Publication - Independent report

Scottish technology ecosystem: review

Review of the Scottish tech ecosystem by Mark Logan, commissioned by the Scottish Government, with recommendations on how to develop a world-class tech sector.

Scottish technology ecosystem: review
Chapter 6 – Specific Recommendations

Chapter 6 – Specific Recommendations

We now detail our specific recommendations, grouped according to the foundational areas described above and governed by the principles developed earlier. Each recommendation is uniquely numbered across all focal areas for easier reference. We’ll review the focal areas in the following order:

  • Tech-Scaler National Backbone
  • Foundational Talent Pipeline
  • International Market square
  • Integrated Ecosystem Grant Funding
  • Investment Funding

Tech-Scaler National Backbone, Recommendations

This focal area concerns building a national network of “Tech-Scalers”, combining best practice in incubation and acceleration and including integrated grant funding.

This portrays the 5 main focal areas of ‘Foundational Talent Pipeline’, ‘Tech-Scaler National Backbone’, ‘International Market Square’, ‘Integrated Ecosystem Grant Funding’, and ‘Investment Funding’, with ‘Tech-Scaler National Backbone’ highlighted.

The recommendations are:

Rec. 1. Creation of a Tech-Scaler National Backbone.

Scotland should create a nationwide network of Tech-Scaler centres. We recommend that these are initially created in six cities nationwide; for example: Edinburgh, Glasgow, Aberdeen, Dundee, Stirling and Inverness.

A Tech-Scaler is an incubation facility that is enhanced in line with the strategy outlined in this review. Specifically, a Tech-Scaler has the following minimum attributes:

  • Provides long-term, affordable, high-quality incubation space. A transparent curation policy is in place at entry, and is ongoing throughout the subsequent tenancy, to ensure that the quality of incubated tenant start-ups remains high (which, for example, directly affects the quality of the market square learning environment for other tenants). Otherwise tenancy is offered until the start-up becomes a scale-up (100+ staff). This intentionally results in start-ups of widely varying scales being co-located, which again enriches the learning environment for many of them. Tech-Scalers could also be the default home for university spin-outs as they graduate from their respective source institutions.
  • Provides free, high-quality foundational start-up education to its tenants in the following areas:
    • Silicon Valley business models (for example, network effects, platforms, growth models and techniques, compounding growth mechanisms, commercial models and techniques, etc.).
    • Internet-Economy working practices (lean start-up techniques, speed of iteration, experimentation, bottleneck constraint analysis, etc).
    • Fundamentals of team and people management (for example, staff development, communications, performance management, conflict management, etc.).
    • Fundamentals of funding models (for example, explanation of investment stages and terms, building relationships with VCs, pitching skills, alternatives to venture, etc.).
    • Basic operating hygiene (including legal compliance, Intellectual Property (IP) management and Human Resource (HR) sufficiency).

As regards the above, note that no single organisation can or should provide this education; it should be sought from best practice providers nationally and internationally, but delivered through the Tech-Scaler. In support of this, a detailed skills matrix should be created, clearly identifying the “education route-map” for tech leadership teams.

Targeted coaching and mentorship (these are not synonymous) should also be integrated into the overall programme.

  • Provides “market square” space that is free for all local tech meet-ups to use regardless of whether their participants are tenants of the scaler. The only requirements on this use are that in-person meet-ups can also be attended remotely by default. All facilities, from meeting rooms to market square areas, are fully equipped to provide seamless remote participation.

A reasonable approach to implementing the Tech-Scaler model is to build upon one of our existing incubation programmes. This approach would likely yield the fastest implementation, but must also recognise that, in every case, additional development is required to meet the Tech-Scaler standard.

An alternative option is to put the Tech-Scaler definition and model to general tender, and to invite local and external parties to bid, creating a competitive process and, perhaps, a greater diversity of implementation options, but with a longer implementation timescale.

Rec. 2. Structure of Scottish Government contract model for the provision of services.

We recommend at least a five-year contract window (with appropriate exit clauses for non-performance), based on a combination of key build-out milestone, occupancy milestones and performance against an ecosystem-value-based north-star metric with associated target levels (see next recommendation). This timescale provides a sufficient period for the Tech-Scaler model and implementation to demonstrate its value to the ecosystem, and aligns the measurement of that value with the point in the ecosystem where the value is manifested.

Rec. 3. The Tech-Scaler North Star Metric should be aligned to value created, using the Current and past tenant value (CPTV) metric.

Specifically, we recommend the following metric, or the closest approximation to it:

Current and past tenant value (CPTV)

CPTV is the aggregate of the valuations of all current tenant start-ups and those that were tenants within the prior five years. It would be calculated annually and would serve as input to an annual contract review with the Scottish Government. Where start-up valuations could not be precisely determined, they would be estimated by a fair process. Supporting leading-indicator KPIs would also be reviewed monthly at board level. These could include measures such as:

  • Number of start-up tenants.
  • Number of training courses delivered with 4-star or higher quality rating.

The purpose of the CPTV metric is to align the measurement of Tech-Scaler performance with actual value delivered to the ecosystem, recognising the issue discussed in our analysis, that the value returned from Tech-Scaler investment is manifested later and outside of the Tech-Scaler, thereby making traditional measures, such as P/L performance problematic.

Rec. 4. Tech-Scaler Grant Funding Should be Integrated into the Tech-Scaler Network.

See also the recommendations section Integrated Ecosystem Grant Funding, Recommendations. The Tech-Scaler grant fund described in that section, which is generally available to all start-ups regardless of tenancy in the tech-scaler network, should also be operated in an integrated fashion within the Tech-Scaler network, for example, through a joint initiative between Scottish Enterprise (SE) and the Tech-Scaler operator. This joint initiative would share the same curation process, such that start-ups considered appropriate for the Tech-Scaler would also be (almost) automatically eligible for consideration to receive one of more of the Tech-Scaler grant types. This would lead to a considerable streamlining of efforts for start-ups.

Foundational Talent Pipeline, Recommendations

This focal area covers the development and attraction of talent prior to start-up formation in the ecosystem funnel and also includes subsequent talent funnel-widening activities.

This portrays the 5 main focal areas of ‘Foundational Talent Pipeline’, ‘Tech-Scaler National Backbone’, ‘International Market Square’, ‘Integrated Ecosystem Grant Funding’, and ‘Investment Funding’, with ‘Foundational Talent Pipeline’ highlighted.

There are three main areas within this overall category; school-level education in Computing Science, university-level education in Computing Science and related subjects; and “funnel-wideners”, i.e. those activities that bring additional talent into the tech ecosystem that don’t follow the main path.

This is an arrow pointing to the right titled ‘Foundational Talent Pipeline’ with three boxes within the arrow from left to right titled ‘School’, ‘University’ and ‘Funnel Wideners’.

Area: Foundational Talent Pipeline: School-Level

This is the first of the three key areas within the Foundational Talent Pipeline. Recommendations are:

Rec. 5. Treat Computing Science like Maths or Physics and follow through on the consequences of that decision.

The simplest expression of what needs to be improved at school level is that we should treat Computing Science likes Maths or Physics at secondary school level. The consequences of that principle are listed below. We acknowledge that these changes are non-trivial. However, change of this kind is necessary if we are serious about Scotland’s future in the global technology arena.

  • Computing Science should be formally taught from first year at secondary school in the same way that we do with science.
  • The teaching profession needs to attract more Computing Science (and related disciplines) graduates into teaching. The more teachers we have with industrial programming skills, the more interesting the syllabus will be for pupils, and the greater its relevance will be to further education and industry. Areas to be examined include:
  • The likely need to align salary levels accordingly.
  • Active promotion of teaching as a career option to undergraduates on such courses.
  • A rapid-access path into teaching for Computing Science graduates.
  • Existing Professional Graduate Diploma in Education (PGDE) entry routes into Computing Science teaching should be significantly strengthened as regards Computing Science skills. For example, all prospective teachers could undergo Codeclan’s 16-week intensive training programme as part of their training, and a partnership with industry could be established to expose recruits to industrial software engineering environments for a period during their training.
  • The curriculum should be correspondingly revised to include far more programming and project work. Only by making the above changes does this become possible.
  • Curriculum designers should work closely with the university sector to ensure that the school and university curricula join-up effectively.
  • Recognising the unique pace of change in Computing Science relative to other subjects, its teachers should be given dedicated training time each year in order to stay current. For example, cloud computing is a dominant theme in software engineering today but wasn’t much talked about ten years ago.
  • An annual Computing Science Teaching Conference should be established in Scotland, to promote best practices in teaching and for knowledge sharing between schools.
  • Informative material should be made available through schools to parents and guardians, to educate them on what Computing Science is and the employment prospects for children who follow this path, etc.
  • A Digital Schools award standard should be established and awarded to schools that conform to a minimum level of curricular and extra-curricular activity as regards Computing Science and related areas.
Rec. 6. Establish an industry partnership with schools to give Computing Science pupils summer work experience.

An excellent way to increase interest levels for pupils is to establish summer work experience programmes with Scottish software businesses. We recommend that the government investigate the appetite for this within industry.

Rec. 7. School-stage extra-curricular programming clubs should be strategically supported.

The Scottish Government should work with councils across Scotland to create a database of extra-curricular programming clubs profiled by their geographic and demographic coverage to identify gaps in provision (and including, for example, by gender, ethnicity, age group and areas of deprivation). Funding should be increased to existing club networks, such as Young Engineers and Science Clubs (YESC), CoderDojo , Code Club , Make it Happen, Prewired, The DataKirk, Digital Skills 4 Girls and dressCode to support the purchase of additional equipment and to cover operating expenses; two constraints to scaling their current activities.

Rec. 8. Overcoming gender-stereotyping in early years.

We stated earlier in this report that, by the time pupils take the Higher Computing Science qualification, only 16% of them are female on average; a ratio that worsens as they continue on through university and into industry. Put simply, gender role stereotyping removes almost half of our best future engineers. It would be economically and societally beneficial if Scotland was to lead on addressing this aberration. Gender role stereotyping is established by society during the primary-school years, and it is here that work should be particularly focussed.

We recommend that the Scottish Government conduct a sustained public information campaign aimed at countering role stereotyping as it relates to science, Computing Science and engineering, enlisting role models and others as part of that campaign.

Particular focus should also be given to supporting initiatives, such as dressCode which encourages school-age girls into programming. An interesting observation: at Higher Computing Science level, 16% of students are girls, on average across Scotland. In dressCode founder Toni Scullion’s school, where she first pioneered dressCode, the female intake is more than double that figure. Ms Scullion could be engaged to consult on how best to scale this support across Scotland, and perhaps be given a full or part-time role in advising the government on Computing Science in-curricular design and extra-curricular support in Scotland, given her many other innovations in promoting general student interest in Computing Science.

Area: Foundational Talent Pipeline: University-Level

This is the second of the three key areas within the Foundational Talent Pipeline. Recommendations are:

Rec. 9. Adjust university incentivisation and funding to improve tech-entrepreneurial focus.

To support the wide range of activities required to improve the entrepreneurial skills of students in Computing Science and its related disciplines, the university course funding model should operate similarly to Clinical disciplines, where the need for funding provision beyond basic teaching is already recognised. Costs could be managed here by employing models similar to the existing Research Pool scheme to share programmes and initiatives across institutions, instead of replicating them at all sites.

Universities should be assigned a KPI to increase the entrepreneurial skills and knowledge of the Silicon Valley/Internet Economy start-up playbook amongst Computing Science students (and those in related disciplines). Attributes that should be incentivised are:

1. Computing Science curriculum incorporates classes covering:

  • Internet-Economy best practice in product introduction and growth engineering.
  • Fundamentals of Internet-Economy business operations.
  • Case studies of multiple well-known tech start-ups and scale-ups, both successful and unsuccessful.

2. Joint start-up projects between Computing Science and Business school students.

3. Start-up summer school programme.

4. Incubation space available for students and recent students.

Rec. 10. Increase university funding to create more local software engineers.

Universities should be assigned a KPI to increase the number of locally-resident Software Engineering/Computing Science graduates. Funding should be adjusted in recognition that such students are not as lucrative to universities as students who are resident outside Scotland.

Rec. 11. Adjust university incentivisation to improve spin-out scale and quality.

Universities should be assigned a KPI to increase both the number and quality of spin-outs. Attributes for consideration in meeting this KPI could include:

1. Reducing equity stakes to levels that motivate founders and attract investors.

2. Improving spin-out founders’ readiness to run start-ups.

3. Working with start-up industry experts to ensure company articles are appropriate.

4. Assigning founder mentorship from experienced start-up executives.

Rec. 12. Relax other KPIs in the overall university KPI portfolio to accommodate the new KPIs.

It should be recognised that only adding KPIs does not increase focus and is more likely to reduce it. Therefore, the above KPIs should be added simultaneously with others being relaxed or removed entirely.

Rec. 13. National, pan-university Tranzfuser-style summer-school.

The Scottish Government should fund a start-up summer school competition for recent graduates, following the UK Games Fund’s successful Tranzfuser model. We recommend that Paul Durrant, one of the originators of Tranzfuser, be engaged to advise on and/or operate this generalised competition. Attributes of the competition should include:

  • Winners from the event would gain automatic entry into the Tech-Scaler network.
  • The attendees should be paid during this period of the summer competition; experience from Tranzfuser indicates that the best graduates are more likely to be retained in the programme if this is the case.
Rec. 14. Increase the number of start-up internships available to students.

We believe that this can be supported in two ways. The first is to provide grant support (through the Tech-Scaler Fund, discussed later) to start-ups who take on interns during the summer period, provided they meet certain quality standards in the provision of those internships. The second route is to work with and support Entrepreneurial Scotland to increase the number of available international internships, particularly targeting international tech start-ups.

Area: Foundational Talent Pipeline: Funnel-Wideners

This is the third of the three key areas within the Foundational Talent Pipeline. Recommendations are:

Rec. 15. Codeclan should be treated as a strategic ecosystem asset.

Codeclan, as a funnel-widener, has been particularly successful at bringing engineers into the ecosystem that have not followed a more traditional entry path earlier in their careers. However, the capacity of the organisation is constrained by two factors: uncertainly around future finances, which undermines the organisation’s confidence to expand its provision of training places, and the cost of courses, which are in many cases too expensive for prospective students.

We recommend that Codeclan is set a target to triple its annual number of graduates, to be implemented over a 24-month period (allowing for the realities of scaling capacity while maintaining quality). We recommend that the organisation is part-funded by government to support this expansion using the Foundational Talent Fund proposed in the Integrated Ecosystem Grant Funding, Recommendations section.

We propose that grant availability for prospective students should be increased to ensure that participation can be widened, particularly from those groups in society for whom the cost of courses would otherwise be prohibitive. We also recommend that grant support be configured to particularly support female applicants. This is an excellent opportunity to mitigate the effects of gender role stereotyping earlier in the education funnel.

Complementary funding methods could also be considered. For example, Lambda School in the US offers a very similar programme to Codeclan. In that model, students pay for their tuition by a shared-income agreement (students give a small percentage of their post-study salaries to Lambda School for the first two years after graduating).

There is also an opportunity here to provide a retraining path for people forced to change industry due to the impact of the COVID-19 pandemic on Scotland’s traditional economic sectors. This concept can of course be extended to the re-skilling of our workforce generally, in line with shifting patterns of employment.

Finally, we recommend that Codeclan’s successful approach be studied to determine to what extent it could be replicated within our college system.

Rec. 16. Introduction of a Scottish Tech-Visa.

We understand that the Scottish Government has limited powers in respect of immigration policy. Notwithstanding that point, we put on record here that mechanisms to attract international tech talent to Scotland, such as a Tech-Visa similar to the H1-B Visa in the US, are highly desirable as a means of widening the talent funnel.

Rec. 17. Attraction of executive-level talent to Scotland.

We discussed earlier how growing Scottish scale-ups reach a point where they can no longer hire locally in sufficient numbers to fulfil their leadership requirements (both technical and managerial) to support the next level of scale. They either stop growing or set up offices outside Scotland to attract that talent. Later these offices become the centres for growth of the company. The difficulty in hiring these executives stems largely from the risk to them of relocating their families to join companies in a sparse, pre-tipping point ecosystem.

We recognise that the political palatability of the following may be challenging, but we recommend that options are explored in the area of providing to (means-tested) start-ups a government bond to support the 12-month salary costs and relocation costs of an executive who leaves a Scottish scale-up within the first two years of joining. This provides some risk protection for the prospective hire while not being unaffordable for the start-up. In most cases, the bond would not be called upon. Variations on this theme exist, of course. The point we wish to emphasise is that it is far more expensive to the Scottish economy for our scale-ups to gradually relocate themselves outside of Scotland than it is to provide these insurance policies.

Rec. 18. Reduction in inter-city rail travel costs.

Whilst recognising that there are external constraints in the flexibility of rail travel pricing, we repeat here that current prohibitive inter-city rail travel prices are likely significantly impacting the size of workforce available to start-ups in any particular city. For example, this makes the difference between a start-up being able to hire across the central belt or only in Edinburgh. In a very small country such as ours, where access to talent capacity is correspondingly limited, this is unhelpful. We recommend that pricing be reviewed with the aim of reducing it below inter-city threshold rates.

International Market Square, Recommendations

This focal area groups recommendations designed to enhance Scotland’s market square activities, across all levels of scale from small meet-up to international conferences.

This portrays the 5 main focal areas of ‘Foundational Talent Pipeline’, ‘Tech-Scaler National Backbone’, ‘International Market Square’, ‘Integrated Ecosystem Grant Funding’, and ‘Investment Funding’, with ‘International Market Square’ highlighted.

Recommendations in this category are:

Rec. 19. Provide support for our major tech conferences, to internationalise them.

Financial support should be provided to our major start-up tech conferences, for three reasons. The first is to increase the mix of world-class international speakers in attendance. This is important because our ecosystem founders need to learn from international best practice to a greater extent than they do currently. Secondly, because the conferences will consequently attract more outside interest, this will, in turn, increase the visibility of the Scottish tech ecosystem to external investors, and other parties. Thirdly, the conferences would be more affordable for our start-ups.

Additionally, Turing Fest has a particularly bold proposal to construct an international tech industry conference and founder education network, with Scotland at its heart, running along the lines of Finland’s successful Slush model. We recommend that serious consideration is given to supporting this vision for a limited funding period to determine whether similar results can be achieved here.

Rec. 20. Establish International Investor Conference, not limited to Scottish Start-ups.

Scotland currently runs two annual tech investor conferences, the well-established EIE and the smaller but growing Turing Founders, part of Turing Fest.

The EIE conference currently largely showcases Scottish start-ups. This partly reflects its origins (it was originally funded by SE) and is also partly due to the fact that entry to the conference is via a (well regarded) training programme for founders on pitching skills, which, as a consequence, tends to skew attendance towards local start-ups. Turing Founders is not specific to Scottish start-ups, but is smaller than EIE, currently.

For the avoidance of doubt, we consider having more than one investor conference to be a virtue in strengthening the perception of Scotland as a vibrant tech centre to outside investors; indeed, this is precisely the approach taken in Finland.

We recommended that these conferences are internationalised to showcase start-ups regardless of their origin country, and that a level of public finance support is provided, to ensure that ticket prices, pitch-entry prices etc., are not prohibitive.

The reason for doing so is to attract external investors and international industry expertise to Scotland that won’t come to see a solely domestic portfolio. In Scotland’s pre-tipping point ecosystem, there isn’t a large enough contingent of investible start-ups (and hence, deal-flow) at this stage to attract these parties. So, either they don’t attend the conference, or they don’t attend more than once. But combining Scotland’s start-ups with other European start-ups as a single body would create a sufficient critical mass of interesting investible propositions. In attracting those external investors to Scotland for the conference, we also build their general awareness of Scotland’s start-up ecosystem and build relationships between them and our local ecosystem participants.

We propose that such funding would be supplied from the International Market square Fund discussed later.

Rec. 21. Provide support for the Scottish tech meet-up network.

There are currently over 200 tech meet-ups running across Scotland’s tech ecosystem. This is an extremely valuable network-building and education resource, and we should maximise its impact. The frequency and scale of these meet-ups is challenged by a lack of meeting space and basic hosting expenses.

We recommend that the new proposed Tech-Scaler network provide free meeting space and hosting facilities for all of Scotland’s tech meet-ups, fully enabled for remote participation.

Rec. 22. Support and strategy for specific economic sectors.

We acknowledge the potential value of a domain/sector focus and the attractive power of domain clusters in an ecosystem, as demonstrated by Fintech in Scotland, for example. We should (and generally do) support our existing domain strengths well.

But we note also that a priori choosing winning domains to focus on – and then being right – is difficult for the public sector to do well. The tech industry develops and mutates far more quickly than any government or enterprise agency can move. And it can send a disenfranchising signal to those companies that don’t fit a particular sector strategy if a domain approach, and the communication around it, become over-emphasised or myopic.

So, in general, we do not propose that the Scottish Government should attempt to “over-plan” the specific focal areas in Scotland’s tech economy, by predicting a comprehensive set of future winning areas for Scotland. Instead, we recommend that the Scottish Government provides grant funding support for industry-domain networks as they emerge and as the industry participants in those sectors organise themselves into those networks. We propose that such funding would be supplied from the Ecosystem Builders Fund, discussed later. Alternatively, this could be a function of the upcoming Scottish National Investment Bank.

We believe that this approach provides the best balance of letting the industry self-identify emerging areas of importance while providing support to that self-organisation, provided we put in place the mechanisms to be alert to emerging areas of potential strength.

We could summarise this approach as “embrace what works and be hyper-alert to emerging strengths”.

In asserting the above, we note that exceptions will exist; for example, the climate crisis may influence our considerations as to focal areas (a point developed further in the Report of the Advisory Group on Economic Recovery).

Finally, noting the importance of clarity in this area, there is, as far as we can ascertain, no single Domain Strategy guiding these considerations in Scotland today. It is beyond the scope of this review to articulate that strategy further than our recommendation here, but we encourage such a strategy to be developed.

Rec. 23. Establish a strategy to exploit Scotland’s Diaspora.

Our international diaspora should be tapped more actively as a strategic resource following, for example, Ireland’s successful model. This resource includes executives placed in many of the world’s most admired technology companies. Such a resource could be used to, for instance, provide a regular programme of visits to Silicon Valley companies for Scottish start-up founders, (as demonstrated by SBN/FutureX, these visits always raise the ambition level of returning founders).

Our general recommendation here is to assign the Scottish Government responsibility for generating a comprehensive, multi-year diaspora exploitation plan, following Ireland’s successful model, a country with very similar international brand assets to Scotland but that makes considerably more use of them. The strategy should take into account existing assets, including Global Scot and The Scottish Business Network. It should include an objective assessment of the current network-strength and effectiveness of these networks, and their respective potential. We also note that many “exiled Scots” return to Scotland later in their careers, representing a potentially very valuable seam of experience; accessing this resource should be within the scope of the strategy.

Integrated Ecosystem Grant Funding, Recommendations

This portrays the 5 main focal areas of ‘Foundational Talent Pipeline’, ‘Tech-Scaler National Backbone’, ‘International Market Square’, ‘Integrated Ecosystem Grant Funding’, and ‘Investment Funding’, with ‘Integrated Ecosystem Grant Funding’ highlighted.

This focal area groups all recommendations designed to align public grant funding support to the above areas. The emphasis in this category is on achieving close alignment to the ecosystem’s needs.

Rec. 24. Establish Funding Coverage in Four Ecosystem Areas.

We recommend that the Scottish Government establishes funds in four important areas related to the Scottish tech ecosystem in order to fund the areas called out above. These are each described in the four recommendations that follow. Note that we are not necessarily proposing that special funds with these names are literally established, although this is certainly one possible approach and is our preferred approach. An alternative approach is to utilise existing funding mechanisms, adjusting their scope and remit as appropriate to instantiate these logical funds. The key point, though, is that, whichever mechanism is selected, the activities described below can be funded with clear line of sight to the subjects of their intended support.

An essential aspect to these funds is that, in general, they should not attempt to measure return on investment as local to the party receiving the grant (with the exception of funding destined for start-ups directly). Rather, return should be considered with respect to the wider ecosystem’s output. In our earlier analysis we identified a structural problem that value delivered by ecosystem participants is, in many cases, manifested outside of those participants and outside of typical measurement windows. Therefore, assessment measures that are overly localised do not capture this value. Of course, appropriate measurement is still required, but mechanisms should be designed with this point in mind.

Rec. 25. Foundational Talent Fund.

Purpose: Provides funding to those talent funnel-wideners in the early stages of the ecosystem.

Scope: Part funding the operation of Codeclan. Subsidising Codeclan student fees. Funding extra-curricular school programming clubs, such as CoderDojo and dressCode (for example).

Types of grant:

  • Codeclan student grants
    • Measurement: None.
  • Subsidy of operating costs for Codeclan
    • Measurement: Growth in graduate numbers. Placement rates in industry.
  • Micro-grants for extra-curricular clubs
    • Measurement: None.
Rec. 26. Tech-Scaler Start-up Fund.

Purpose: Providing targeted grant funding to technology start-ups.

Scope: includes those start-ups resident in the physical Tech-Scaler network as well as other qualifying start-ups that are not resident. In the former case, we propose that grant assessment is fully integrated with the start-up curation process operated by the Tech-Scaler network (for example, employees from the Tech-Scaler network and SE work “side-by-side”). This grant category maps to existing grant funds operated by SE currently.

Types of grant:

PMF Grant

Grants based on headcount targets and innovation projects, though certainly useful in some contexts, are not well aligned to the needs of pre-PMF[30] start-ups, as discussed earlier. We recommend the addition of a PMF Grant with some re-allocation of funds between the existing and new grant category. This grant contributes to extending the runway of a start-up until it reaches PMF. Once this point is reached, the more traditional grants become more relevant. Award criteria for the PMF Grant would consist of those start-ups that can demonstrate adherence to best practice in the PMF-finding process.

  • Measurement: The grant should be phased, with subsequent payments contingent on progress on key metrics towards PMF.

Investment Seekers’ Grant

We also recommend the creation of a small grant category to support the costs that Scottish start-ups incur in seeking investment outside of Scotland. For example, securing investment from London-based investors requires many trips to London which, for a small start-up is a significant expense, and one not borne by London-based start-ups. As we discussed earlier, at this pre-tipping point stage of our ecosystem, those investors are generally unwilling to make the reverse journey. But getting their investment expertise into our ecosystem and into our start-ups is highly desirable. We propose that this grant is combined with some level of mentoring support and diaspora support in how to seek investment, etc.

  • Measurement: Evidence of investment seeking activity outside of Scotland

Student Internship Grant

We recommend that start-ups are supported in placing students in summer internships, to increase their business awareness in general and their understanding of the realities of operating in a start-up environment, in particular.

  • Measurement: Evidence of the operation of a high quality internship.
Rec. 27. Ecosystem-Builders Fund.

Purpose: To support those organisations that contribute to strengthening the ecosystem through peer networking and informal education.

Scope: Tech Meet-up network, domain-specific industry networks.

Tech Meet-up network: micro-grants for hosting, operating and publicising tech meet-ups. An additional/alternative resource to this grant is that the above is managed through our Tech-Scaler network (for example, meeting space is made available for free to meet-ups).

  • Measurement: Events can be demonstrated to have taken place as per the frequency agreed.

Domain-Specific industry networks: annualised funding to support emerging common-interest industry bodies. An archetype for this category is Fintech Scotland. As stated earlier, we do not propose that the Scottish Government attempts to “predict winners” in the technology sector, neither by technology type nor market domain. Instead, we propose that, as nascent sectors emerge, participants can organise an industry network, and apply for grant funding to support that organisation.

  • Measurement: Fintech Scotland’s governance model should be used as a template here.
Rec. 28. International Market square Fund.

Purpose: To support those organisations that contribute to strengthening the ecosystem through large-scale market square events. Such events bring international expertise and awareness of Scotland’s tech ecosystem. They play an important part in turning our ecosystem “outwards” to learn from international best practice.

Scope: Premier Tech Conferences (for example, Turing Fest, Start-up Summit, Data Summit and premier tech investment conferences.

Types of grant:

Large Market square: covering grant support to our large tech conferences, to help them internationalise.

  • Measurement: Milestone-based, according to agreed development goals.

Investment Funding, Recommendations

This focal area groups all recommendations designed to better support the flow of investment funding to start-ups.

This portrays the 5 main focal areas of ‘Foundational Talent Pipeline’, ‘Tech-Scaler National Backbone’, ‘International Market Square’, ‘Integrated Ecosystem Grant Funding’, and ‘Investment Funding’, with ‘Investment Funding’ highlighted.

The recommendations in this area are:

Rec. 29. Scottish VCs should partner with the Scottish Government on various joint initiatives, (as subsequently listed).

We propose that the Scottish Government, including through its agencies, work with Scotland’s major investors to identify ways in which they can jointly assist in addressing the problems identified in our earlier analysis which, in summary, include availability of seed capital, discoverability of prospects, availability of Series A capital and investment education for founders. Some early recommendations in these areas are presented below.

Rec. 30. Explore the possibility of establishing a Series A fund in a partnership between the Scottish Government, Scottish VCs and External Investors.

In our earlier analysis, we discussed that, in our pre-tipping point ecosystem, Series A investment is difficult to attract. It relies largely on external investors who have little knowledge of the Scottish tech ecosystem, and little appetite to explore it due to the opportunity costs involved. We also stated that our over-arching strategy in this review is to identify interventions that can accelerate the ecosystem to its tipping point, after which time certain interventions can be carefully withdrawn as the ecosystem approaches self-sufficiency. At all times, we wish to avoid building a dependency culture, where start-ups expect government support rather than developing the skills and wit to compete to attract VC investment.

With all of these points considered, we recommend that the Scottish Government explore setting up a Series A fund, as a joint initiative between the government/SE, Scottish VCs or syndicates and, potentially, external VCs also. Funds would be contributed by both government and the VCs involved, and the government would leverage the knowledge of those VCs to manage the fund or provide expertise and capacity in due-diligence at Series A level.

Rec. 31. Introduce an investment vehicle specifically supporting female founders.

In industry as a whole, women found 20% of our businesses but receive 1% of total investment capital.[31] The Scottish Government/SE should consider creating a specific vehicle to make seed investments in technology start-ups founded by women, to contribute to rebalancing this aberration.

Rec. 32. Introduce an education/mentoring scheme for start-ups in funding models, venture capital, pitching.

As part of a partnership with government – “and a call to arms” during this challenging period in our country’s history – we propose that a limited group mentoring scheme is established between our experienced VCs and syndicates on the one hand, and our early-stage start-ups on the other. For example, one implementation of this would be for our investors to perform the training component on investment proposed in our Tech-Scaler recommendations section. The goal of this relationship is to help to educate our founders on the investment world, the realities of raising money in London and elsewhere, cap table management, pitching technique, alternative funding sources, when to seek capital, etc. Our investors have enormous experience to offer our start-ups, which is normally only tapped if they actually invest in a business.

Rec. 33. Grant support for Scottish start-ups to support external raising expenses.

As already discussed in Integrated Ecosystem Grant Funding, Recommendations we recommend the creation of a grant category to support the costs that Scottish start-ups incur in seeking investment outside of Scotland, combined with some mentoring support from local VCs or experienced ex-founders.

Rec. 34. Maintain and publicise a live database of all angels and all start-ups in Scotland. In due course extend concept into a specialised crowdfunding platform for angels and Scottish start-ups.

We recommend that methods are investigated to improve discoverability between, particularly, individual angel investors and early seed-stage start-ups. EIE and Turing Founders partly serve this purpose but are not a complete solution to the problem.

In particular, we recommend the creation of a live, updated database of all of seed-stage start-ups (including their sector, status and progress, for example) that can be accessed by investors. This list should be actively curated and publicised. Various routes exist to implement this facility.

A step beyond this idea to promote the concept to the level of a specialised crowdfunding platform where investors can not only discover the existence of Scottish start-ups but fund them directly too. The platform could be overseen by LINC Scotland, for example.


Contact

Email: loganreview@gov.scot