Investors still investing, but businesses need to be well-prepared
Investment experts from leading independent law firm Harper Macleod believe there will be opportunities for strong businesses seeking investment in the new financial year, provided they are well-prepared and braced for the potential of a more challenging period.
In the last financial year (2022/23) Harper Macleod advised on 30 investments, with a total equity value in excess of £100,000,000. More than half of those investments were in technology or technology-related businesses. The team expects this sector to continue to perform well, as it has done in recent years and particularly when it is applied to help solve long-term issues such as health, education or energy efficiency.
Around a third of the investment deals completed by Harper Macleod last year were from investors outside of Scotland – mainly London-based but also increasingly from Europe.
Jo Nisbet, a partner at Harper Macleod who specialises in advising businesses through investment rounds, said: “We’ve seen sectors such as technology, healthcare and financial services perform well before, during and after the pandemic. We would fully expect those sectors to continue to grow and attract interest from the investment community.
“In the last financial year, we saw more activity in the scale-up phase, rather than in start-ups which is a change from what we have seen before. However, as the year progressed investors understandably developed a heightened level of caution and there was more follow-on investment.”
Despite the well-documented economic conditions and pressures on businesses, the team at Harper Macleod believes there will be a healthy level of investment in the financial year ahead. However, given the economic uncertainties and potential challenges it has never been more important for businesses to take a diligent approach when preparing for fundraising.
Jo said: “Our pipeline of investment activity is strong for 2023/34. From the tail end of last year, we were seeing that it was taking longer for businesses to secure the level of investment they were looking for, and in the timescale they had first anticipated. That was partly due to investors taking their time and reducing their risk appetite, but also the uncertainty as the financial markets reacted to the political instability. However, we know that investors are willing to deploy reserves on well-managed and well-governed businesses operating in key growth sectors.”
Jo continued: “It has never been an easy process for businesses to attract and secure investment, but the next 12-24 months could prove to be harder therefore founders should be prepared to bring their absolute best version of themselves to the table.
“It is critical for businesses looking for investment to have a laser focus on their financials and to stress-test their projections to ensure they are resilient and can stand up to not just investor scrutiny but the possibility of the investment being potentially less and taking longer to secure.”
Jo said there are several factors which work in the favour of those seeking investment, including the established investment and entrepreneurial communities. She believes the interest in Scottish companies is driven, in part, by the strength of Scotland’s entrepreneurial network.
She said: “Scotland has a healthy environment for entrepreneurs and growing business owners. Organisations such as Scottish EDGE and others provide support, advice and funding for businesses which contributes to economic growth and job creation. International investors recognise that provision, knowing they are entering into or growing their presence in, an established entrepreneurial economy.
“However, we need to recognise that the short to medium term period has the potential to be challenging and whilst none of us have a crystal ball and can say with certainty what the impact of the various wider economic conditions will be, I am confident that the smart businesses will continue to attract the investment they need and the more prepared the better in order to secure the investment at the sought after valuation.”
It has never been an easy process for businesses to attract and secure investment, but the next 12-24 months could prove to be harder therefore founders should be prepared to bring their absolute best version of themselves to the table. It is critical for businesses looking for investment to have a laser focus on their financials and to stress-test their projections to ensure they are resilient and can stand up to not just investor scrutiny but the possibility of the investment being potentially less and taking longer to secure.
Harper Macleod’s corporate, commercial and regulatory team is one of the largest of its kind in Scotland. It has been independently recognised as one of the leading advisers in Scotland for corporate transactions in terms of deal volume and accumulative value.
The team advises businesses of all sizes in every aspect of corporate activity and at every step of a business’ lifecycle – from high-profile mergers and acquisitions to its extensive work with SMEs. It has experienced corporate lawyers based in Glasgow, Edinburgh and the Highlands, Islands and Moray working with businesses throughout Scotland, the rest of the UK and internationally.
In addition to acting as leading advisers to entrepreneurs and high-growth businesses, the team has particular experience in providing commercial legal advice to many of Scotland’s leading family-owned, employee-owned and owner-managed businesses with particular strength in the healthcare, energy & natural capital, technology, and food & drink sectors.