Scale-ups in Scotland: why now is the time

The ScaleUp Institute launched its ScaleUp Britain roadshow in Glasgow recently to support scaling businesses.

In case you’re not immediately familiar with the term, a scale-up is a business with at least 10 employees which goes on to grow its turnover or employee numbers by more than 20% every year over a period of three years.

Many of these businesses are generating sizeable revenues with significant employee numbers, but the challenges they have around growth remain the same.

In 2023, Scotland was home to 1,770 out of a total 28,410 scale-ups across the UK. Scale-ups are punching above their weight, representing 58% of SME output at £1.3trn, despite only accounting for 0.5% of the business population.

Even though this segment of the market is a force to be reckoned with, there are still many potential scale-ups in waiting that have the ambition and the credentials to achieve this, but are not yet meeting these levels of growth.

According to BDO’s latest bi-monthly Economic Engine survey of 500 mid-market businesses, one of the top barriers to growth in Scotland is a lack of access to capital, with 28% of businesses struggling to secure funding through bank loans, private equity, private credit loans, or government grants.

This has been a long-term narrative from businesses since 2008, when high street banks largely closed lending books.

Fast-forward to today and there has never been a better choice of funding and support for Scottish businesses looking to scale.

From venture capital or debt, to mid-market private equity, investors from Scotland and beyond are poised to back businesses who can communicate their proposition and demonstrate the value they will create.

As well as established scale-up investors, there are also new initiatives all the time.

Due to launch by the end of the year, the Private Intermittent Securities and Capital Exchange System (PISCES) from the London Stock Exchange will see scale-up businesses able to stay private, while growing their investor base and gaining access to new funding to enable further expansion.

The Scottish National Investment Bank is also able to make interventions of up to £50m via debt or equity where a positive impact to the Scottish economy and communities can be demonstrated.

Scale-up growth will be a key area of focus given its capability for improving productivity, revenue per employee and growth potential. To take advantage of this, businesses will need to make themselves investment-ready and implement succession plans to increase their attraction to investors.

So if it isn’t availability of funding that’s the challenge, what is the barrier to accessing capital that entrepreneurs feel they face?

Scaling has historically been the trickiest stage of business growth, but there is now a well-evolved and mature ecosystem of advisers, investors and entrepreneurs, supporting business here. There are networks of people who have been on and advised along the scale-up journey and can help the next generation of growth businesses to do the same.

Some of the barriers may be down to mindset.

I meet so many excellent entrepreneurs, running fantastic businesses, but just don’t think external investment is for them, or that their sector or stage of growth isn’t as attractive as others.

With the right ingredients, any business can scale.

Sector headwinds may be a consideration, particularly around timing of a fundraising process, but even that isn’t insurmountable. You’d just need to be able to clearly communicate what the opportunity is and find the right funder for you.

It’s worth noting that businesses obviously can’t scale with funding alone.

There continue to be some additional barriers to business growth. Just over half of Scottish businesses are facing the difficulty of recruiting staff due to labour and skills shortages.

Equally, there is disparity in funding opportunities, including those between smaller regions and larger cities. However, Scottish businesses remain ambitious to grow locally and overseas.

Businesses looking to access new markets, raise finance, build financial resilience and prepare for investment can access the network of strong local support and expertise for scale-up businesses.

The combined ambition and success will be key to boosting Scotland’s wider economic prospects too.

Rory McPherson is a deal advisory partner at BDO