Scotland's risk capital market holds firm

Scotland’s early stage investment market is continuing to perform, despite ongoing concerns about the global economic situation, according to a study published today (12 December) by Scottish Enterprise (SE).

The study into the Scottish risk capital market was carried out by Jonathan Harris of Young Company Finance and Professor Colin Mason of the University of Glasgow and is the fourth such report in a series dating back to 2001.

The current publication covers calendar years 2009 – 2011 and shows the early stage market in Scotland performing relatively well, especially in the deal band size between £100k and £2 million, despite continuing economic uncertainty.

Investment in Scotland's early stage companies reached a six-year high in 2010, and while the report shows a decline in 2011, the first six months of 2012 show an encouraging return to recent norms, suggesting the decline was more likely to be due to the timing of large investment deals, rather than to a downward trend.

Further findings show initiatives like the Scottish Co-investment Fund and LINC Scotland, the national association for business angels, bringing potential investors together and giving them the confidence to support emerging companies. This greater investment firepower is an approach that other countries have now adopted following their examination of the Scottish Co-investment Fund.

Activities by the Scottish Investment Bank (SIB) underpin Scotland’s early stage risk capital market, making scarce capital available to some of Scotland’s most promising growth and export potential companies. SIB also offers specialist support through its financial readiness service to help secure finance for growth and export plans.

Concluding with a series of recommendations on how policy interventions can respond to challenges in the market, the report will help SE build on its support to the early stage risk capital market in Scotland and ensure the most innovative and growth-orientated businesses benefit during critical stages in their development.

“Scotland enjoys an unusually diverse range of entrepreneurial and innovative offerings,” said Kerry Sharp, acting head of SIB. “In the last three years we’ve seen an increase in the value of investments into life sciences and renewables companies and these, alongside companies in the enabling technologies sector, have attracted 80% of investment since 2009.

“These three sectors encompass a huge variety of activities - micro and opto-electronics, for example; drug development and medical technology; oil and gas and smart grid technologies as well as exciting new renewable industry projects. Scotland is in an almost unique position in that it is able to support such variety.

“The Risk Capital Market Report is one of the ways we determine our strategies for supporting Scotland’s growth through the provision of equity finance. We evolve and develop our services in accordance with the robust market evidence it offers, in partnership with our private sector partners and the Scottish Government, to help Scotland’s growth and export-potential businesses achieve their ambitions.”