Alastair Smith: We need to find a way to plug Scotland’s investment gap

The scale of world-leading innovation and technology emerging from Scotland is impressive to say the least – from healthcare to space. But there’s a critical funding gap in the steps to success.

Ten minutes watching the BBC’s Dragon’s Den gives a glimpse into how challenging it can be to attract the right type of investment to bring an idea or invention to life, then profitability.

For investors, the truth is that they may well need to kiss a lot of frogs in the hope that a percentage of those they choose to back will bring with them a suitable return.

And, while we have a strong track record in Scotland, it’s increasingly clear that there is a gap in the early stages of funding which – if filled – could well see that return rate rise.

For those looking for an investment of less than £1 million, there is generally good support for the right proposal from angel investors, the Scottish Government and Scottish Enterprise.

Larger strategic investors are more likely to be drawn to those seeking £5-10m upwards.

That leaves us with a void for scale-up enterprises which can be difficult to fill at potentially the most influential in any scaling enterprise’s development.

Finding a way to navigate that – creating the right investment model – is one of the most significant challenges facing our technology sector.

I am seeing that more in my work advising tech start-ups – and even more established companies – around the legalities underpinning their investment. It’s a view I found reinforced when I attended the Young Company Finance Scotland conference in Edinburgh.

Everyone there heard about the internalisation of investment from entrepreneurs, investors, analysts and advisors.

We were told of the successes of Scottish businesses overseas, of support from investors and customers in the USA and Germany in supporting Scots start-ups and developing technology enterprises.

Three-quarters of companies attracting investment were, we were briefed at the event, involved in healing, fuelling and feeding the world – all areas in which Scotland has outstanding credentials, whether that be in medical sciences, renewable energy or our globally-renowned food and drink sector.

Another 5% work in space technology, where there is a clear upwards trajectory for Scots firms.

While it’s challenging to get anything off the ground, the good news is that investors appear to be less cautious than they were a year ago.

Statistics which tell us that business confidence is growing are being reflected on the ground, with discussions and negotiations in which I am involved indicating that we are heading back towards the more positive investment market we saw in 2021 and 2022.

We are seeing an upturn with technology investors. As usual, good people, good technology and good ideas are top of their requirements. For our innovators, some of that can hopefully deal with the turbulence that many enterprises are experiencing between take-off, scaling up and finding their cruising altitude. If we can fill the funding gaps for scaling enterprises fewer will hopefully find themselves grounded as a result.

Alastair Smith is a director and corporate and technology lawyer at Lindsays