The Future of High Growth Spin-Out Companies in Scotland

The Future of High Growth Spin-Out Companies in Scotland

From Dr Dave Hughes, Founder / CTO of novosound:

“As part of a co-ordinated effort, myself, members of Novosound’s board, along with other High Growth University Spin-Out companies in Scotland and investors, wrote to the Scottish Government describing the huge impact, which Novosound and similar companies, have had on the growth of the Scottish economy. Whilst outlining the economic contributions made by this group of spin-out and start-up companies, we have also highlighted the difficulties that we face in accessing the announced Covid19 funding and support packages. We are prohibited in accessing most of the support packages due to reasons such as state aid  & early-stage investment rules, and the typical challenges which spin-out (and start-up) companies face in conveying the feasibility of their business plans. The objective of this letter was not to ask merely for more funding; instead, as High Growth Spin-Out Companies, we are looking to be part of the conversation about restarting the Scottish Economy and growing again to ensure a safe, prosperous, and improved future for everyone.”

High Growth University Spin-Out Companies and the economic recovery plans post-covid19

In response to the Covid-19 crisis, we understand the Government has set out plans to provide financial support to companies who have been affected by the unprecedented restrictions on activity. These are gratefully received, and it is agreed that this is a tremendous show of support from the Government.

However, business support packages (such as the CBILS loan fund for the hospitality/leisure sectors and mature businesses) are only one part of the equation: there has been no mention of support for high-growth, university spin-out companies that would be passed over for the currently proposed support packages (such spin-outs are typically EIS funded and as such Convertible Loan Notes, as offered through the ‘Future Fund’ are incompatible).

During this challenging time, we strongly feel it is important to show support towards the next generation of potential £1Bn companies, or Unicorns, in Scotland as they navigate their way through the crucial stages of their emergence and ensure that they do not fail prematurely.

We, the undersigned, request that a working group with government support be created to consider how best the government could provide the relevant support to this absolutely critical part of the Scottish economy to ensure that Scotland’s global ambitions are protected for now and for the future.

Scottish High-Growth University Spin-Out companies employ many high-skilled and highly paid employees, most being graduates from Scotland’s strong academic sector and have potential to create many more. The companies exist to exploit and produce real world impact from the science, technology and research labs of our universities. Among them are award-winning companies such as Novosound, Chromacity, Clinspec Diagnostics Ltd , Invizius and Cytochroma to name a few. These companies and many others are at different stages in their growth; however, none of them are at the stage of self-sustainability from sales revenues and will inevitably require further funding and support whilst they grow to reach their promise from their publicly funded university R&D roots.

Many of Scotland’s high-growth, start-ups have started on a strong technical footing, emerging as university spin-out companies. Recognising the commercial viability and potential of their technology-based IP, these companies have received considerable support and investment from public bodies such as Scottish Enterprise and Converge.

Alumni of Converge, Scotland’s premier University business creation competition, have collectively raised over £105M and created over 360 jobs, contributing significantly to the Scottish economy, with continued growth projected. Converge recognises, and validates, the huge commercial potential of technology-based Intellectual Property developed in the Scottish University ecosystem.

These exciting businesses are also attracting growing interest from international investors illustrating Scotland’s global reputation as a place where high quality innovation is being developed, something we, as a nation, are and should be extremely proud of.

Although these companies are currently well-funded, with significant investment from both the public and private sectors, this capital was intended to create highly profitable companies of scale on the international stage, creating high quality jobs and not meant for the purposes of staying afloat during a national emergency.

Many of the companies within this sector are in the early life cycle of their business and product development and as markets weaken and the coronavirus uncertainty persists, these companies are incredibly apprehensive about using their cash reserves to keep their businesses going whilst they are unable to generate any significant revenue. If these companies are to divert all their funding to stay afloat during this period of economic downturn, they simply will not have enough revenue to support crucial business functions which are essential to growing the company once the Covid-19 crisis is over.

During this period of economic uncertainty, we feel it is incredibly important that University Spin-Out companies are not overlooked by the government plans for business support, and therefore the large sums of public investment which have been spent on the University Research and Innovation is not wasted.

If no action is taken by the government to provide financial support to this particular group of high-growth, start-up businesses, it is inevitable that some will be unable to survive, leading to the loss of not only numerous highly skilled jobs throughout Scotland, but also huge amounts of growth and tax revenue in the Scottish economy for the years to come.

We look forward to hearing from you soon and can assure you that the sector is ready to play its part in addressing the concerning situation we are facing now but also with eyes on the future to ensure that Scotland’s high growth start-ups retain the potential for the country’s economy.

Sincerely,