Scottish scale-ups can overcome investment barriers

Considering the challenges and opportunities currently present in the Scottish investment landscape, Bob Hair, Scotland regional head at Cazenove Capital, discusses his firm’s support for the Invest2Scale gathering in Edinburgh, focusing on its role in aiding revenue-generating Scottish companies aiming for high-level growth by connecting them with investors and VC firms, and elaborates on how investment barriers may be overcome.

Today, a significant proportion of our UK clients have a background in founding and running businesses. Equally, many of our clients are interested in investing in dynamic businesses which are driving both economic growth and innovation around the UK, and particularly in Scotland.

As someone from a company that works closely with entrepreneurs and business owners at every stage of their journey, I’m aware of the difficulty of accessing external investment. However, this is often a key requirement for scalable companies, and can make all the difference in successfully achieving their growth ambitions. It is therefore essential that business owners initially address some of the key barriers to ensure their company is suitably positioned as one that is both attractive and investable.

Overcoming the investment barriers

First and foremost, it’s vital to present a clear proposition to investors by demonstrating why a business is unique and how its products or services differ from the rest.

A clear scale-up strategy, that outlines the plan to achieve revenue targets and grow the business is also key. This must be underpinned by the solid foundation of a strong management team, sound financials, and intellectual property all of which are fundamental in getting investors to back a business.

A strong management team with experienced leaders in key positions, and a clear plan for attracting and retaining top talent to help deliver a growth strategy is absolutely vital in attracting investment. Just as investors are often hesitant to invest in young companies without a proven track record of success, they are also keen to back businesses led by experienced people. The management teams of aspirational companies must therefore take a good hard look at their level of skills and experience and consider whether they need to bolster this through external recruitment before they embark on their investment journey.

Sound financials, where a company can demonstrate it has a clear understanding of its revenue streams, costs, and margins, as well as a detailed financial forecast that credibly shows how it can leverage external investment to achieve growth targets, will also help entice potential investors. This is especially key for pre-revenue businesses. It’s also important for aspirational companies to outline how they can scale their business model to support rapid growth without sacrificing quality or profitability.

Investors often look for companies which can generate a competitive advantage through intellectual property (IP) or proprietary technology they’ve developed. It’s important for such businesses to have a clear strategy for protecting and monetising these assets. This includes putting in place a robust IP portfolio, as well as setting out a clear plan on how they could licence or sell their IP to generate additional revenue.

To further enhance their investment potential, scalable companies need to maximise their addressable market as those operating within niche markets may struggle. Scale-up businesses need to show how they are able to establish a strong market position that allows them to compete effectively with competitors within their sector. Having a clear understanding of their target market, as well as a coherent plan for expanding their customer base and increasing market share is vital in addressing this potential barrier to investment.

The Scottish investment landscape

We are currently experiencing challenging economic conditions which make it more difficult for companies to attract investment and, especially within Scotland, scale-ups face specific issues including a smaller pool of active investors.

According to figures from fellow Invest2Scale supporter MarktoMarket, from January 2021 – March 2023, Scotland attracted an average of just 5% of the UK’s total company investment. Scottish companies also attracted a lower share of investment per capita compared to their UK counterparts.

Despite these challenges, there are significant advantages for Scottish-based businesses that are seeking growth investment. Scottish Enterprise, which is by far the most active investor in Scotland, has helped hundreds of companies double the size of their investment round by through its financial support. Fellow supporters of Invest2Scale, The Scottish National Investment Bank and British Business Bank are also heavily investing in Scottish businesses.

Scottish companies are also seen as good value for money within the investor community compared with those in London and the South East. While this may result in offering higher levels of equity to investors, this reality can enable Scotland-based businesses with scale-up potential to find an easier route to the finance they require to turn that growth dream into a reality.

Initiatives such as this year’s Invest2Scale event also have a vital role to play in supporting Scotland’s scale-up business community by connecting them with investors who can help them maximise their full global potential.