-investment deals. While follow-on investments continue to grow in relation to amounts invested, 54 companies secured investment for the first time, slightly up from 52 the previous year and maintaining this level of growth from the 30 recorded in 2012. In 2015, Young Company Finance tracked 61 investment deals in which VCs and other institutional investors participated compared to 65 in 2014 and 37 in 2013. While the number of deals was slightly lower this was far from the case when it comes to amounts invested. For 2015, over £350m was invested by VCs and institutions compared to some £160m for 2014 and £70m for 2012. While progress is significant, there is recognition across the market and by SE, that more needs to be done to engage with these investors and to continue to attract the amounts invested into Scotland’s best early stage prospects.

Scotland has a strongly performing Business Angel market. In 2015, business angel groups had a record year, investing over £30m (in 144 deals) compared to £26m for 2014 and an average of £15.5m in the preceding years. The ICT sector witnessed a very large increase in amounts invested on a similar number of deals. Investment levels increased from £87m for 2014 to £241m for 2015. In terms of deals there were 108 for 2015, a little up on the 103 for 2014. Life sciences was the next strongest sector in investment terms with 58 deals in 2015 (on par with 2014). Amount invested was a Life Sciences record at £122m compared to the previous record of £74m for 2014.