The equity investment will fund the company's R&D programme as well as commercial growth.
"We are seeing considerable expansion in the potential applications for lasers, not least in the defense and medical industries where detection capability is critically important says Dr Graeme Malcolm, co-founder and CEO of M Squared Lasers.
"In particular, we are looking at new market opportunities in remote sensing, and will specifically focus on developing our Firefly laser product, which has a clear application for the security and defence, oil and gas, and food and drink industries."
Firefly-THz developed at St Andrews University is a new, efficient, cheaper approach to THz sources.
Duncan Macrae, (left) Edinburgh based Investment Director at BGF, commented: "M Squared's laser technology represents a genuine step change. Its products are smaller than others on the market, can be calibrated in minutes rather than hours and can be maintained and upgraded remotely via a web browser.
"Customer referencing has been overwhelmingly positive and we are very pleased to be backing such an innovative Scottish business and a first class management team."