Scotland grabs top spot for entrepreneurship but barriers to growth remain

Business survival rates north of the Border also found to be third highest of all 12 UK regions studied.

Scotland has emerged as the most entrepreneurial of the UK’s devolved nations, with a high proportion of serial entrepreneurs, but many still face “barriers and challenges” when it comes to securing the finance they need to grow their businesses.

Almost a third (32 per cent) of Scottish entrepreneurs surveyed by YFM Equity Partners were motivated to start their current business because they had founded others in the past, compared to 17 per cent UK-wide. The research also suggests that those Scottish entrepreneurs punch above their weight in the “entrepreneur economy” - generating some £52 billion in revenue from just a 7 per cent share of the UK’s “entrepreneurial SMEs” (small and medium-sized enterprises). The study defines a business as one with employees, but which is still majority owned by the individual or family who set it up.

Mike Clarke, a partner at YFM Equity Partners, believes the new year has ushered in a renewed sense of optimism as business plans are dusted down following a tough 12 months dominated by high levels of inflation, rising interest rates and weak consumer confidence. He also highlights Scotland’s “exciting growth potential” for entrepreneurs and the emergence of strong tech scenes and business support networks in Edinburgh and Glasgow.

Mike Clarke, partner at YFM Equity Partners: 'We’re expecting this year to be really busy.'

“We meet a lot of founders and it felt that during the last couple of months of 2023 there was a lot more positivity coming back into the market,” observes Clarke. “We’re expecting this year to be really busy. There is a pressure that has built up over the summer - businesses that wanted to go for funding but were uncertain but growing steadily anyway and now they really need to expand. Funders also want deals done and the valuations are meeting in the middle again.”

Scottish entrepreneurs are delivering sustained success, according to the report’s findings. The country’s business survival rates were found to be the third highest of all 12 UK regions analysed, with more than two-fifths (41 per cent) of firms still actively trading five years after launching. This track record appears to contribute to a level of positivity among Scottish entrepreneurs that is unmatched across the rest of the UK, YFM notes.

Over the longer term, Scotland is expected to be the third-fastest growing region in the UK, with analysis from YFM and the Centre for Economics and Business Research (CEBR) finding that Scotland’s gross value added (GVA), or the value generated by the production of goods and services, is expected to grow by 8.4 per cent between now and 2028. Scots themselves also think that the entrepreneur economy will grow - nearly two-thirds (65 per cent) anticipate there will be more entrepreneurship over the next five years, slightly higher than the UK national average of 59 per cent.

Clarke notes that a lot more consumer-facing businesses are eyeing potential growth funding than at this point a year ago. He says: “When it comes to the consumer tech businesses that would have struggled for investment last year, we are starting to see an acceptance that the shock has come out of the system and people are still going to book holidays, go out to eat and the like. There are company founders now looking at the general backdrop and saying I put my plans on pause but now I need to get on with things.”

The study highlights the strong tech scenes that have built up in Edinburgh and Glasgow.

Scots are among the most positive in the UK when it comes to launching and growing businesses. Nearly one in four (24 per cent) believe it is “very easy” to launch a venture, higher than any other nation or region. Some 38 per cent believe it is “easy” to grow a business in the UK, compared to just a quarter nationally.

YFM said the positive outlook sits alongside “significant” growth and investment in industry hubs across the country. As well as traditional industries and family businesses, Scotland’s entrepreneur economy includes a burgeoning tech sector. According to Glasgow City Council, the enterprise value of the city’s tech ecosystem has grown by 89 per cent since 2018 and is now worth £3.4 billion. Edinburgh is also a key tech hub, with more than 15,000 people in the capital said to be working in software development, for example.

“Edinburgh’s angel funding and syndicate network is the best I have seen in the UK,” says Clarke. “The next stage beyond that has been more affected last year. It’s almost like businesses have raised some cash and then their ambitions stop there or they just go back to the angels for a bit more.

“I think a lot of the tech businesses in Scotland don’t quite know where to go. There isn’t that sort of collaboration that you get around other funding ecosystems. Because there are so few they are all competing with each other for the same deals. That’s one of the things that is going to have to improve in order to help business owners.”

Scottish entrepreneurs are the most likely to have experienced barriers to securing finance, the research reveals. Just 12 per cent say that they have not encountered any hurdles to accessing capital. About a third (32 per cent) of entrepreneurs also believe they lack the right contacts or business networks to help them pursue the best funding lines for them.

Clarke stresses the importance of having funders from outside the region spending “proper time in the area” building relationships with entrepreneurs. “You can’t do a lot of this overnight,” he says. “It may take a couple of years building these relationships before you get the deal flows.”

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