Report reveals new data
Scotland’s high-growth firms rely mainly on government support
Codebase Edinburgh: Home to many early stage firms (pic: Terry Murden)
Most high growth firms turn to government funding to help them through their early stage development, according to new research.
Data provided by the Beauhurst database reveals Scotland trailing UK trends on a number of measures and indicates a need for more firms to seek access to wider sources of finance.
While private equity and venture capital funds are the most frequent investors across the UK, it is devolved government bodies who are the most frequent investors in Scotland.
Scottish Enterprise steamed ahead as the most active investor in Scottish companies in 2018, participating in many Scottish rounds through the co-investment mechanisms run by the Scottish Investment Bank.
The report found that 37% of high-growth companies in Scotland have used equity funding since 2011 to grow, significantly less than the national average of 52%. PE and VC firms are the most active investors across the whole of the UK, with crowd funders coming in second since 2014.
Angel investors are “incredibly active” in Scotland, usually backing at least the same number of deals as private equity and venture capital funds.
Two angels networks, Equity Gap and Archangels, contributed to a significant number of deals in Scotland, showing the continued strength of angel investment.
As well as investing through networks, business angels are also very active as individuals, independently contributing to 48 announced deals in 2017 and 63 deals through organised angel networks, out of a total of 211.
However, the report reveals a failure of firms to progress beyond the early stage. Scotland had an “unusually” high use of accelerator programmes, but their impact appears to be limited. Of the companies that have attended accelerators and not accessed any other support systems, 56% have failed to progress beyond seed stage and 38% are no longer active.
With 883 attendances, Entrepreneurial Spark is by far and away the most popular programme, followed by Entrepreneur Accelerator (119) and Elevator Aberdeen (36).
Those firms who were not able to secure any other types of support – such as equity funding, grants or venture debt – are 2.5 times more likely to have died.
Among all high growth firms 22% in Scotland are no longer active compared to the national average of 15%.
While the UK is on track to make 2019 the best year of funding on record, Scotland is lagging behind, and may well fail to match the number of deals and amount invested in 2018, says the research.
Most high-growth companies in Scotland are located in Edinburgh (697) and Glasgow (528). Edinburgh is a hub for fintech and AI companies, while Glasgow has seen particular growth in edtech.
There is also a cluster of high-growth activity in and around Aberdeen, home to Scotland’s only active unicorn – Brewdog.
High-growth companies in Scotland are spread far and wide, with 10 based in the Orkney Islands and four in the Shetland Islands.
Edinburgh consistently attracts far more equity investment. Since 2011, ambitious companies in the capital have raised over £600m in announced rounds.
Equity funding into the city is so high that Edinburgh-based companies invariably take between a third and 44% of equity deals made into Scotland.
Since 2012, Glasgow and Edinburgh combined have secured more than 50% of equity deals into Scottish companies.
Scotland has a disproportionately high number of spinout companies, largely driven by the innovative companies born out of the University of Edinburgh and University of Strathclyde, and 14% of all UK spinout companies reside in Scotland.
Since 2011, 18 companies have been spun out of the University of Edinburgh, making its commercialisation team the most active in the whole of Scotland.