A record year of growth and investment has helped set the stage for Scotland’s science and technology sectors to seize the opportunity of what is predicted to be an era of breathtaking change.
While the emergence of personal computers and the internet have led to a seismic shifts in the way the world operates, some commentators predict the scale of the latest revolution in the age of innovation could lead to even greater changes.
As themes such as Big Data, the Internet of Things, digital health and personalised medicine continue to gain traction in the years ahead, there is huge potential for Scotland to play to its strengths across science and technology.
The last 12 months have seen a number of major developments which have placed Scotland in a prime position to play a key role in some of the most exciting developments across the sector.
Scotland’s standing in the Big Data arena has been strengthened by its involvement in the recently launched Alan Turing Institute, which researchers at Edinburgh University’s schools of Informatics and Mathematics will contribute to.
An agreement between the Universities of Edinburgh and Glasgow and genomics specialist Illumina has seen the establishment of the Scottish Genomes Partnership which aims to put Scotland at the forefront of gene-led healthcare.
In health informatics research, the launch of The Farr Institute @ Scotland – part of a major UK-wide collaboration to harness health data for patient and public benefit– is seeing six Scottish Universities and NHS National Services Scotland working together.
But in terms of column inches, there is little doubt that it has been the success of technology ‘unicorns’ Skyscanner and FanDuel which has raised the profile of the wider sector across the world in recent months.
The success of the two companies means Scotland is now home to more unicorns – $1bn technology businesses – per capita than anywhere outside the US.
According to the latest KPMG/Markit Tech Monitor UK Survey, Scotland also ranks highest in the UK outside of London for growth in the number of tech businesses with some 3,000 new ventures established since 2010.
Polly Purvis, chief executive of digital technologies industry trade body ScotlandIS , believes the dramatic growth of Skyscanner and FanDuel has blazed a trail that could help other potential unicorns emerge and build scale.
“We’ve had a successful digital technologies industry in Scotland for some time but the stellar growth of these firms has really got people sitting up and taking notice of the sector,” explained Purvis.
“I think that will have wider benefits in terms of helping young people see the opportunities in the sector and also people looking to change careers.”
Gerald Brady, managing director of Silicon Valley Bank ’s venture capital arm, said that the unicorns bring long-term spin-off benefits to Scotland on top of the employment opportunities in the businesses themselves.
“If you take the example of Hewlett-Packard, which was a pioneer for Silicon Valley in the US, that was behind many spin-off companies as some of the people involved went on to set up their own ventures.
“That recycling of entrepreneurs and capital could bring huge benefits to Scotland over time,” Brady said when he visited Edinburgh recently to speak at a conference on funding for high growth businesses.”
The success of Edinburgh – a relatively small city in global terms – in being the birthplace of two unicorn companies is now the focus of efforts to try to replicate the environment which they have flourished in across other Scottish cities.
Academics at the University of Edinburgh Business School have carried out a study into the key factors and found the growth of smaller support organisations, incubators such as CodeBase and networking clubs tailored to Edinburgh’s specific entrepreneurial characteristics have had a significant impact.
Dr Ben Spigel, Chancellors Fellow at the University of Edinburgh Business School , said: “Edinburgh significantly punches above its weight as an international entrepreneurial hub which is in no small part down to the network of more than 40 support programmes – ranging from multi-million pound, Government sponsored organisations – to small coffee groups run for entrepreneurs, by entrepreneurs.
“These groups are so well networked together, their proliferation has allowed specialisation of support for different types of entrepreneurs at different stages in business development.”
Spigel said there was huge potential to adopt this targeted, city-specific model of support to developing the existing entrepreneurial networks in Scotland’s other major cities.
Although Purvis believes other cities have the same vital ingredients that tech companies need such as access to top universities and a high quality research base, she said Edinburgh has successfully managed to bring these factors together in a more concentrated way that other locations.
“We need to look at how we can create that same support network in other parts of Scotland and I think other cities could very quickly get to where Edinburgh is.”
Although Sinclair Dunlop, who heads specialist life science venture capital group Epidarex , argues that the life sciences sector in Scotland should also hold an ambition to build its own unicorn, he said it was important to manage expectations.
“We have some very exciting businesses in Scotland with the potential to get to that stage but it takes a lot more time and capital in life sciences than it does in technology,” he stressed.
As digital connectivity and data growth opens up new avenues for technology companies, growing demand for healthcare is providing a backdrop of huge opportunity for Scottish companies.
For Scotland’s life sciences sector, ageing populations and pressure on healthcare budgets are helping underpin investor appetite in the sector.
That was highlighted by record investment of more than £40m in Scottish life sciences companies during 2015.
The deal announced early in 2016 by US-based pharmaceutical giant Merck to acquire cancer-focused Edinburgh firm IOmet in a deal worth up to $400m further highlighted the global interest the sector in Scotland – which is expected to see turnover reach £6.2bn by 2020 – is currently attracting.
According to Scott Johnstone, chief executive of the Scottish Lifesciences Association (SLA), the strengths of the industry in Scotland provide a strong platform to benefit from global trends.
“Scotland is at the forefront of innovation but also adherence to regulation and quality standards here and that is going to be a bigger driver of sales in the future,” she said.
“It is all very well developing an innovative product but if it fails on a patient then it is not going to be successful in the long-term.”
Johnstone said that the Health Innovation Partnership established between the industry and Scotland in 2013 was paying significant dividends.
The partnership was designed to strengthen the relationship between the life sciences sector in Scotland and NHS Scotland for the benefit of both.
“That is now going great guns with some 80 companies now involved.
By bringing in the NHS early, companies can have confidence that they are not going to waste time and resources developing things which are not going to be bought.”
The current opportunities in the life sciences sector in Scotland prompted London-based intellectual property consultancy
IP Pragmatics to recently set up its first base north of the border.
Amy Lam, who joined the firm as head of its Edinburgh office from Edinburgh BioQuarter, said the fact that was more research being carried out in Scotland currently than anywhere else in the was a key factor in the decision to establish a Scottish office.
“There are also more opportunities for collaboration across different disciplines including animal health and human health,” she added.
The current focus on personalised medicine at the same time as the rapid development of big data also provides major opportunities for the science and technology sectors to work together.
The Centre for Economic and Business Research predicts the opportunity for Scottish industry from Big Data is around £18bn.
Such is the potential seen from the harnessing of ever-greater volumes of information that the phrase “data is the new oil” is increasingly heard.
The pace of growth of data is breathtaking – every two days as much information is now generated as was created from the beginning of time until 2003 and by 2020, it is predicted there will be 44 times more data than existed in 2009.
“This explosion of data is creating great opportunities for businesses to extract value from it, but this doesn’t come without its challenges,” said Cecilia Bouroncle of The Data Lab , an initiative set up to help industry and academia in Scotland to work together in innovative data science projects.
“Few other countries have such high quality, consistent data that has national coverage. We also have excellent academic capability in informatics, data science and related fields, with a large pool of researchers working on world-class groundbreaking projects,” pointed out Bouroncle.
Under one initiative aimed at helping Scottish business make the most of the opportunities, The Data Lab is funding students through an MSc programme with Robert Gordon University, The University of Dundee and The University of Stirling.
The students will be doing placements this summer and industry demand has already exceeded the number of students.
Ensuring they have the pipeline of skilled staff they need is an ongoing challenge across the science and technology sectors.
According to ScotlandIS’s Purvis – whose industry is now two years into a Skills Investment Plan aimed at addressing the issues – there will be growing competition for skills across the economy in the years ahead.
The scale of the challenge is highlighted by forecasts which suggest Scotland’s digital sector needs 11,000 new entrants a year.
“It isn’t just the digital technologies industry which needs people who are able to understand data analytics, software systems, digital marketing and so on.
“As we move further into a digital economy these skills will be in demand right across the economy,” Purvis pointed out.
Demand for talent in the sector is highlighted by latest salary figures from the Tech City UK organisation and innovation charity Nesta.
Digital technology workers in Edinburgh command an average salary of £51,227 – behind only the South East of England, with a figure of £46,854 for Glasgow and £38,069 in Dundee.
According to SLA’s Johnstone, a science and technology sector in rude health also present opportunities for businesses in other sectors to diversify.
“We recently visited a manufacturing company in the Borders which is heavily involved in the oil and gas industry and which is looking at opportunities to move into the life sciences sector,” he said.
The nature of the businesses involved at the cutting edge of science and technology means funding is always an issue.
According to ScotlandIS’s Purvis access to start-up and early stage funding for those companies with proven ideas and revenues is generally good.
“The gap is for growth funding post start-up and finding that venture capital is still a challenge.”
Skyscanner and FanDuel have both had significant success in raising money in the US to rapidly scale-up their businesses.
“They have shown the way for other companies in terms of how to raise finance to scale up quickly but I think we are now really understanding how to do that in UK and Scotland which will be a major step forward,” said Purvis.
In a bid to help start-ups and university spin-outs in the life sciences sector access the funding they need, Edinburgh-based Epidarex raised a new fund of £47.5m in 2014 with backers include US drug giant Eli Lilly, the Universities of Edinburgh, Glasgow and Aberdeen, King’s College London, the European Investment Fund, Scottish Enterprise and Strathclyde Pension fund.
Dunlop believes the fund, which has backed Scottish companies including Edinburgh Molecular Imaging – is filling an important gap in the funding landscape in Scotland.
“There are many opportunities which have not always got off the campus and into the development stage as much as we would have liked in Scotland.
“One of the key issues is that this has been an ‘underventured market’ with a mismatch of the amount of risk capital being deployed compared to the quality of the research being carried out.”
Dunlop also argues that the “very good” public sector support in Scotland through the Scottish Investment Bank was playing a key role in providing an important source of leverage to scale-up the deals which his firm can help put together.
Andrea Young, director of Edinburgh University’s inhouse venture capital arm Old College Capital which last year underwent a £6m recapitalisation to support companies associated with the university, said activity levels in the science and technology sectors remain high.
The fund invests an average of £250,000 in each company, and adopts a ‘co-investment model’, working alongside venture capitalists, angel groups and corporate investors.
“In particular Seed Enterprise Investment Scheme and Enterprise Investment Scheme funds are looking for deal flow and crowdfunding is starting to make an impact,” said Young.
“But I don’t think that the market is overheating. Valuations are still at a reasonable level,” she added.
According to SLA’s Johnstone the partnership with NHS Scotland is supporting life sciences firm as they look to access funding.
“I think there has always been appetite from investors but we perhaps haven’t been that good at pitching to them but I think our involvement with the NHS in Scotland is a strong factor in making companies more attractive to funders.”
Johnstone described the current funding environment as generally good. “No-one is screaming at me that they can’t get funding for their brilliant project although some of the less commercial ones will always find it more of a struggle.”
Source: Daily Record