The State of Edinburgh’s Technology Start-up Scene

Arthur's Seat, Edinburgh

Dr Alistair Forbes, head of software and the internet, Mercia Technologies, outlines just how much is activity can be found in this Scotland’s amazing capital city.

Alistair Forbes, head of software and the Internet, Mercia

There has never been a better time to start a technology business in Edinburgh. The ecosystem supporting start-ups and scale-ups is strong; with funding, mentoring and affordable office space, the technology sector in Edinburgh is thriving.

But don’t just take our word for it, there are plenty of other people out there saying just that. According to the UK Tech Innovation Index, the city is the most active outside London in terms of volume of investment activity and start-up activity. As a whole, digital technology is Scotland’s fastest growing sector, and in 2017 the country’s capital was the fastest growing tech hub in the UK. According to Tech Nation’s 2018 Report, digital jobs in Edinburgh increased over three times the UK average between 2014-2017.

Scottish software start-up successes

The Edinburgh technology start-up scene has developed rapidly over the last ten years and there are several contributory factors. Travel fare aggregator Skyscanner and fantasy sports gaming pioneer Fanduel have become unicorn businesses, and this has created a Halo Effect, influencing and encouraging start-up technology companies. Other inspirational success stories include Craneware, a software company targeting the US medical and health insurance sectors, and SaaS provider LOGICnow, which was acquired for approximately half a billion dollars by US company SolarWinds. There are clearly great things happening in the region and everyone wants to be part of it.

Software start-ups dominate the Edinburgh tech scene due to the number of high-quality graduates from sizable and well-funded university computer science departments. Many of these graduates either create spin-outs or establish their own companies post-graduation. Software companies that offer data driven innovation, including Artificial Intelligence (AI) and Machine Learning (ML) are currently attracting interest. While AI and ML are “hot”, there are also plentiful opportunities in the provision of SaaS productivity and business management tools which might be considered slightly more pedestrian to their AI and ML peers.

To illustrate the point, we show two start-up success stories from the private sector which Mercia has invested in:

SnapDragon – the company fights fakes online, monitoring and removing infringing items from the world’s busiest online social media, auction and shopping sites – protecting brands, revenues and customers.

Founder of SnapDragon Rachel Jones picks up the Women in IT Excellence Award 2018.

Coach Logic – provides a collaborative video analysis platform for ambitious sports teams that allows them to communicate with their players in an environment that brings out the best in them.

With Coach Logic, simply upload in any video format, it’s then available on the cloud, allowing players to access it, annotate it and share it at a time convenient to them
As well as software, there is strong start-up activity within the life sciences sector in the Edinburgh area and this is true of Scotland in general with companies being created in many of the Scottish Universities, including Strathclyde, Glasgow and St Andrews, based on their world-class research capabilities.

An example of a successful life sciences start-up is Invizius, a University of Edinburgh spin-out. The company has been recognised as the Best Innovative MedTech company at the leading life sciences OBN Awards. Invizius secured seed investment of £500,000 from Mercia Fund Managers in April 2018 to further develop a technology that promises to improve the lives of millions of dialysis patients.

University of EdinburghUniversity partnerships with funders

The University of Edinburgh, Edinburgh Napier and Herriot-Watt Universities are at the forefront of the Scottish tech start-up scene with an active innovation culture, world leading informatics faculties and significant research income.

But it’s not just Edinburgh academic institutions that are contributing to the growing start-up scene in Scotland. Indeed, the university sector is buoyant across Scotland as a whole. That’s why Mercia Technologies, a leading investment business, has strengthened its presence in Scotland to commercialise pioneering technology businesses.

Mercia has partnerships with six Scottish universities, most recently the University of Edinburgh with which a partnership was established in November 2017, seeing Mercia work closely with Edinburgh Innovations, the university’s commercialisation service.

Dr George Baxter, CEO, Edinburgh Innovations, comments on the partnership: “A Mercia team member is now embedded in the EI team. They have added a great deal of value by uncovering more than 20 new opportunities. Mercia brings a different perspective, different backgrounds and different experience which is very complimentary to our own internal team. They engage with a wide range of academics by holding coffee mornings, breakfast meetings, hosting seminars etc.

 

“We have gone from 0 to more than 20 projects in a year. One deal has completed, and another is about to. Before Mercia became a partner, we had and still have a wide range of investment partners from local Angel networks to global investors, but they are the first partner with an embedded team member; a model we hope to replicate

“Finally, they have also helped us to standardise our investment processes which has been really useful. Working with them has also helped us to standardise our internal agreements across the University.”

Mercia has a long history of university partnerships, starting in the Midlands and the North of England. As with all of Mercia’s investment activities, this experience enables the team to provide expertise and network connections in addition to the all-important funding.

Dr Nicola Broughton leads a team of specialists which covers Mercia’s 19 UK university partnerships. With extensive experience in commercialisation, the team is actively sourcing new early stage businesses, as well as managing a portfolio of spin-out companies. In Scotland, investment director Marcus Henderson and Investment Manager Paul Devlin currently handle an active pipeline of approximately 20 opportunities at different stages. Mercia provides guidance on early stage funding, market evaluation and building the appropriate team.

 

Edinburgh tech incubators

Codebase, the UK’s largest tech incubator sits at the heart of Edinburgh’s tech scene, offering invaluable knowledge and affordable city-central office space, to help start-ups and scale-ups focus on building their businesses. The success of the venture is such that a Stirling office opened in 2017 and Aberdeen premises will open in April 2019.

Seed Haus is a pre-seed incubator based around a community of entrepreneurs, investors and makers. It has a network of ten partners from the technology ecosystem who provide active mentorship. Mercia Investment Director Alistair Forbes provides feedback on business plans and guides early-stage businesses as part of Seed Haus’ six-month incubator programme.

Private sector funding support

The early-stage investment community is very active in Edinburgh, with the first angel syndicate having been formed over 25 years ago, since then it has been joined by several other syndicates, primarily over the last ten years, all of which have played a vital role in supporting the development and maturation of the early-stage investment landscape.

Banks are also backing start-ups through accelerator programmes – the RBS Entrepreneur Accelerator, previously known as the Entrepreneurial Spark programme, has been in operation since 2012 and Barclays established a new Eagle Labs facility in January 2018.

Technology giants are getting involved too. In October 2018, the Wayra AI and Blockchain Accelerator was launched with funding support from Scottish Enterprise. The programme is a collaboration with Wayra UK (Telefonica’s open innovation platform) in partnership the University of Edinburgh’s Bayes Centre and supported by Cisco. The first cohort of ten start-ups are being assisted in scaling-up with the aim of becoming world leaders. The programme will support a total of 20 companies in 2019.

Edinburgh and South East City Region Deal

Another positive initiative for technology start-ups is the Edinburgh and South East Scotland City Region Deal, which has secured £1.3 billion to deliver inclusive economic growth across the region through housing, innovation, transport, skills and culture. Critically, the U.K. and Scottish Government’s investment includes up to £300 million towards a Data Driven Innovation programme of investment, led by the University of Edinburgh, including the creation of economic infrastructure across the region to ensure that businesses and communities across the region are fully able to engage in the resulting opportunities.

Scottish Investment Bank announces bumper yearScottish Investment Bank

The role of the Scottish government, through the Scottish Investment Bank (SIB) is an example of public sector activity that has played a pivotal role in supporting the development of the start-up and scale-up ecosystem in Scotland. SIB operates several investment programmes, including a co-investment fund that matches private investment with public funds. Working alongside the bank, partners like Mercia identify and evaluate start-ups and subsequently apply for match funding. The Scottish Investment Bank is in the top rank of UK investors, operating with its network of partners to support hundreds of businesses over the last few years.

Cyan Forensics, an Edinburgh Napier University spinout that could dramatically cut the time it takes police to examine consumer devices for criminality, has received investment of over £1 million from Mercia Fund Management and the SIB. The company’s technology helps digital forensics teams to deal with the backlog of digital devices that need to be scanned for illegal content as evidence in an investigation. It is based on research by a university team overseen by Professor Bill Buchanan, OBE.

While it’s relatively easy to secure start-up capital in Edinburgh and across other parts of Scotland, the availability of scale-up capital is scarcer for companies looking to raise £2 – £10 million. At this stage, the pool of investors shrinks rapidly. This is an area in which Mercia is looking to expand its support of the Scottish tech ecosystem. Working with co-investment partners including SIB, the angel syndicates and syndication partners from across the UK with which it has well-developed relationships, Mercia offers series A investment to support businesses that have gone beyond the start-up phase and are ready to scale rapidly across the world.



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