The birth of a second billion-dollar software firm proves Scotland’s potential to create a global technology hub, writes Kristy Dorsey
THERE have been precious few sightings of Scotland’s official animal throughout the centuries, but the modern-day version of the unicorn is no longer a national myth.
These mobile apps are a bit like our engineering of the past – built in Scotland and shipped all over the world
Last week, fantasy sports site FanDuel raised $275 million (£176m) from a clutch of venture capitalists in a deal which it claimed values the company at more than $1 billion. That put it alongside fellow Scottish firm Skyscanner, which officially joined the so-called “unicorn” club of billion-dollar tech start-ups earlier this year.
By coincidence, these two rare beasts operate side by side out of offices in Edinburgh’s Quartermile. But their location isn’t all they have in common.
Both are taking advantage of significant shifts in the marketplace that some believe could finally give rise to the cohesive and sustainable technology cluster that Scotland has long aspired to. Although no-one is predicting the birth of a new billion-dollar baby every year, dozens of burgeoning Scottish start-ups such as Celtic Renewables, Mallzee and ZoneFox are looking to follow in the unicorns’ footsteps.
Gordon Stuart of Informatics Ventures, which helps young companies prepare for outside investment, says FanDuel and Skyscanner are at the top of a pyramid of promising young companies taking advantage of a new business environment driven by smartphones and cloud computing. Such advances have opened up the global market to even the smallest of firms.
“Any company that is going to grow to that scale has to have an international focus,” says Stuart. “You can’t grow a company of that size based on a local market.”
Polly Purvis, the head of trade body ScotlandIS, says another significant factor has been the Scottish industry’s shift away from services and into software products.
The product model makes it easier for companies to scale up. Meanwhile, the proliferation of firms developing mobile apps can quickly access global markets through the Android, Apple and Google stores.
“It is a bit like our engineering of the past – built in Scotland and shipped all over the world,” says Purvis. “These mobile apps are a global product.”
Though founded in Edinburgh, FanDuel does all of its business in North America, where its sells entry into daily fantasy sports leagues to more than a million football, baseball, basketball and hockey fans. Its revenues quadrupled last year to more than $57m (£37m) on $621.7m in player entry fees.
Meanwhile, more than 80 per cent of travel comparison website Skyscanner’s users are from outside the UK.
Its revenues climbed by 42 per cent last year to £93m, with an average of 35 million people using the service every month. It is looking to further broaden its global presence, the latest move being last week’s joint venture agreement with Yahoo in Japan.
With most of its users and nearly all of its investment coming out of the US, FanDuel has moved its official headquarters from Edinburgh to New York. But the company has remained committed to Scotland, with nearly 90 staff in the capital and a newly opened office in Glasgow promising dozens more jobs.
Skyscanner has also expanded west into Glasgow, noting at the time that the city’s shopping, social and cultural attributes are a big draw for potential employees in a market where tech skills are in short supply. It’s a common theme when the sector’s advocates discuss Scotland’s advantages.
“The cost base is lower and the quality of life is probably much better than in deepest, darkest Shoreditch,” says Purvis, referring to the London district famed for its technology hub.
Stuart also highlights the quality of graduates and research coming out of universities such as Edinburgh’s School of Informatics. In addition, there is a strong support network for start-ups, including a thriving angel investment sector.
What’s sorely lacking, however, is a local base of venture capitalists who can make investments at the next level up. FanDuel’s latest round of funding – which will be used to expand its customer base in the US and Canada – flowed entirely from big North American names such as Google, Time Warner and Turner Sports.
“It is very important, because even in this day and age, venture capital companies like to invest locally,” says Stuart, who spends much of his time with investors in London.
Although Scotland’s unicorns have put the country – and Edinburgh in particular – on the investment radar, the venture capitalists are not as yet clamouring to set up shop.
“Nobody is saying absolutely not, but the big thing for them is deal flow,” Stuart says. “If there are not enough deals coming through, there is no reason to open an office in Scotland. That’s why it’s so important to have a large number of new companies coming through.”
Purvis reckons there are two to three dozen tech firms employing 80 to 100 or more people with the potential to further grow to significant size. Now, for the first time in Scotland’s modern technology quest, this cluster has two major players at its core around which to gravitate.
“It is a big step-change,” says Stuart. “Money follows success, and one of the issues we have always had in Scotland is that we never really built a lot of world-class companies – but that is changing.”
57 per cent Latest figures suggest that this proportion of tech firms sell at least some of their goods overseas, up from 39 per cent in 2011.
70,000 Digital technology firms employ at least this number of people in Scotland working in software, telecommunications, games development, IT and digital agencies.
£4bn The sector, which is increasingly export led, contributes roughly this sum to the Scottish economy each year.