The Risk Capital Market in Scotland: Annual Report 2018

Scottish Government policy recognises that the strong supply of 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 analysis of the risk capital market in Scotland for the calendar year 2018. The report is one of a series dating back to 2003. To consider recent trends the report focuses on deals and investment levels from 2013.

The data are presented as actual flows of equity funds into companies rather than headline investments. Data are collated by Beauhurst, Young Company Finance and the Scottish Investment Bank, the investment arm of Scottish Enterprise.

The risk capital market in Scotland has grown since 2013, with the underlying health of the market - where 99% of deals take place - almost doubling from 2013 (omitting the volatility of £10m plus deals). Including the very large deals of £10m and above, the market declined from the all-time high in 2017 of £538m to £316m, with the number of deals surpassing 300 for the second year running. Analysis from 2013 confirms that for 2018 the number of deals more than doubled, with levels of total investment experiencing an almost 50% increase. Very large deals (those of £10m and above) remain infrequent, with four deals over £10m in 2018. With 38 deals in the investment bands from £2m to under £10m, 2018 was well ahead of previous years in the series. The proportion of deals which were first rounds for the investee company fell from 2017 to 2018, as did the proportion of total investment. Companies under 5 years old account for approximately half of the total deals. The digital and IT sector accounted for over a third of all deals in 2018, but just over a quarter in value. The East and West regions have together taken a consistently large share of the deals by number, from a high of 84% in 2015 to 69% this year. Aberdeen and Tayside were the only regions to see an increase in deal numbers from 2017 to 2018. The number of trade exits for 2018 (11) compared favourably with the six recorded for 2017 and the eight recorded for 2016.

The report suggests further research attention be placed on trends to highlight companies receiving first time investment, compared to subsequent rounds, to improve understanding over the risk investment pipeline.