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FOOD FOR THOUGHT WORDS: STUART McKNIGHT

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Scotland’s performance in venture finance is impressive but the growing dominance of investment in London-based technology companies is a worrying trend. It’s a big deal!

ntil August this year, Edinburgh-based FanDuel held the record of raising more venture capital in a single investment round than any other technology business in the UK. However, it was then trumped by online food delivery company Deliveroo, which raised £213 million. The huge FanDuel transaction was in contrast to a key trend in venture finance in recent years – the growing dominance of investment in London-based technology companies. In the late 1990s, a third of all venture deals in the UK involved London-based technology businesses. It can be seen from the illustration of 2015 deals (see left), that this is no longer the case. London-based companies clearly dominated investors’ interest. However, contrary to popular belief, Oxford and Cambridge are not next in line as leading areas for technology development and venture investment. Scotland and Ireland are the next most active regions and have been for years. However, average deal sizes are a concern outside of London. In 2015, for example, ignoring the highly unusual FanDuel deal, the average deal size in Scotland was £2.4 million, which was half the average deal size for London.

57

SCOTLAND

23

NORTH OF ENGLAND

47 IRELAND

14 17 16 15 315 MIDLANDS

CAMBRIDGE

THAMES VALLEY

LONDON

NUMBER OF INVESTMENTS BY REGION

SOUTH  WEST

The picture for life science companies is quite different. In 2015, London-based businesses completed only 26 per cent of UK/ Irish deals. Scotland and Ireland were close behind with 19 per cent and 18 per cent respectively. All other regions had single digit percentages. Scotland’s performance is impressive, but its average deal size is among the lowest for life science businesses. The reasons are varied but include bias to low-capital intensity businesses (medtech

ABOVE: 2015 investment deals in technology companies

devices rather than drug discovery), prevalence of angel rather than institutional capital, and often poor access to venture funds. The picture for cities is also revealing. Companies in Edinburgh (36 tech deals in 2015) and Glasgow (eight) have been successful at raising finance, but the scale of difference with London (309) is daunting. Edinburgh is one of the most successful cities in the UK when it comes to technology company formation and development. However, most investors are based in London and all UK companies who need significant investment will need to spend some time in the UK capital. The venture market is booming so maybe it is time to buy a plane or train ticket.

Stuart McKnight is Managing Director of Ascendant Corporate Finance, which has offices in London and Edinburgh. Ascendant specialises in working with technology and life science businesses, advising those companies on raising venture and private equity finance and achieving an exit for their shareholders. See more at: www.ascendant.co.uk

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Profile for Edinburgh Research & Innovation

Infinite magazine 2016  

Edinburgh Research & Innovation’s Infinite Magazine highlights some of the exciting industry engagement, innovation and enterprise activitie...

Infinite magazine 2016  

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