Supporting Scottish growth

Last month we ventured up to Scotland for the latest in our ongoing series of deep tech breakfasts. This series of events seeks to uncover the insights we need to ensure the UK’s deep tech ecosystem can flourish, and, with input from a broad range of stakeholders, construct a long-term plan of action.

So far, we’ve partnered with the UK Government to bring pioneers together with policymakers, investors and other key stakeholders with a view to building a new strategy to guide the evolution of deep tech businesses, and bust the barriers standing between start-ups and growth.

From creating a hospitable ecosystem for university spin-outs, to calibrating regulation and rethinking the horizons of investment, there’s much to do. You can read more about the conclusions we reached in some of the previous events in the series here and here.

This November, we went to Edinburgh where, alongside Scottish Enterprise and the University of Edinburgh, we explored the outsize significance of the Scottish university spin-out ecosystem on the world stage.

Supporting Scottish enterprise

The morning kicked off with a few words from Paul Funnel, Head of Investment at Scottish Enterprise, Scotland’s national economic development agency. He explained how Scottish Enterprise works with academics to unlock access to European funding opportunities. The businesses spun out from Scottish universities enjoy a healthy survival rate, testament to the depth of innovation at play in the country’s higher education institutions.

But a world-changing idea isn’t always enough. For spin-outs to flourish, every stakeholder needs to play their part. Scotland boasts a thriving deep tech ecosystem – the country’s space sector is growing faster than anywhere else in the UK, while its universities are globally competitive. Paul stressed the need for sustained support, and Scottish Enterprise’s continued commitment to ensuring that high-growth companies have access to the capital and support they need – when they need it.

We at Octopus Ventures echo Paul’s celebration of the Scottish spin-out and deep tech ecosystem: our recent report, Gateways to Growth, revealed that the University of Dundee is the UK university having the greatest spin-out success – it pipped the Golden Triangle (of Universities of Oxford, Cambridge and London) to the top spot.

We currently count 10 spin-out businesses in our portfolio, but celebrating the ecosystem means recognising the challenges it faces. If Scottish – and UK – deep-tech is going to flourish, we need a long-term plan.

Challenges and opportunities

To get to the bottom of the question, we welcomed an expert panel, all of whom have direct experience with the challenges under discussion. Moderated by Octopus Ventures Partner Sandy McKinnon, it comprised Mark Urqhart, Partner at Baillie Gifford, Laura Garcia Caberol, COO at Touchlabs, Andrea Young, Head of Investment at Old College Capital. Deep tech’s market-disrupting potential comes at a cost, and the panel agreed on the continued need to build confidence in longer investment horizons amongst investors. For Mark, at Baillie Gifford, this is a given – but Baillie Gifford’s long term approach isn’t necessarily widespread. For spin-outs to succeed, education, and a reappraisal of traditional priorities, needs to happen at the investor end.

Andrea echoed this sentiment when she referenced the challenge of putting academics in touch with the right investor for them. As she explained, it’s harder than it may seem at first glance. Investors are never going to know as much as founders do about their specific vertical, but deep knowledge of the sector is necessary if support is going to be right.

One of the challenges unique to Edinburgh, and all cities, is space. Laura reflected that the next round of TouchLab fundraising will be tricky in Scotland – as much as scale-ups might want to stay, the capital, talent and office or lab space they need to grow isn’t always available. Questions from the room highlighted further challenges: despite the standard of Scotland’s universities, investments into their deep tech spinouts are around half the amount invested into the Golden Triangle – so what’s to be done?

Andrea put it most succinctly: investment needs to be collaborative. New investors must be welcomed, and international investors need to be attracted. Ultimately much comes down to will – and network.

The incentives are there, and a framework for success can be easily traced. More patient capital. Expertise amongst investors. A collaborative approach between research-focussed founders and their peers developing operational skills in the study of business. What matters is that every stakeholder in the ecosystem recognises the opportunity in front of them – and pulls together to realise it.

At Octopus Ventures we believe that deep tech holds the key to solving some of humanity’s biggest challenges. People will be at the heart – from the pioneers researching the next major breakthrough to the academics who support them, and the investors who lend the expertise and capital to bring it through to world-changing, commercial application.

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