StartupCafe

The Venture Capital and Public Policy series continues, brought to you by Michael Clouser. If you missed Part 1 yesterday, entitled The Rise of Venture Capital in the US: An Unintended Consequence, you may like to read that first to get the background. Otherwise, jump right in and look out for Part 3 tomorrow.

WHY AREN’T THERE MORE START-UPS AND TECHNOLOGY COMPANIES OF SIZE IN SCOTLAND

There are not as many start-ups and technology companies of size in Scotland because of the lack of risk capital at all stages of the lifecycle of a high growth venture. Especially in early and mid-stage venture capital. Arguably, currently there are only two substantial players in the technology venture capital game here in the early stages, and another one that is playing in the later stage and is pan-European. The angels in the Country have all but shut down, especially in the financing of new early stage technology ventures. Three firms playing in Country of 5 million with 13 universities and a handful of inactive angels is the landscape that faces the entrepreneur in Scotland today.

People often correlate the lack of start-ups and growth companies to “lack of management talent” and “lack of marketing know how” or “lack of the spirit of selling”.  However, what these people are forgetting is that these problems are easily solved with money. It’s that simple.

Money can buy marketing and management talent, and attract good salespeople.  Offered competitive salaries and share packages, talent will move wherever in the world to make things happen. It will come from Silicon Valley, Boston, Hong Kong, Paris, Stockholm, you name it. (Read Richard Florida’s “Flight of the Creative Class” for more on this).  It’s not about the weather, it’s about paying people what they are worth and compensating them for taking a risk on the upside. And the lifestyle benefits are here. But without money, entrepreneurs can’t buy in the talent they need. And without a competitive venture capital industry, entrepreneurs can’t get the money they need to buy in this talent.

There are more than a few promising areas for Scotland (and the UK as a whole), including energy (cleantech), biotechnology and informatics. Just addressing the biotechnology industry, and its promise, it is obvious that without “big” venture capital, the potential of the industry will never materialize. Scotland needs firms that can start with investments of $5 million, follow-on with $20 million, and then come in with another $50 million in the “C” round. Sizable, expert venture capital is needed to bring this industry to fruition. What is needed is a step change in thinking, and in growing global companies. Without it, projects such as the BioQuarter at the University of Edinburgh will never be leveraged to their full potentials and make a big dent on economic development.

Create the supply of risk capital and the entrepreneurs will sniff it out and get on the trail. They will emerge and come out to the light, out of the woodwork — from the halls of the universities, the bowels of large corporations, from the cramped offices of smaller firms, from the design studios and other creative spaces. They will travel over the waters to get here, from lands far away, and from parts unknown.  They are a people driven by a dreams and visions, and will go where they must to receive the fuel they need to make these dreams and visions a reality. They will settle and build things of value.