I reinforce the comments that Bruce Wood has made. Depending on the context, we routinely tell clients to set up their company in England, have their bank accounts in England and write their contracts under English law because, in many situations, the marginal benefit that is to be derived from the operation of English law is such that it can tip the balance.
Before I go on to invoice discounting, I will talk about intellectual property. I think that Bruce Wood mentioned that intellectual property—or intangible assets—is 80 per cent of companies’ assets. Over a remarkably short time—the past 20 years or so—the ratio between tangible and intangible assets has flipped round. I see the whole reform as being like mechanical infrastructure reform to deal with how modern Scotland is in a business sense for its operations in the future.
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There is currently a lot of discussion about the need for better transport infrastructure, better technical infrastructure, such as fibre broadband, and many other things to take us forward over the next 20 years and to deal with technological change. Technology features highly in where the economy is going and where growth is coming from, and I am sure that it will feature very highly in your discussions and various other things.
I see the proposed reform as an infrastructure one that goes along with those other infrastructure reforms and that will tip the balance when people are considering why to come to Scotland. It is about good education, good people and improving technical infrastructure. We need to improve our regulatory and legal infrastructure, as well, and the proposals are the pipework, as it were, that will critically improve certain parts of that infrastructure, so that I will not say to people, “Go to England”; in fact, I will say to people in England, “You’re better coming here, because it works better.” The reform will tip the balance. I am not saying that I tell everyone that they have to go to England, but we are talking about the sort of thing that can tip the balance.
On intellectual property, an early-stage company will nearly always be funded by equity, just because of the risks involved. That is the nature of the beast and the economy. Once the company grows to a certain stage, it becomes more feasible for it to be financed by secured debt of one sort or another. What assets does it have at that stage? Depending on its stage of development, it might not have a lot of revenue that could be used to provide finance in the way that I will come on to in a minute; it will have intellectual property, software licences, trademarks and registered and unregistered designs with licences for them all. At the moment, such assets are difficult to subject to fixed security to provide funding.
A low to mid-growth tech company that is based in Dundee, Edinburgh, Glasgow or somewhere like that might come to me and say that it is having difficulty getting a loan from the banks using conventional funding techniques, or that that is a little too expensive or more difficult. That is because the company would have to transfer its intellectual property to the lender and the lender would then give the company a licence back for that intellectual property. Instead of the company giving the lender some sort of security right over the intellectual property, the lender owns it and then gives the company a licence back.
You can do that, but it causes a lot of grief when, in this sector of the finance market, you do not have a lot of cash to pay transaction costs, and it has to be relatively standardised. In some situations, in thinking about how the company will grow, the answer might be that it is better just to move to Old Street in London, because the company can finance itself under English law, and there are specialist funders there that can do that and are well used to doing so.
I am not saying that that happens routinely but, when Bruce Wood and I are faced with that sort of client asking where they should set up or where they will grow—where they should move to and what they should do—such companies might be considering whether it will be in Scotland, Berlin, California or London and, from that particular perspective, the answer for most of those companies is that it will be easier for them in those other places. There will be a marginal benefit for a company in being in those other places or expanding there because of the way that the law operates. I am not trying to say that that will happen to everybody; there are many other factors that affect business location. It is a bit like somebody saying, “You haven’t got fibre broadband, so why would I set up there?” The issue is the sort of thing that might tip the balance.
I will move on to the invoices later.