The Risk Capital Market in Scotland: Annual Report 2017

UK and Scottish Government policy recognises that the strong supply of early stage risk equity capital is important for national and regional economies due to the catalytic role that it plays in the entrepreneurial process. 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 year 2017. The report is one of a series dating back to 2003, which is intended to improve the understanding of the scale and characteristics of the early stage risk capital market in Scotland. To consider recent trends the report focuses on the growth in deals and investment levels from 2012, the year when deals over £10m started appearing in the Scottish market, and aims to capture investments of all sizes in the market.

As far as possible, the data is presented as actual flows of equity funds into companies rather than simply headline investments. Data is collected and structured by Beauhurst with further analysis conducted by Young Company Finance and by Scottish Investment Bank, the investment arm of Scottish Enterprise.

The study found that the risk capital market in Scotland continues to demonstrate impressive growth, with the underlying health of the market doubling from 2012 (omitting the volatility of £10m plus deals). Including the megadeals of over £10m, the overall market reached a new high in 2017 of £538m, across a record number of 371 deals. Trend analysis from 2012 confirms that for 2017 the number of deals has more than doubled, with an almost fourfold increase in levels of investment. Average annual growth has been 20% in terms of the number of deals, and 31% in terms of the amount invested since 2012. This rapid increase in investment has been across deal size bands; investment continues to be spread across a range of sectors, and there were more investors of different types in 2017 than in 2012. Investment remains focused on central belt regions (East and West taking almost half of the total in 2017), but increasing investment in Aberdeen, supported by oil and gas has changed the balance this year. The information and communications technology sector remained the focus for investors with greatest number of deals, although a lack of large deals meant it was only the fourth largest sector for level of investment. High value ‘megadeals’ (those over £10m) remain infrequent but with six deals over £10m in 2017, there is a trend towards higher value deals. This was not at the expense of lower value investments.

The report conclusions suggest more research attention is placed on international sourced investment and particularly, corporate investors. Other themes to follow up, include exits and increasing numbers of established firms accessing equity for the first time.