Why the Scottish entrepreneurial ecosystem is the envy of the UK and beyond

An ecosystem is defined as 'any system of interconnecting and interacting parts'. This is also a word which can be used to define the business start-up community in Scotland. The boom of new businesses starting up in Scotland has created a unique start-up ecosystem and one which is continuing to grow exponentially.

The support for new business start-ups in Scotland has significantly grown over the past few years with various different networking events, discussions, conferences and competitions allowing business start-ups to come together to discuss and develop new business ideas. In addition to this, there are numerous potential funding routes that Scottish businesses can access. Access to funding is a major concern to anyone starting a new business, and having various options is crucial to encourage progress.

The access to funding afforded to start-ups in Scotland is something which has not only helped establish the current ecosystem, but also sets Scotland apart from the rest of the UK and to an extent, Europe.

Public and private sector funding

Investment from the public sector in Scotland is now well established, with the Scottish Investment Bank (SIB) - the investment arm of Scottish Enterprise - offering matched funding through the matched investment funds e.g. Seed Fund and the Scottish Co-Investment Fund. With the matched investment funds, SIB will match the funding provided by other means e.g. angel syndicates. Between October 2013 and October 2014 the SIB invested £32.4million alongside £93.3million of private sector investment.

The Scottish EDGE fund - which is backed by Sir Tom Hunter, Royal Bank of Scotland and the Scottish Government - provides awards of funding of up to £100,000 from a £5million fund to potentially successful businesses. The idea behind Scottish EDGE is that the business receiving funding enters into an agreement that should it be successful and reach a certain level, 50% of the funding will be repaid over time. This should replenish the fund to allow new start-ups access to funding.

Angels

Aside from the publicly funded support available, there are various methods of financing which can be sourced through the private sector which are available to start-ups.

Angel investors are prominent in Scotland and have helped fund many Scottish businesses. There was over £27 million of investment in Scottish start-ups in 2013 by angel investors with most deals receiving in the region of £20,000-£750,000.

LINC Scotland is the national association for business angels in Scotland and currently has 19 angel syndicate members comprising more than 800 individual investors. The role of LINC is to support the functioning of the business angel market in Scotland. Scottish business angels are encouraged to work together as a group which leads to more deals through syndicates, with Scottish Development International describing Scotland as having "more business angel investment per head of population than any other country in Europe".

Although UK wide, the investment relief that is available to investors who invest in early stage start-ups is attractive. The Seed Enterprise Investment Scheme and the Enterprise Investment Scheme are tax relief schemes which act as an incentive to encourage investors to invest in new businesses for a minimum period of three years. Although not the main reason for investment, these do help to encourage investment by private investors in Scotland.

Alternative finance

As well as the main funding routes already mentioned, the last few years have seen a sharp increase in the number of new businesses obtaining funding through the alternative finance market.

In particular there is an increased awareness of crowdfunding in Scotland, with recent Scottish deals highlighting the potential success of this method of funding. Plan Bee Ltd, which provides fully managed beehive services, is a recent success story in managing to obtain funding from three sources at the same time; crowdfunding, seed funding from SIB and angel investment.

Crowdfunding is certainly gaining popularity as a way to obtain funding as a new business start-up, which is reflected in the number of crowdfunding platforms being established. Many of these are choosing to have a particular presence in Scotland including Crowdcube - which has opened in Scotland - and Scottish platforms ShareIn and Squareknot.

Go Do

There are various other organisations which have been set up specifically to support the start-up community by providing free networking events and seminars.

Scotland is rapidly becoming one of the fastest growing ecosystems and many start-up companies are looking to locate here due to the business infrastructure and support that is available. There has perhaps never been a better time to start a business in Scotland.