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May 2024

May 2024

Tech report:
Scotland

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Introduction 1

Ecosystem overview 1

Insider perspectives 2

Key players 3

Looking ahead 4

Introduction 1

Ecosystem overview 1

Insider perspectives 2

Key players 3

Looking ahead 4

Principal
Chroma Ventures

Foreword

My involvement in the Technology Sector in Scotland dates back over thirty years. In that time we have transformed from a country who exported some of the best global talent to the tech hotspots of the world to a hotspot where the best in new technology driven businesses come to start, grow and thrive. From Skyscanner to FanDuel and from Minecraft to GTA some of the 21st century’s best know technology brands have emerged and grown to global prominence with Scottish talent and know how.

The common denominator is, and always has been, a thriving higher education sector and just as the University of Edinburgh celebrates over 60 years at the forefront of AI research we are poised perfectly to embrace the next technological revolution.

The investment and support ecosystem has grown in scale and sophistication to support the burgeoning sector. We have one of the most sophisticated Angel Investment networks in the world and with support organisations such as Entrepreneurial Scotland, Scottish Edge, Techscalers and UK games fund, to name but a few, we have an environment where technology businesses from start up to scale up can thrive.

Introduction from our sponsor

Emerging Giants lead – Scotland,
KPMG in the UK

Innovation is at the heart of Scotland as a nation. Penicillin, the television and the telephone are just some of the landmark innovations that have emanated from this country. Now, those era-defining inventions have helped pave the way for further growth in wider sectors such as space, life sciences and finance, with all these areas linked by one key aspect – technology. The rise in sectors and their links to technology has seen cities across Scotland flourish as tech hubs, with the focus now on ensuring these new communities continue to grow and develop.

The tech industry is growing at one-and-a-half times the overall economy; it now includes close to 15,000 firms and 400,000 employees. Covering all areas from net zero to clean tech, the scale is wide, the scope epic and the possibilities endless.

The tech ecosystem has flourished in recent years, and as a result Scotland is really putting itself on the global map. So much so that it is now a vital contributor to the health and wellbeing of our economy.

That’s why we’re delighted to be involved in this spotlight on Scotland. The next few years might be tricky, but there will be lots of opportunities for all those involved with focus turning to furthering investment, upskilling current and upcoming talent, and ensuring Scotland remains a key player in the rise of the tech industry.

Ecosystem overview

Key tech hubs & specialisms

Scotland has a number of prominent tech hubs, including Edinburgh, Glasgow, Aberdeen and Dundee and a growing tech community in Inverness. Scotland’s best-known global success stories in the tech sector began in Edinburgh, including Skyscanner and online fantasy sports company FanDuel. Edinburgh and Glasgow regularly top lists of places to start a business in the UK and Europe thanks to their high standard of living and access to a vast pool of skilled technical workers.

Both Glasgow and Dundee have developed significantly in recent years. Tech stakeholders say that Glasgow City Innovation District has had a large part to play in the city’s recent tech development and that, as a result, there are amply investment opportunities in Glasgow. In an example of this growth trajectory, Glasgow will host its first tech week in May 2024.

Dundee is ‘the heart of the Scottish gaming industry’, as one tech expert put it, but its tech scene is also fuelled by ‘high quality’ university spinouts, particularly in cybersecurity and life sciences. Dundee’s cyber specialism has been recognised and further invested in since Abertay University was named University of Excellence for Cyber Security in 2020. It launched an £18m Cyber Quarter at the university in 2022. The city’s regeneration projects are also creating new opportunities and facilities for tech businesses alongside a new collaborative tech hub, JustTech, at the University of Dundee, and the DigiTay upskilling programme as part of Tay Cities Deal.

The National Robotarium in Edinburgh is seen as a real asset to the Scottish economy, playing a significant role in promoting the development and applications of AI and robotics, and supporting companies based there. Edinburgh’s strength in data and AI is further enhanced by the Data Driven Innovation programme as part of the Edinburgh City Region Deal. Edinburgh also has particular strengths in fintech and SaaS.

Glasgow is particularly strong for health tech, cybersecurity and manufacturing, with the largest microsatellite manufacturing production outside the US, and the National Manufacturing Institute for Scotland based at Glasgow Airport. Scotland’s burgeoning space tech sector is particularly noteworthy, with rocket startups such as Skyrora and Orbex capitalising on Scotland’s coastline and northern latitude, which make ideal conditions for launching rockets into low Earth orbit. Shetland’s SaxaVord, the UK’s first space port, is preparing for its first rocket launch.

Private sector ‘catalyst’ organisation Opportunity North East runs ONE Tech Hub, which brings together the digital tech ecosystem around Aberdeen. A recent cohort of companies on the ONE Business Growth Programme showed a significant focus on energy innovation; 75% were energy tech companies and all companies on the programme were targeting international markets. The region is particularly focused on clean tech, agritech and energy, with the Net Zero Technology Centre based in Aberdeen.

Startup support programme Techscaler is active across all of Scotland, including in places where there’s not yet a critical mass of tech companies. For example, its work in the Highlands and Islands looks at the role tech can play in progressing key industries like green energy, ‘blue economy’, food and drink, tourism, life sciences, creative industries, and space.

Ecosystem indicators

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8,680 Scottish registered tech businesses, 5% of all private sector businesses

Source: Scottish Government

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21% increase in new technology businesses launched in 2023

Source: RSM

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$20.8bn (£16.6bn) value of Scottish tech startups

Source: Dealroom

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$430m (£343m) total VC investment into Scottish startups across 133 rounds in 2023

Source: Dealroom

Funding landscape

Scotland has a very active angel investor community. When asked about key investors into Scottish tech, stakeholders generally reference angel investors above VC firms or larger investors, and tend to say that the pre-seed and seed funding landscape is better supported than growth stage funding.

But there are mixed views about the current provision of very early-stage funding (which includes angel investors and grant funding). Some stakeholders are extremely positive about the prevalence of angel networks, claiming that Scotland is one of the best places in the UK to raise early-stage investment as a result of the angel community, but others believe that ‘microcapital’ – i.e. small investments from angels and public sector grants – in fact make it harder for startups to later raise more funding in order to grow, and that these investments provide less value to receiving company than VC investment would.

Securing scaleup or post-seed funding is particularly challenging, and responses to UKTN’s survey for this report showed that most people assume that scaleups will have to ‘go to London’ to raise at that stage. Aleks Tomczyk, co-founder of Edinburgh-based fintech Exizent, said: “Angel and pre-seed investment is pretty good. Seed and scaleup investment are available but often piecemeal – but recent regionally focused funds are encouraging. Getting larger sums for big ideas or scaling remains best sourced elsewhere.

“The public sector grant/funding landscape is fragmented and forever changing. Public sector investments take too long to get and often come with crazy conditions that put off new professional investors in future rounds – they are often investment of last resort, therefore. Public sector grants require a lot of paperwork for small amounts if you are an ambitious company that knows what it is doing – they are also very dependent upon annual cycles and political interference/short-termism which makes them unreliable for more ambitious companies.

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Par Equity

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Eos Advisory

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The Scottish National Investment Bank

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Techstart Ventures

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Deepbridge

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BGF

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Equity Gap

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Scottish Equity Partners

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Investing Women Angels

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Maven Capital Partners

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Panoramic

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Kelvin Capital

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Mercia

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Puma Private Equity

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Foresight

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Mint Ventures

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Scottish Enterprise

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Archangel Investors

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Sponsor feature: Supporting Scotland as an innovation nation

by Jane Reoch, executive director, innovation, Scottish National Investment Bank

Scotland is rich in entrepreneurial history. From great economic thinkers to inventors of the everyday things we all take for granted like the telephone and TV. More recently, Scotland is growing its reputation in newer technologies and industries across a range of sectors. With exciting new businesses springing up all the time, we are forging a path in tech innovation – from life sciences looking for ways to extend and enhance lives, to software development that makes life easier or safer.

At the Scottish National Investment Bank, we are a mission-led impact investor, we invest in businesses and projects that deliver tangible long-term societal and economic benefit for the people of Scotland. The three missions provide a framework against which we assess all of our investments. Every penny must be committed to help deliver Scotland’s net zero ambitions, to scale up innovation and technology, or to transform and regenerate communities.

Delivering against our innovation mission is my focus, so we know and support an exciting array of technology businesses. With an investment portfolio of 35 businesses delivering across all of our missions, we’re pleased that almost half are focused on innovation. Our investments are looking to deliver commercial returns alongside societal impact, so we’re particularly interested in supporting businesses ambitious to scale up and grow.

Examples of our recent technology investments include £5m into cloud-based CMS software business, Forrit. Our investment has allowed them to expand their workforce and target new markets. Another recent £2.6m investment into digital forensic experts Cyacomb is allowing them to scale up their operations and look for new markets. Emerging as a university spinout, they created new technology to pinpoint harmful content at source, allowing law enforcement, social media, and messaging companies to quickly find and block illegal images and videos.

£20m investment was also made into Par Equity’s new venture fund, set to grow to £100m. This fund will boost innovative technology companies, building talent and capability in the sector.

Our support doesn’t stop at investment – we work with our investees to help get them to that next growth stage. We have a network of excellent non-executive directors to bring in to support the boards, and a key part of our role is to bring other investors alongside us to crowd in as much capital for businesses ready to take that next step.

Scotland’s tech scene is thriving. We’re seeing other investors looking to do more which is testament to this flourishing sector creating jobs, innovation and industry for the future.

Jane Reoch, executive director, innovation, Scottish National Investment Bank.