Technology start-ups are booming but struggle to reach the next level. What help is available to them at crucial times?
The number of technology start-ups in Scotland is now at an all-time high, driven by innovative research in the country's universities and helped along by a number of well-funded business support schemes.
But while the necessary support is available to launch new companies, is enough being done to help them grow and eventually compete on the global market?
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That was one of the questions being pondered at a conference organised last week by Informatics Ventures, the knowledge exchange and enterprise agency tasked with supporting Scotland's technology innovators and entrepreneurs.
The Teaming With Start-Ups event was one of a number of business conferences held last week in Scotland House designed to attract business people in Glasgow for the Commonwealth Games.
For several years Informatics Ventures, jointly funded by Scottish Enterprise and the Scottish Funding Council, has held an annual Engage Invest Exploit (EIE) forum which brings together start-ups and university spin-outs together with international investors.
The EIE programme typically attracts applications from more than 150 tech start-up companies in Scotland, of which 60 are selected to receive support and training, and to take part in the main annual investor showcase event.
Described as Scotland's largest investor conference, the single-day event held in Edinburgh each May features business speakers and networking opportunities, culminating in a Dragons' Den-style event where start-up companies present their business plans to potential investors.
The EIE programme has helped bring more than £30 million of investment to early-stage Scottish companies since the inaugural event in 2008.
It has been so successful that, since last year, the one-day event has been repeated in London in the autumn, in order to attract potential investors unable or unwilling to travel north for the Edinburgh conference in the spring.
For last week's event, the usual format was tweaked. Instead of bidding for investment cash, entrepreneurs were instead bidding to recruit extra staff.
Twelve early-stage companies from the information technology, life sciences and energy sectors each made four-minute presentations in which they set out their vacancies varying from a search for fresh management talent to a need for research, sales, marketing or technical support staff.
Prior to the event the companies, all of whom had taken part in EIE2014, had received coaching in how to present themselves to best advantage.
Gordon Stuart of Informatics Ventures said the hope was that by "getting the right people in the right place at the right time", sparks would fly, contacts be formed and the participating companies would be helped to fill their vacancies.
"If each company made one hire as a result of the event that would be a success," Stuart said, "but the important thing is that they are networking and making contacts."
Earlier this year, a survey of Scotland's start-up community found that confidence levels in the sector were high despite a "challenging" funding environment.
The poll, carried out by the influential newsletter Young Company Finance Scotland, asked companies about the biggest challenges facing their businesses, of which 48% of respondents said funding, 25% said customers and 15% said access to talent.
Young Company Finance editor Jonathan Harris believes that Scottish universities deserve much of the credit for many of the innovative products being launched by start-up companies.
Of the 18 universities in the country, at least one-third are actively involved in the process of turning research knowledge into commercially viable products. Edinburgh, Strathclyde and Heriot-Watt universities are particularly strong in identifying and developing innovative ideas for the tech sector.
Another challenge for many start-up companies, according to Harris, is the time and investment needed to turn creative ideas into a marketable product. As information technology becomes cheaper, it has become easier for companies in the IT sector - such as the highly successful Skyscanner fare aggregation site - to develop their ideas quickly and economically. But the research and development gestation period is often much longer for start-ups in the life sciences and other sectors.
"Companies need to be able to get to market more quickly and at less cost to be viable," Harris said. "There are opportunities that are not being picked up as well as they could be."
The conference's keynote speaker, John Innes, the former chief executive of the Amor Group, told delegates the main challenge facing start-ups during the banking crisis had been raising finance.
But as the economy begins to emerge from one of the longest recessions in living memory the main challenge for start-ups now is "the quest to get the best staff".
Innes said that the support eco-system for start-up companies put in place by the Scottish Government over the last decade or so was beginning to pay dividends.
"Back in the 1990s there was nothing like this in place to help get ideas out from the lab to the market," Innes said. "Back then, we had to pitch to banks or private-equity houses and there was not much else available."
"Nowadays the angel-investor sector is more vibrant and the Government and its agencies are doing a good job with what they have got."
In a word of advice to the start-ups as they begin the recruitment process, Innes said: "When it comes to the search for new talent, the real trick is to be honest about your own competency deficits and seek out that annoying person who challenges you and your company.
"They might be frustrating or annoying but they will encourage you to greater things."
According to Ross Martin, the chief executive of the Scottish Council for Development and Industry (SCDI), the main factor holding back Scottish start-ups from achieving their full potential is a lack of international experience.
If this could be improved it would allow more companies to launch their products on global markets and boost sales.
That lack of an international focus is highlighted by the fact that, while 75% of Bavarian companies export their goods outside Germany, only 7.5% of Scottish companies export beyond the borders of the UK.
This lack of a global outlook also undermines Scotland's strong research base where universities are pumping out spin-off companies and tech graduates with plenty of innovative ideas and products. Martin says: "It is a combination of culture, mind-set and governance that is stopping that internationalism from happening.
"In many Scottish towns there is a culture of localism. Rather than wanting to get out there and sell stuff to the world there is a workforce mentality that stops that happening."
But as the number of students signing up for university courses in languages continues to fall year on year, companies are likely to find it increasingly hard to recruit staff with the language skills needed to sell into foreign markets.
Although Scotland has a good track record in helping entrepreneurs with innovative ideas launch a company to commercialise that idea, not enough is currently being done to help support the later transition from micro-SME to SME, according to Martin. That is also true of the support available to grow a medium-sized company into something bigger.
Eleanor Mitchell of Scottish Enterprise points to a recent study that concluded that the number of early-stage entrepreneurs in Scotland had doubled over the course of the last five years.
The innovation stemming from universities in Scotland is a national strength, Dr Mitchell believes, witness ed by the fact that last year Scottish universities produced nearly a quarter of all the UK's spin-out companies from university research.
"We've got a dynamic environment with engaged public, private and third sectors and strong support mechanisms for early-stage technology companies," she said.
"However, what is in short supply are the individuals with international connections and commercial experience. Not enough of our early-stage companies can find people with these skill-sets and so not enough of our companies are growing and making a significant contribution to the creation of employment and wealth in Scotland."
John Swinney, the Cabinet Secretary for Finance, Employment and Sustainable Growth, told Wednesday's conference that using the public, private and third sectors to create the environment to encourage innovation was a "must do" for the Scottish Government.
"The numbers speak for themselves and in the last decade 63% of the UK's productivity growth resulted from innovation," he said.
Swinney also believes that the creation of eight new innovation centres around the country will help boost the Scottish start-up sector in the coming years.
The Scottish firms leading the charge
Biogelx is an award-winning bio-technology company based just outside Glasgow, launched 18 months ago to commercialise recently patented peptide hydrogels developed at the University of Strathclyde.
The firm’s synthetic in-vitro gels replicate the properties of body tissues, such as cartilage, brain or bone. Its gels are used by scientists in fields as varied as cell culture, toxicology screening and cancer research. The gels contain no animal products and give scientists an alternative to animal testing.
Used with stem-cell research,it is hoped the gels could replace damaged cartilage in arthritis sufferers or aid tissue repair and regeneration. Biogelx chief executive David Lightbody believes the company is well-placed to take advantage of the rapidly growing $1 billion global cellculture market and expects annual sales to reach £5 million in the next five years. The firm has six staff but plans to expand to 25 in the coming months, with many vacancies in sales.
Glasgow-based Firefish Software claims to have developed the UK’s fastest-growing recruitment software.The company was founded by Wendy McDougall in 2010 after she identified a gap in the market while running her own agency.
The aim of Firefish’s software is to make recruitment firms more efficient by keeping their databases up to date.It monitors if people registered with job agencies are, for example, regularly reading emails or clicking on job ads.
Firefish reckons 90% of data held by one in every three agencies is out of date. It aims to cut this to 35% in six months, letting recruiters increase their placements by 25%.
The company currently has eight staff but strong sales and ambitious growth plans mean it now wants to take on 15 more. Turnover in the year to April was £220,000 – a sum the company has already surpassed in the first four months of this financial year.
Opening the fridge and wondering how long an opened jar of mayonnaise has been on the top shelf could become a thing of the past, thanks to new hi-tech labels being developed by an Edinburgh start-up.
For five years UWI Technology has been developing an elapsed-time indicator that records when a jar, container or tube was first opened.
Once the contents reach their “use within” limit, the label changes colour. It plans to license its technology to companies in the aerospace, engineering and life-sciences sectors in 2015 and, in due course, the food sector. Research and product development at the company was boosted in 2012 when the company attracted £355,000 of private-sector investment from the US and £250,000 of public-sector investment through Scottish Enterprise.
The company, in the pre-revenue stage of its development, employs two people but plans to take on five more. A particular aim of the labels, says founder Pete Higgins, is to cut waste in the workplace or at home.
Two Big Ears
Two Big Ears is an Edinburgh-based firm at the forefront of directional audio technology for electronic and virtual reality games. It was created 18 months ago by Edinburgh University technology graduates Varun Nair and Abesh Thakur. Nair says the astounding three-dimensional visual graphics of many virtual reality games is let down by poor sound quality.
The two entrepreneurs set about creating a software development kit which games developers can use to make sure the sound quality of games is as good as the visual experience.
Algorithms are used to enhance a stereo sound signal to give the user – via a virtual reality headset, headphones or loudspeakers – the impression of sounds passing above, below or around them.
The kit was launched three months ago and sales have so far hugely exceeded expectations, with strong sales in their target markets in Europe and North America. As with much software, a free, slimmed-down version of it is available for download but the expectation is that professional games developers will be prepared to pay for versions of the software with premium functions.
Although the virtual-reality gaming sector is growing at 140% a year, competition is strong and the company’s strategy is to grow sales by aiming for the highest quality possible. By the end of the year, it plans to double its staff to four.