Scottish universities urged to boost spin-out rate – Daily Business

Scotland continues to underperform the UK in turning its university research into large-scale commercial ventures, according to a skills group.

Professor Sir Jim McDonald, who is president of the Royal Academy of Engineering, told a gathering in Glasgow that Scotland’s universities spend above the UK average on research and development work, but produce half the number of spinout companies.

Matching output at universities across the UK would have created an additional 72 spinouts over the last five years, he said.

The data emerged as the Royal Academy opened Enterprise Hub Scotland, the latest in a UK chain that focus on helping local entrepreneurs to commercialise deep tech innovations, spin-out companies from universities and attract further external investment.

The hub has already supported 35 early-stage entrepreneurs in Scotland and awarded £1.6 million in total grant funding to date. It is based in Glasgow and is supported by Glasgow City Council, Glasgow City Innovation District, National Manufacturing Institute Scotland and Scottish Enterprise.

Nearly a third of the UK’s deep tech companies are based in Edinburgh, partly thanks to support from organisations focused on developing local economic activity, such as that from Scottish Enterprise.

Scotland also leads the UK in investment in spinout companies operating in critical technology sectors such as semiconductors and telecommunications, according to the Academy’s Spotlight on spinouts analysis with Beauhurst.

However, Scotland produces spinouts at a rate 50% lower than the rest of the UK, relative to the amount of research funding received.

British Business Bank research indicates that the average equity deal for small to medium enterprises was smaller than the UK average, and the Scottish National Investment Bank has previously identified a funding gap of between £217 million and £1.5 billion for scaleups.

Enterprise Hub Scotland will help to address these challenges by collaborating with other organisations to support engineers and innovators to develop their commercial skills, offering mentoring and profiling deep tech talent within Scotland.

The Academy’s network of expert Fellows, funders, business leaders and policymakers will also be able to help attract investment for local entrepreneurs.

In a speech in Glasgow yesterday Professor McDonald, who is also vice-chancellor of the University of Strathclyde, said: “Scotland underperforms at converting university research strengths into economic benefits.

“That, for me, is a red light that we need to see and respond to. As a community we need to scale the level of ambition.”

The size of investment deals into promising Scottish technology companies was only a fraction of the average across the rest of the UK, he added.

He pointed out that too little venture capital resided in Scotland, with only half the tech spinouts that had raised capital doing so from investors with an office within one hour of their base.

“The full potential of Scotland’s prospective entrepreneurs is as yet unrealised,” he said. “For an ecosystem that could be described as not outward-looking enough, introducing new players, specifically those who are active at the early-seed rounds and larger growth funding where Scotland appears to have the largest gap will be a priority.”

Prof McDonald, who has been instrumental in developing the government’s innovation strategy, said: “There are great successes to be celebrated in Scotland, but the overarching performance is actually a challenging read.

“We have a wonderful academic sector, thankfully, but we produce 50 per cent lower a rate of spinouts from research than the rest of the UK.”

What progress has been made?

The Scottish government has hired Mark Logan, a former executive of the Edinburgh-based search engine Skyscanner, as chief entrepreneurial adviser to develop the technology eco-system.

Following his recommendation £42 million was allocated to create a number of “tech scalers”, or incubators, around the country and he is calling for more emphasis on computer science teaching in schools.

The programme attracted investment of more than £52m in 2023, according to the project’s first annual report and has assisted more than 500 companies in its first year.

Mr Logan told Daily Business last week that other regions and countries are now keen to learn from Scotland’s tech model.

Edinburgh-based venture capital firm Par Equity launched a £100m fund at the end of last year to invest in innovative technology companies with high-growth potential in the North of England, Northern Ireland and Scotland.

It is backed by the Scottish National Investment Bank and British Business Investments, with further support from the Strathclyde Pension Fund.

The fund is managed from Par Equity’s Edinburgh office, as well as its Leeds base, and will lead or support Series A funding rounds.

Scotland also benefits from a number of pitching events, such as Scottish Edge and Converge. The latter specifically supports spin-outs from universities.

Over the past 13 years, the initiative has supported more than 670 people to launch more than 420 companies, raising £360 million in follow-on funding along the way.

Companies formed by Converge Alumni have an 80% survival rate after three years. 

Among those it has helped are Bellrock Technology, Solaris Kit and Novosound which have gone on to better things.