Some thoughts on the Scottish Ecosystem for start-ups and spin-outs – 25 years on

 

In September 2022 the author gave a talk at the YCF ‘Beyond the Basics’ conference, discussing the history of the technology cluster/ecosystem in Scotland since its inception in 1996, and adding some thoughts, ideas, and targets for the next 25 years. The slides of that talk can be found at https://www.ycfscotland.co.uk/wp-content/uploads/YCF-2022-KKI.pdf

This article seeks to expand on the latter section of the talk – where have we got to, and what should Scotland be looking to do in the future?

Where are we now? Scotland’s Strengths and Weaknesses as a tech cluster

In 1996 Scottish Enterprise formed Technology Ventures Scotland with the aim of achieving 150 funded start-ups creating 11,000 jobs. YCF has been monitoring start-ups since 2000, and to the end of 2022 has recorded around £6bn total investment (and 3600+ separate deals since 2005) (figure 1).

Since 2016 there YCF has recorded 78 exits (figure 2), with a total value possibly approaching £5bn (not all deals are quantified by the parties concerned).

Scotland’s ecosystem is recognised as ‘leading the way as the UK tech ecosystem reaches $1trn valuation’ (Business Insider) has some of the largest Angel Syndicates in the UK, and has both Edinburgh and Glasgow prominently positioned in the Global Smart Centres Index. Around 1 in 10 jobs (and 13% of vacancies in 2022) are in the tech sector.

On the downside, there have been few (<10) exits where the acquirer has been Scottish (figure 3), implying a danger that companies started here may be relocated elsewhere by their new owners.

Scotland has only one ‘Unicorn’ (companies with >$1bn turnover) and has no multinational/world class tech businesses (‘where is Scotland’s Nokia?’ was the cry in 1996). Scotland’s economy is still a low growth one, dominated by ‘traditional’ industries like fishing, whisky and banking.

Opportunities and threats to the tech cluster

The author once had a boss who used to proclaim ‘there are no such thing as problems, there are only opportunities’ and it’s fair to say that the global situation presents an opportunity-rich environment at the moment. The world is faced with five major interlocking issues – Food, Water, Energy, Environment and Medicine, with literally hundreds of sub-issues (figure 4).

A little thought readily prompts a list of over 20 potential technology solutions or ‘Things it would be good to Invent’ from super-conducting power transmission cables to a replacement for the Haber process for making nitrogen fertilizers.

Where might Scotland have a competitive advantage? It really should have one in the implementation of renewables. We have sufficient space for onshore and offshore wind, unexploited hydro opportunities, long hours of cool sunlight for solar power (remember photo voltaic cells work better at 20C than at 45C), and the huge potential for wave and tidal energy around our extended coastline. One has to pose the question this way: ‘If Scotland can’t do renewables then who can?’

There is of course a distinction between implementing renewables supplied from other countries, and building industries that can take advantage of Global opportunities. In January 2023, the Director of the CBI, Tony Danker, made the following comments:

Are there Scottish firms that can fill these gaps, and are there policies that the Scottish and UK Governments can adopt to further this?

One worry is that the wider ‘Scottish Economy’ is not big & flexible enough to absorb all the innovations generated by technology start-ups. This concern is perhaps implicit in the focus on start-ups turning into ‘Unicorns’ in the recent Logan report on the Scottish Technology Ecosystem.

Logan discusses the need to have a copious pipeline of smaller start-ups that indirectly support the small number of ‘Unicorns’. That report uses the term ‘anti-fragility’ to describe a situation where expertise can be gained even from unsuccessful start-ups, whose staff can be useful for the ‘Unicorns’. Logan’s numbers are challenging, positing the need for 5000 pre-Start-ups to produce 500 start-ups, of which 10 become significant scale-ups and 1 becomes a ‘Unicorn’ (figure 5). This scale of activity raises questions around resources. Is there capacity to train all the potential entrepreneurs and their staff? Is there sufficient early-stage funding for all the start-ups?

Is there enough ‘intermediate’ finance that allows companies to carry on growing after the departure of early investors and management? We welcome comments from readers.

We should also recognise that Scotland is not unique, even in the UK, in terms of ecosystems, and that major investments are going to other regions outside London, notably the growing tech hub around Sheffield, Leeds and Manchester.

Thoughts for the future

If the Scottish tech ecosystem continues to be successful, what aspirations or targets might be achievable in another 25 years? The talk at ‘Beyond the Basics’ finished with these suggestions, what do readers think?

 

Comments to the author at kevin@kkitech.com