Comment: Scotland needs smarter investment to better serve scale-ups

Scotland’s start-up ecoystem needs patient capital and smarter support to grow more digital heavyweights, writes Karen Meechan of trade body ScotlandIS.

US investors show a greater acceptance of the long-term view, says Meechan. Picture: Chris Watt
US investors show a greater acceptance of the long-term view, says Meechan. Picture: Chris Watt

There’s a definite buzz about the tech start-up scene in Scotland and from the likes of Deep Miner in Aberdeen to Melrose Labs in Edinburgh, companies are both shaping the digital economy and driving it forward.

It’s great to hear that start-ups are thriving, but do we have the right environment in place to enable them to continue to grow and scale-up effectively? It is essential for the future of this dynamic industry that we ensure they have the right support to accelerate their growth. In an industry where the competition is truly global, speed to market and ability to build market share are critical.

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For any business looking to scale up – not just those in tech – long-term investment is needed to back the next phase of business growth.

Many of Scotland’s tech start-ups are currently turning to London and the US for investment but often funding packages are still structured with a short-term outlook which tends to encourage short termism in management teams, and leads to tech companies selling out earlier than if they had a more effectively structured capital base. “Patient” or long-term capital is not as readily available here in Scotland as the economy needs.

Part of the new Scottish National Investment Bank (SNIB)’s remit is to help remedy this lack of funding availability. However, SNIB’s budget of £2bn over the next ten years is comparatively small. And, given that funding tech start-ups is but one of multiple target areas for the bank to cover, we must consider whether SNIB can realistically be the only solution to this investment gap.

The task of improving the access to, and quantity of, funding for Scotland’s scale-ups should not solely fall to the public sector. And while the SNIB is likely to provide an important contribution to making more patient capital available in Scotland, other funding options are needed to fully address the issue.

We therefore need to become more sophisticated in how we build investment packages for expanding businesses. In the US there is a much greater acceptance of the long-term view and the need for growing companies to invest substantial sums in sales and marketing as they scale, as well as an understanding that profitability can be a long way out.

It is important for funding options to support this need, where the impact on profit may not be as obvious or quickly felt as investments in other aspects of the business.

Another aspect of scaling up that can be hard to see immediate benefit from is talent. A key requirement, as well as specific tech skills at all levels, is for senior people with experience in growing companies to the next level, and people with the ability to deliver exceptional sales and marketing. Our most recent Digital Technologies Industry Survey highlights that many companies in the sector have identified sales and marketing as a key need.

While some of Scotland’s business schools have programmes that are aimed at senior management development and initiatives such as Scottish Enterprise’s High Growth Programme include management development, we don’t yet have the wealth of experienced technology senior management the industry needs. To resolve this, some tech companies such as FreeAgent have invested in long-term coaching of their top teams. Meanwhile, others such as Skyscanner have augmented management teams by sourcing talent internationally as needed.

The wider benefit of Scottish companies like Skyscanner and Fan Duel’s rapid growth, is that many of the individuals who worked in those companies through the scale-up times are now working in other companies, bringing that experience to the market. A positive impact but there is much more to do to nurture talent and make it more readily available in Scotland’s tech sector.

That’s one of the reasons why we have added to our annual conference, ScotSoft, with a Leadership Forum. We’re delighted to have internationally renowned leadership expert 
R Michael Anderson as our leadership keynote this year to share his experiences and advice with senior colleagues across the industry.

Scotland provides a fantastic ecosystem for start-up businesses and the volume of successful start-ups in the tech sector alone is a testament to that. But it is essential we support these businesses as they grow into the next phase and ensuring smarter financial investment is available, as well as upskilling and attracting top management talent will bring great rewards.

- Karen Meechan is chief operating officer at digital technologies cluster management and membership organisation, ScotlandIS. ScotSoft takes place in Edinburgh on 3 October.