HM Insights

Unicorns are real, and the sky's the limit for Scottish startups

The last six months have seen some of the most significant events ever in the UK tech sector – so significant that even those not in the habit of following the sector couldn't fail to have noticed, particularly in Scotland. First, in July, came the sale of ARM Holdings to SoftBank, a Japanese company, for £24 billion. Then, in November, came the announcement of Edinburgh-based sports gaming firm FanDuel's proposed merger with DraftKings, quickly followed by the announced sale of online travel firm Skyscanner – the original Scottish unicorn (a start-up valued at over $1 billion) - to China's Ctrip for £1.4bn. 

Unicorn Start Up Investment Scotland

The Skyscanner sale could not have come at a more inconvenient time for Chancellor Phillip Hammond, what with him only hours earlier announcing in his Autumn Statement plans for a fund worth £400m to help invest in and retain some of the UK's vast number of tech start-ups.

Politics aside, what are the ground level effects of the Skyscanner sale likely to be within Scotland, given that it signals the loss of another Scottish headquartered business with global scale. Well, the early signs are that it's not all doom and gloom. Quite to the contrary, in fact, the impact of the Skyscanner deal is being widely viewed as a positive step for the Scottish tech and investment scenes. 

The sheer scale of the deal for Skyscanner, which gives proof to its unicorn status, reflects the confidence that foreign businesses have in Scottish companies. The fact that Skyscanner realised its billion pound valuation is a major win in itself. This great international publicity can surely only act to attract other foreign investors into examining the prospects of dealing with, investing in and potentially acquiring other Scottish start-ups. Further evidence of this international confidence is the recently announced partnership between another Scottish software company, nooQ, and Purdue University in the USA, which will incorporate nooQ's revolutionary software into its current collaboration disciplines.

Whilst many might decry the loss of a major Scottish company into foreign ownership, the early indications are that this will not have a significant effect on the day-to-day running of Skyscanner. Skyscanner's CEO, Gareth Williams, has been reported as saying "the combination of operational independence Ctrip affords us was (and is) extremely attractive. This, combined with the incredible knowledge they bring to Skyscanner and their similar passion for solving the hard problem of travel search, meant it felt like a natural progression for Skyscanner." He added that "we’re very much still a UK company, Skyscanner was born in Edinburgh, and we remain completely committed to our offices here and in Glasgow. We’re still headquartered here, over 500 of our 800 staff are based in the UK (and over 450 in Scotland) and we’ll continue to recruit at pace in the UK."

If proven to be true then this could be a significant development for Scotland as it retains an industry leading company that employs and develops fresh Scottish tech talent. The continued involvement of its founders, notably Williams, will give the company an ideal platform for growth when coupled with Ctrip's knowledge and technology. 

The value of employee share schemes

It's not only the founders who will benefit from the sale but also the employees. It has been reported that Skyscanner's employees own a large holding in the business through share schemes, with the potential value of £122m.  If true, it is possible that this could return employees an average £166,000 each.

Such a return shows the value in employee share schemes as a means to incentivise staff as part of a salary package. Through our work in the Scottish start up community we have seen a rise in the number of start-ups using share schemes for such a purpose. This example highlights the potential value in employees accepting such an offer. For more information on to establish an employee share scheme for your start-up please follow this link

A big win for our entrepreneurial ecosystem

It is not only the founders, investors and employees of Skyscanner who may benefit from this deal. One of Skyscanner's earliest backers was Scottish Equity Partners (SEP) which now stands to receive a significant windfall of £500m on their investment. This will not only provide a return to its investors but may also allow SEP greater scope to make future investments into other Scottish tech start-ups.

Gareth Williams and his fellow Skyscanner founders have also backed other Scottish start-ups, including scheduling app Decidz. With greater resources available to them, hopefully they will look to remain active in the investment sector and work with other Scottish entrepreneurs to develop new tech start-ups. 

Scotland has a rich history of innovation which is well known around the world. This continued success in innovation, the presence of business accelerators such as Entrepreneurial Spark and competitions like Scottish EDGE the existing Scottish investment infrastructure and the enhanced foreign interest and financial boost to the Scottish tech ecosystem provided by the Skyscanner sale should mean that there is no reason why the next Scottish unicorn is not too far away.

As the sale of Skyscanner develops we will learn more about its impact, but the early signs are encouraging as to the future prospects of one of Scotland's two unicorns and the wider tech community who are vying for similar levels of success.