Scotland's Tech firms 'too small' to attract investment

THE majority of Scotland's estimated 900 technology firms, mostly housed in the Central Belt's Silicon Glen, are too small to attract investors, it has been claimed.

An IT sector legal expert said this means Scotland is liable to lag behind the rest of the UK when it comes to attracting new funds.

Laurence Ward, head of technology and outsourcing at Dundas & Wilson, says "size matters" for the pent -up moneymen, eager after a lingering recession to engage in dealmaking in anything from hi-tech manufacturing to healthcare.

Ward, who sits on Scottish Enterprise's Technology Advisory Group (TAG), pointed to a PricewaterhouseCoopers technology report, issued last week, that predicts a "gentle recovery" in dealmaking activity during 2010, with more mergers and acquisitions (M&A) set to occur.

The PWC report said that last year the global volume of M&A fell 48 per cent, but the sector was now in a "test period for M&A" with more quality assets coming to market than seen in 18 months.

Ward said offering excellent Scottish tech products and services is not enough.

"Unfortunately, most of our (Scottish] businesses remain very small. At present being big is a major advantage in the technology sector and great weight is rightly placed on risk management.

This was especially the case in a still tough commercial environment, and he urged firms to scale up wherever they can, and "logically that points to a fair amount of merger activity in the offing".

Ward noted that such consolidation was easier said than done, as many firms had cast aside any thoughts of expansion as they restricted themselves to essential care-and-maintenance to survive the economic crisis.

But he said they should be looking to mergers and striking up alliances and partnerships, along with sharing services and outsourcing. "They all represent key drivers of growth and those technology companies that tap into that market will do well."

TAG says Scotland's tech-based knowledge economy "needs to be developed" to strengthen existing capabilities involving firms across all sectors.

The key towards closing an "output growth gap" that has characterised Scotland's economic performance over the last 30 years lay in developing new "enabling technologies".

TAG claims that an increase in such output by just one per cent over the next decade could create 38,000 new jobs and add 2.8 billion to Scotland's national earnings.