The risk capital market in Scotland: annual report 2016

This report presents a detailed and comprehensive analysis of the early stage risk capital market in Scotland for 2016. It aims to improve the understanding of the scale and characteristics of the early stage risk capital market in Scotland. It focuses on equity investments by independent third party investors and looks at: key trends in the value of investments; the amounts invested in different ‘bands’ i.e. higher (over £2 million); middle (£100k to £2 million); and lower (under £100k); investment by sector; new and follow-on investments; the age of companies at the time of investment; investments by region; investments in spinouts; and exits. It also details investments by different types of investors, including business angels, crowdfunding, venture capital, and corporate venturing.

The study involved the collation of raw investment data from existing records (deal date, amounts by investor), information available from the Companies House database, and new research into other early key stage investors. This data was then analysed to identify values and create visual representations of patterns and trends.

The research found that during 2016, Scotland’s risk capital market witnessed the highest number of investment deals on record. Overall, there were 285 deals, representing an increase of 33% on the year before and an increase of 40% on the 5-year average from 2011 to 2015. During 2016, the total value of investments made was £336m – an increase of 42% on the 5-year average from 2011 to 2015. Although total investment fell from 2015, £264m of the 2015 total of £472m was invested in just two deals (FanDuel £176m and TauRx £88m). After omitting ‘megadeals’ from the calculations (those few investments with a value in excess of £10m), the total investment for 2016 was £189m - the highest point for over a decade. This represents an increase of 7% on the previous year and an increase of 35% on the 5-year average from 2011 to 2015. The number of deals in the higher band has stayed fairly constant, although the amounts invested have varied enormously. The middle band saw large increases in 2016, both in terms of number of deals and investment totals. The lower band also saw increases in 2016. Since 2012, Scottish companies have secured just over £1 billion of venture capital investment across 272 deals. The 5-year average from 2012 is £200m, which is slightly higher than the latest annual venture capital investment total of £196m. In 2016, there was a substantial increase in investment by business angels. While formal angel group investment remained steady, at above £20m (5-year average is £18m), crowdfunding almost quadrupled to £30m and individual business angel investment more than doubled to £40m. The growth in equity crowdfunding has been rapid; however, it is worth noting that £19m of this is attributed to the BrewDog Equity for Punks campaign during 2016.

The report does not make any recommendations.