Brodies partner David Gallagher on why high growth firms are locating in Scotland

In recent years, Scotland has been building its reputation as the home of a large number of start-ups, many in the technology and life sciences sectors, and many have become successful high-growth companies recognised on the international stage.

Brodies partner David Gallagher advises clients on the high-growth journey that he has experienced first hand.

High-growth firms are attracting investors from London and further afield, for example China and the US, and this interest is continuing despite uncertainty around Brexit.

A report published by Tech Nation (the UK’s State of the Nation tech report) in August found that venture capital investment into the UK tech sector had reached $6.7 billion (£5.4bn) in the first half of this year, and Scottish tech firms had raised $53 million (£43m) in funding.

There are a range of factors that attract investors to Scotland and David Gallagher, who joined law firm Brodies as a partner and high-growth specialist this summer, is well-positioned to explain the details.

After starting his career in private practice, Gallagher took up a Saltire Fellowship at Babson College in Boston in 2013. At the end of that year, he co-founded Scottish clinical development company TC Biopharm (TCB), which develops treatments for cancer patients.

He was instrumental in TCB raising $32m (£26m) from a combination of equity investment, grant funding and corporate partnerships and the firm has gone on to achieve substantial Growth.

“Growing up, both of my parents were entrepreneurs, one in construction and the other in the primary healthcare sector,” explains Gallagher. “As a result, I quickly became immersed in business culture and that really aided my understanding from a very young age. Then, during my time in private practice, I helped a wide range of businesses raise funds and we assisted investors in performing diligence and closing deals.”

When TCB was launched, it was located in a tiny office in Pentland Science Park. It has grown from three people to 100 staff in a 25,000 square feet office in Maxim Park on the outskirts of Glasgow. Gallagher describes its progress as “a really inspiring high-growth story in terms of Scottish business and life sciences”.

Keen to share his expertise in establishing and scaling businesses, Gallagher left TCB earlier this year and joined Brodies, where he helps companies and their funders on the high-growth journey that he has experienced first-hand.

“Scotland as an economy has many high potential businesses and some very well-established sources of early-stage capital,” explains Gallagher. “At Brodies, clients can engage my expertise as someone who has been there and done it.”

He is clear on what attracts investors to businesses looking to quickly scale up and grow reputations.

“First and foremost it’s the team, and then the technology,” he explains. “If you have a highly driven, impassioned team behind a business you know they will be able to handle the hurdles that spring up.

“Growing a business, in particular a business of scale, is never a straight A-to-B route. The ability for a management team to navigate that in a sensible way, and grow the company in line with that original vision, is critical. The first thing investors will look at is the leadership of the organisation.”

Gallagher believes the ‘ecosystem’ that the likes of angel investors, Scottish Enterprise (SE), Scottish Development International (SDI) and the Scottish National Investment Bank (SIB) have helped create is another big advantage for the country, and something that high-growth businesses should tap into. He says that such a strong ecosystem is helping Scotland withstand any challenges, including Brexit.

“We are very fortunate within Scotland that we have a really well-established angel investment network that remains extremely active,” he says. “We’re seeing some great stories from Scottish businesses raising funds from larger venture capital and private equity firms in London and internationally, primarily Asia and the US.

“That is in no small part thanks to the work of SDI in supporting the Scottish economy and being the sales force for the wider economy on the ground in many markets.

“The level of government support we have is fantastic. I know that TCB wouldn’t be where it is today if it wasn’t for the support of the country’s economic agencies.”

He says that SE grant finance has been critical for a number of companies in terms of de-risking early stage research and development through collaborative funding. This allows companies to carry out early stage research, develop viable products and subsequently source international commercial opportunities.

According to Gallagher, this assistance is a massive incentive for companies looking to set up in Scotland.

And Gallagher welcomes the advent of the national investment bank, which is set to launch next Year.

“The SNIB has a brilliant opportunity to take what SIB has built and supercharge it,” he says.

By being able to operate in a commercial framework, Gallagher hopes SNIB will take an active lead on investment to offer creative funding solutions, often in collaboration with US and Asian sources of capital.

“If SNIB is able to do that, it would send out a signal from Scotland that the

economy is well and truly open for business,” he says. “That approach pays dividends for SE’s economic aims of increased inward investment, skilled

job creation and growing exports to key markets.”

Unsurprisingly, Gallagher points to the UK’s exit from the European Union as the major challenge for high-growth businesses as it impacts on so much of how a company operates, from exporting goods, to accessing R&D funding, to attracting talented people with the right skills.

However, describing himself as an optimist, he believes there are opportunities for businesses with the right teams and disruptive technologies.

“Many of the high-growth businesses I’m currently working with are thriving despite political and economic uncertainty, because they see the opportunity,” he says.

He cites the record low level of the pound as a reason for increased investment activity, including overseas money going into UK tech companies.

In addition, he says many Asian and US funds are looking to hedge their bets and diversify because of trade war threats and currency risks.

“My outlook is positive,” says Gallagher. “If you look at the statistics, Scotland remains very much, the most attractive place in the UK outside

London to start a company. In 2018, 25 per cent of the UK’s entire R&D investment was made north of the Border.

“Most of the businesses I’m approached by tend to work in an international setting. They can set up anywhere in the world and they choose Scotland.”

As well as a favourable ecosystem, he says companies are attracted to such things as the collaboration between the private sector and academia, the talent coming out of universities, the high quality of life, and the relatively low cost of doing business compared to larger metropolitan areas with mature tech and life sciences sectors, such as London, Boston and San Francisco.

Gallagher says there can be a tendency for business to slow down and scale back in a climate as uncertain as the current one, but he is not seeing that happening with promising high-growth companies.

He says deals are still getting done. For example, in August, Synpromics, which he describes as

“one of Scotland’s leading lights in biotech”, was bought by AskBio, based in South Carolina.

With such clear evidence that deals and investment will always get done for the best teams with the most promising technology, Gallagher has guidance for investors and high-growth companies. He concludes: “If you are a potential suitor for a company and you hesitate, there will always be someone waiting in the wings.

“My advice to high-growth businesses would be to ensure you are adaptable, have a clear plan for further investment or M&A, but don’t be afraid to vary it and go where the market is.

“The geopolitical climate is leading to much more activity in the UK. Scottish companies should

try to capitalise on that. If they don’t, another economy in another country will.

“There will always be opportunity in chaos – the worst thing for high growth companies to do would be to stand still.”

 

This article appeared in The Scotsman’s Deals supplement. To find out more about the work of Brodies, visit their website.