Why Scotland is a prime destination for global investment

Bob Hair, Regional Head for Scotland, Cazenove Capital

As someone deeply involved in the investment landscape, I can confidently say that despite the challenges businesses in Scotland face, the future for investment here has never looked brighter.

Yes, we're emerging from a period of high inflation, and there are ongoing issues around attracting and retaining talent, especially with Scotland's differential income tax rates compared to the rest of the UK.

Investment generally took a downturn in 2023, and so, on the surface, these factors create a pessimistic outlook.

But I believe quite the opposite - Scotland is a phenomenal place to invest, and the opportunities for outside investors are expanding at an exciting rate.

While the last few months have seen business confidence ebb and flow, with RBS and Lloyds reporting a positive August and Bank of Scotland reporting a dip in September, I remain positive about the overall - and here’s why.

Scotland's entrepreneurial ecosystem

One of the reasons I'm so confident about the future of investment in Scotland is the strength of our entrepreneurial ecosystem, which shares many of the essential components that Brad Feld, a prominent venture capitalist from Colorado, outlined as key elements that drive thriving entrepreneurial environments.

First, Feld emphasised the importance of an ecosystem led by entrepreneurs for entrepreneurs. In Scotland, we have just that.

Leaders like Sir Tom Hunter, Ana Stewart and Chris van der Kuyl are not only role models, but actively mentor, invest in and guide the next generation of business leaders. Their ongoing commitment to coaching and investing creates a virtuous cycle where entrepreneurial success leads to more support for emerging businesses.

Feld also noted that a strong ecosystem requires the backing of government, a network of angels and venture capitalists, and support from universities.

Scotland excels in all these areas. Scottish Enterprise and the Scottish National Investment Bank are instrumental in backing businesses, with the former involved in over 100 investment deals in 2023 alone.

Our angel networks - some of the most active in the UK outside of London - consistently provide crucial early-stage funding.

Scotland also boasts world-class universities such as Edinburgh, Glasgow, and Strathclyde, contributing significantly to innovation and business spinouts.

Another vital aspect Feld identified is that success must be measured over the long term. Scotland's entrepreneurial leaders and investors understand this and are committed to building businesses that will thrive sustainably. This patient approach to growth fosters a resilient ecosystem that continues to attract investment and talent.

Finally, Feld highlighted the importance of openness and inclusivity, with an attitude of 'give before you get'.

In Scotland, this collaborative mindset is evident across the business landscape. Entrepreneurs here are committed to sharing knowledge and opportunities, creating an environment where businesses can grow through mutual support and cooperation.

Value for investors

What makes Scotland even more compelling is the value it offers to investors.

It's no secret that valuations here tend to be 20% to 25% lower than in London. For investors, this translates into more competitive opportunities with solid growth potential.

You're getting access to high-quality businesses at a more competitive price point, and with the level of entrepreneurial activity here, there's no shortage of opportunities to invest in.

In 2023, Scotland saw 84 venture capital and private equity deals. While this may seem modest compared to London, it's worth noting that we're second only to the 'Golden Triangle' of London, the south east and east of England, in terms of deal activity.

Scotland is punching above its weight, and the growing interest from global investors reflects that. Since 2013, we've seen 370 different investors putting their money into Scottish businesses.

This momentum suggests that more investors are recognising the opportunities Scotland presents.

Strategic growth areas

Another reason investors are drawn here is Scotland's presence in some of the world's most exciting and forward-looking sectors.

We're known for our expertise in life sciences, fintech and renewables, but one of the most exciting growth stories is in space technology.

Yes, Scotland is becoming a major player in the space industry, drawing attention from investors worldwide.

Our universities - Edinburgh, Glasgow, Strathclyde and St Andrews - are producing some of the most innovative spinouts and attracting significant investment. These institutions, which are among the best in the world, are helping to fuel Scotland's reputation as a centre for innovation.

Why now is the time to invest

I genuinely believe there's never been a better time to invest in Scotland.

Not only do we have world-class talent, but employment costs are more favourable compared to London and the south east.

However, perhaps the most compelling reason to invest in Scotland is the performance of our scaling businesses. While they represent a small percentage of the total number of SMEs, their contribution to the Scottish economy is significant.

In 2021, they made up just 0.53% of Scottish SMEs, but accounted for a third of the total SME turnover -£36bn. Scale-ups generate 61% more turnover per employee than their peers, growing at 20% to 40% annually in either headcount or revenue. Some are growing at even more than 50% per year.

Scale-ups constitute a significant driver of economic growth in Scotland, but there' still a funding gap - estimated to be between £217m and £1.5bn.

That's why it's so important that we continue to attract new sources of capital.

What we're doing to attract investment

At Cazenove Capital, we're committed to showcasing Scotland's potential to global investors.

That's why we've joined forces with partners like Eden Scott, CT and MBM to launch Invest2Scale. This initiative highlights Scotland's scaling companies and aims to attract more investment from a wider, global audience.

We're not just looking at short-term wins. We're measuring success over the long term, and I believe the appetite for investing in Scottish businesses will only continue to grow.

There's an undeniable energy here - a momentum that's building. And with the right support, there's no reason why Scotland can't continue to be one of the most exciting places to invest globally.