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Can Scotland’s ecosystem hit its tipping point?

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Scotland wants to become a world-class innovation hub, but first it needs a critical mass of scale-ups.

There was no master plan behind California’s Santa Clara Valley becoming “Silicon Valley”. Instead, it emerged organically thanks to a series of fortunate events. There was the ascent of Stanford University and its willingness to work with industry. There was the boom in West Coast military spending, which led Stanford to champion electrical engineering. There were the entrepreneurs who were attracted to the environment that conjured, and whose companies “spun off” further pioneering companies. From those beginnings would spring personal computers, software, venture capitalists—and an innovation hub that would lead the world.

Ever since, politicians have wondered: Can similar tech ecosystems be engineered by design? Right now, in the UK, Scotland is attempting to prove they can. In its National Innovation Strategy, the Scottish Government sets out its ambition: To establish Scotland as “one of the most innovative small nations in the world” through the creation of “a world-leading innovation ecosystem”.

That’s easier said than done, of course. The alchemy that explains why one region becomes a global leader and the next merely an also-ran is tricky to unravel. All economies are different, people and culture are hard to marshal, and chance plays a significant role. But to Mark Logan, former COO of SkyScanner and now Chief Entrepreneur to the Scottish Government, there is a practical way to think about this challenge. “Successful ecosystems are ones that have advanced past a ‘tipping point’ where they are home to a critical mass of viable start-ups and scale-ups,” he says. “If you can focus on moving the ecosystem to that point, virtuous network effects will kick in and start to take it from there.”

Logan wrote an influential report in 2020 for the Scottish Government on its tech economy, and believes that Scotland has every reason to be optimistic about reaching its tipping point. The scale-up ecosystem is already sufficiently mature that different cities are settling into roles, “The talent network spans the whole country, but there are also some local specialisms,” says Paul Valente, Global Relationship Director and Tech Sector Lead for Scotland at HSBC UK. “Edinburgh has a lot of the financiers and fintech; Glasgow has a notably high volume of start-ups and scale-ups; Aberdeen has a lot of companies that are complementary to the oil and gas industry—and, increasingly, green and clean tech in support of energy transition; and Dundee has an enviable success in the gaming industry. That said, of course these are only broad generalisations—there’s a mix of specialisms in all Scottish cities—and the really exciting thing is the wealth of expertise and ambition across the country.”

Life sciences companies just attract each other because it helps with skills, collaboration, and innovation.

Ernst van Orsouw | CEO, Roslin Technologies

The foundations of Scotland's ecosystem

Scotland’s clusters, which are the foundations of its ecosystem, have organically gained momentum in an analogous way to how California came to focus on silicon. An initial wave of businesses has spun out second-generation founders, whose companies have attracted more operations to locate there, and so on.

Take Glasgow’s space sector. It began in 2005 with a satellite manufacturing startup called Clyde Space, and over the years that followed, the city became a focal point for “upstream” space manufacturing (meaning: physical equipment), complemented by Edinburgh leading the way on “downstream” (data processing and services). This is what attracted Steve Greenland, founder of space engineering company Craft Prospect, to Glasgow in 2008. Back then he worked for Clyde Space as system lead on the first satellites built in the city. “There was this emerging scene,” he says. “Now, we've got maybe four companies that would purport to be able to build full spacecraft within the city. And then we've got companies like us who are building specific parts payloads. And so that creates a lot of opportunity, both in terms of movement of people and building understanding.”

Or consider Edinburgh’s life sciences cluster. “Being close to a life sciences base is incredibly important,” says Ernst van Orsouw, CEO of Edinburgh-based food- and agriculture-focussed life sciences company Roslin Technologies. “Life sciences companies just attract each other because it helps with skills, collaboration, and innovation.”

To build on these foundations, a raft of public interventions are aiming to galvanise the entrepreneurial scenes in Scotland’s cities—and with them the national network they comprise. In Glasgow, three new Innovation Districts driven by partnerships with universities have proven particularly important. “They're using the universities as a base to build almost ‘Stanford in Silicon Valley in the 1950s’-style clusters of excellence where start-ups can locate around them,” says Logan. “The University of Strathclyde, in particular, also has its entire strategy built around entrepreneurship. So that has also proven to be an ever more powerful flywheel in the city.” The Districts are being bolstered by other new projects such as the annual Turing Fest conference, the Scottish Government’s £42 million Tech Scaler programme, and plans to redevelop Glasgow’s Met Tower into a new £60m tech hub."

A national strategy

These interventions are already changing Glasgow’s entrepreneurial environment, according to Allan Cannon, cofounder of Glasgow-based satellite-enabled communications company Krucial. “I remember that we used to have a whole load of clusters for different industries, but it was all quite disjointed, we didn't really have an underpinning kind of glue that brought it all together,” he says. “Now we are cross-fertilising between different clusters, and there’s more cross-fertilisation between the support organisations in Glasgow, and it’s adding a lot of energy to the system. There’s much more knowledge sharing between founders, there’s more university spin-ins. So it’s on the up, absolutely.” This year, the city’s ecosystem has a combined enterprise value of £3.4bn, according to data from Dealroom. That’s an increase of 89 percent compared to five years ago.

Nevertheless, for all the compelling progress that has been made, Logan believes that Glasgow—and Scotland as a whole—is not yet on the cusp of a tipping point. He stands by the recommendation he made for the country in his 2020 report: A three-pronged national strategy focused on education, investment, and infrastructure.

But what about the specific tactics that should serve that broader national strategy? Van Orsouw argues that more incubator spaces would be helpful. “Easy access to the required facilities is vital,” he says. “We share space with about 20 companies and it’s very modular. If we need to increase the size of the lab, we just add two metres of bench space.” He also notes that in New York, where he once consulted for the city government, old, vacant buildings have been repurposed for startup office space. “I think there's a tremendous amount of potential to do the same in Scotland and create unique, beautiful spaces that really attract people.”

During the industrial revolution, Scotland was a global innovation powerhouse and has the potential to be one again

Mark Logan | Chief Entrepreneur, Scottish Government

Scotlands thriving entrepreneurial scene

To Cannon, getting the right mix of talent is also vital to the ecosystem. “There's a lot of angel syndicates in Scotland, but there's not a lot of VCs,” he says. “So I think we should look to attract more international talent from other ecosystems. And not only successful VCs, but successful entrepreneurs who have seen it all before. Scotland can be a little bit of an echo chamber sometimes, so it’s good to bring in different types of experiences.”

The challenge with all interventions, however, is avoiding unintended consequences. Greenland cautions that it’s important to ensure that VC money, for example, doesn’t reduce the diversity of businesses. “For the space sector, in comparison to capital, it is skills that are in shortage, right?” he says. “If you have heavily VC-backed companies supported by our government incentives to base here, the playing field can distort and wages can massively spike.” He says that smaller companies that are trying to grow more organically can end up in an arms race against foreign direct investment. A healthy ecosystem, he continues, should support large, heavily funded businesses as well as small spin-outs, true start-ups and employee-owned enterprises, taking best practice from more than just Silicon Valley and ensuring as far as possible a level playing field for UK capability.

If Scotland manages to pull off this balancing act, the benefits would be diffusive: Economic growth, better public services, and improved quality of life. “During the industrial revolution Scotland was a global innovation powerhouse and has the potential to be one again,” says Logan. “The entrepreneurial scene is thriving, and I can’t wait to see where it goes from here.”

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