Scottish startup investment nosedived in 2023 amid global VC decline

Red-colored stock market graph showing significant downturn, representing decrease in Scottish startup investment.
(Image credit: Getty Images)

Scottish startup investment almost halved last year as part of a trend which saw venture capital activity decline around the world.

Scottish startups secured £369 million funding across 115 deals, according to KPMG’s Venture Pulse Survey. During the last quarter of 2023, a total of 45 deals were recorded for Scotland, with a value of just over £71 million.

The latest figures show a stark contrast compared to the two years prior, in which Scottish startup investment reached record-breaking levels.

Firms operating in the Scottish tech ecosystem raised £628 million in 2021, and exceeded expectations in 2022 with £707 million in funding despite challenging economic conditions.

Graeme Williams, head of corporate finance M&A for Scotland at KPMG UK, said the statistics show the market has “reached a more stable point” and that the consultancy has observed increased caution among investors over the last year.

“Looking ahead, it's likely that venture capital investment will remain stable at the very least in the face of challenges such as geopolitical complexities. However, from the deals that we have seen take place, there is evidently still strong interest in Scottish firms and investing in them."

Significant deals in Scotland last year included Alternative meat startup Enough, which raised £31 million in equity, and Manus Neurodynamica, which closed a £2.6 million funding round.

Similarly, fintech firm DirectID, which provides data to optimize credit and risk decisions, secured a £7.69 million minority investment from IKEA’s investment arm, Ingka Investments.

Amy Burnett, senior manager for KPMG private enterprise in Scotland, said these funding successes still showcase the appetite among investors to back Scottish startups.

"We continue to see investors focus on new emerging technologies such as cleantech, AI and wider life sciences including medtech – all strong areas in Scotland where we are seeing IP rich businesses spun out of universities," she said.

"There is no doubt that there has been a re-levelling in the markets, but I am hopeful that the renewed focus of investors on sustainable and profitable business models will be welcomed by our Scottish founders, who have historically taken a canny approach to growing their businesses, and to fundraising."

Scottish startup investment dip reflective of wider UK conditions

The Scottish startup ecosystem wasn’t alone in experiencing a sharp decline in venture capital funding last year, KPMG noted. 

While London continued to attract the lion’s share of VC investment at £10.7 billion across 1,495 deals, this also marked a significant downturn on the £22.3 billion raised by London businesses in 2022.


London-based firms accounted for five of the 10 largest European fundraises in the final quarter of 2023, including the £788 million raised by communications firm DAZN.

A £141.6 million raise by Manchester-based Castore was also one of the top ten largest deals in Europe.

"Fast growth businesses in the UK have been fairly resilient to the global downturn in VC investment, with fundraising levels continuing on a positive trajectory, and above pre-pandemic years,” said Nicole Lowe, UK Head of KPMG UK’s emerging giants practice.

“Whilst there is a real craving for normalcy and a period of stability this year to help boost the environment for fundraising, it is unlikely that the conditions improve much over the next 12 months.”

Businesses looking to raise funds will need to ensure they have really strong business models and management teams in order to attract VC investment, Lowe added.

"Given the global economic climate, VC is shifting from a 'growth at all costs' model to prioritizing innovative companies with robust unit economics.

"This new focus on strong gross margins and effective customer acquisition strategies underscores a balanced approach in risk management and value creation, favoring sustainable growth and financial stability over rapid cash burn and scale."

Emma Woollacott

Emma Woollacott is a freelance journalist writing for publications including the BBC, Private Eye, Forbes, Raconteur and specialist technology titles.