Meeting of the Parliament

Meeting date: Thursday, June 29, 2023

Official Report 966KB pdf

---

Entrepreneurship

The next item of business is a statement by Neil Gray on leading Scotland’s journey to becoming a start-up nation. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions.

13:26  

I am convinced that high-growth entrepreneurship can power the transformation of the Scottish economy. The economic impact of new and scaling firms is colossal—they are 40 per cent more productive than the economy as a whole, act as a magnet for external investment and radiate innovation through customers and supply chains, which drives job creation and wage growth beyond the walls of their own enterprises.

In Scotland, the true value of our start-up community goes beyond what can be measured by hard economic analysis. Our entrepreneurs are people of vision, drive and imagination. Through the solutions that they offer to problems and the jobs that they create, they use those gifts to make better futures for our people and our communities.

I think of Blackford Analysis, which uses the power of artificial intelligence to improve patient outcomes. I think of Rooser, which is a Google-backed seafood trading platform that protects our waters by eliminating waste and empowers local fishermen to command the best price for their catch. I think of Intelligent Growth Solutions, which is a rapidly scaling firm whose approach to precision farming is at the frontier of the push to deliver global food security.

Those companies and dozens more dispel the myth that growth and wellbeing are contradictory economic principles. For all those reasons, the Government is today setting out a vision to establish Scotland as one of Europe’s leading start-up economies.

We begin the journey from a position of strength. Despite significant macroeconomic headwinds, our start-up ecosystem attracted record investment of £953 million last year—it outperformed all United Kingdom regions with the exception of the so-called golden triangle between London, Oxford and Cambridge. However, our pride at that success must be tempered by the reality that, over the same period, the Swedish ecosystem attracted capital that totalled £5.4 billion. That illustrates the scale of the prize and underscores that the gap between Scotland’s entrepreneurial potential and its performance provides perhaps our greatest economic opportunity.

We needed a plan to help us to realise that potential, which is why we appointed Mark Logan as Scotland’s first chief entrepreneur. We have worked closely with him to produce a series of publications that, together, form a sophisticated and comprehensive plan to drive the systemic reforms that are necessary to establish Scotland as a world-class entrepreneurial economy.

The new plan proposes actions across the strategic domains of gender equality, infrastructure, education and international presence. I will take each of those in turn and describe our achievements to date and our priorities in the current financial year.

I will begin with the Scottish Government’s response to “Pathways: A New Approach for Women in Entrepreneurship”, Ana Stewart and Mark Logan’s groundbreaking review of how we can support more women to start and scale businesses. I thank Ana and Mark for their work and recent engagement, which have helped to persuade me of the need to drive so hard on this agenda.

The “Pathways” review’s findings are stark and its recommendations bold. Only one in five of Scotland’s businesses is led by women, and start-ups founded by women receive only 2 per cent of investment capital. The lack of meaningful progress is explained by deep-rooted societal barriers that disproportionately impact women. The review correctly describes that as

“a denial of opportunity on, literally, an industrial scale.”

That is intolerable in the wellbeing economy that I am dedicated to building.

We have a moral and economic duty to meet those challenges head on. That is why I am proud to announce that we accept the report and will immediately begin work on its implementation.

The report’s recommendations are broad and powerful, encompassing cultural change, long-term intervention in education and more immediate support to women in business. I will therefore focus my remarks on the actions that we will prioritise in this financial year.

First, we are committed to the creation of pre-start centres and pop-ups that are focused on encouraging women to start businesses and providing best-in-class support to help them to develop products, adopt sound commercial strategies and get early access to funding. As part of that work, we will give early consideration to how we can implement the proposal for a concept fund, to offer women the seed funding that they need to turn good ideas into growing businesses.

Secondly, we will relaunch the Scottish Government’s competitive ecosystem fund, with an explicit focus on supporting projects that address the review’s key themes of entrepreneurial technique, access to finance and education. I am also pleased to announce that we will maintain our support for organisations such as Women’s Enterprise Scotland, Investing Women and Business Women Scotland, ahead of a shift to competitive funding in future years.

Thirdly, we will work with our enterprise agencies, the Scottish National Investment Bank and private sector investors to open up investment avenues for women-led businesses and other underinvested groups.

Finally, we will improve our collection and reporting of data, to develop a dashboard of measures to evaluate the extent to which our actions are succeeding.

On entrepreneurial infrastructure, the Scottish Government is well on its way to delivering what is arguably the finest system in Europe dedicated to the creation and scaling of high-growth businesses. The £42 million Techscaler network is a game changer for our start-up community, which puts the wind of silicon valley technique into the sails of Scottish innovation. It is a complex project, delivered on time and on budget. Six of seven physical sites are fully operational and already host 247 start-ups, with a further 1,300 members accessing virtual support and education the length and breadth of Scotland. An end-to-end entrepreneurial curriculum has been developed, with courses ranging from beginner level through to the advanced techniques necessary to achieve scale.

Reforge is silicon valley’s most prestigious provider of scale-up education and, through Techscaler, Scotland is the only country in the world to hold a national licence, with 47 entrepreneurs already learning and growing alongside the world’s best businesses.

A key objective is to ensure that the services offered by pre-start centres, and existing ecosystem assets such as national health service test beds and the Net Zero Technology Centre, are seamlessly connected to the Techscaler network to create a powerful continuum of support for entrepreneurs in every industry as they progress through each level of scale.

As part of ensuring that our existing ecosystem continues to flourish, I confirm that we will once again support Scottish EDGE’s excellent complementary work to identify and back Scotland’s most promising new businesses.

Just this Tuesday, in a speech to ecosystem builders in Brussels, the First Minister announced the publication of Ross Tuffee and Joe Little’s report, “Entrepreneurial Campus”—the Scottish Government’s blueprint to position our universities and colleges as hotbeds of start-up creation and scaling. That work is about establishing an alliance with universities and colleges to catalyse a movement that has already started to build in the sector through an increased focus on spin-out companies and the broader commercialisation of research.

The movement is responsive to a shifting culture in which learners no longer view institutions merely as a means of acquiring a degree but as places where they can meet co-founders, experiment with cutting-edge technologies and create the innovation-led businesses that are necessary to drive Scotland’s economic future.

The report sets out a range of initiatives to accelerate that mission, and we have provided a £5.5 million increase in the 2023-24 university innovation fund to deliver it.

I turn now to entrepreneurial culture and education. I take my hat off to our wonderful entrepreneurs and the work that they do. Although there appears to be a perception that entrepreneurs must somehow be different, the evidence suggests—and repeated studies have shown—that consistent exposure to quality entrepreneurial education and networks is a powerful means of instilling the necessary mindset, attitudes and skills. In other words, we can train our entrepreneurs.

That is why I am pleased to announce that, over the coming year, I will work closely with ministerial colleagues, our partners at Young Enterprise Scotland, the Prince’s Trust, industry and—crucially—our teachers to systematically embed project-based entrepreneurial learning in schools across Scotland, alongside other measures that we are working on for our schools.

As the flywheel effect of our interventions across infrastructure, education and investment starts to yield momentum, we will also have an eye to what that means for Scotland’s presence on the global stage. The best entrepreneurial ecosystems are synonymous with the nations that host them, acting as a magnet for talent and inward investment. Our ambition is, therefore, to establish Scotland as a global hub for start-up founders and investors, akin to the reputations that are presently enjoyed by Sweden and Finland.

Recent events to showcase Scottish business in Helsinki, silicon valley and New York revealed strong interest from external investors in the quality of Scottish start-ups—an impression that we are keen to reinforce. Therefore, this year, we will embark on an exciting pilot to establish a branch of the Techscaler network in the heart of silicon valley. That will allow the stars of the Scottish start-up scene to live and work for an extended period in the world’s leading hub for innovation, so that founders will be exposed to expanded networks, world-class technique and enhanced opportunities to raise capital.

As well as that being a hugely enriching experience for the founders, the idea is that the quality of our companies will stimulate broader investor interest in the Scottish ecosystem. As that interest takes hold, over time, we will look to build links with other leading ecosystems, such as the Nordics, Canada and Ireland, to bring new ideas, talent and investment to Scotland.

In perhaps the most challenging fiscal environment in living memory, that package of support represents an investment in our start-up ecosystem of up to £17.5 million in this financial year. It is a package of vision and aspiration that sends a clear and powerful message to Scotland’s innovators, entrepreneurs and disruptors—this Government believes in you and we are prepared to back you.

I will close by reminding the chamber that a Scottish start-up, led by James Watt, ignited the industrial revolution that transformed global living standards and lifted millions of people across the world out of poverty. With the post-pandemic health and demographic challenges, the cost of living crisis, climate change and the economic damage caused by Brexit, the challenges that we face today are no less profound. The world needs Scottish start-ups to get to work, and we will help them on their way.

The cabinet secretary will now take questions on the issues that were raised in his statement. I intend to allow around 20 minutes for questions, after which we will need to move on to the next item of business. Members who wish to ask a question should press their request-to-speak buttons.

I thank the cabinet secretary for his statement and for advance sight of it. I welcome the focus that he puts on promoting entrepreneurship and the new initiatives that have been announced today, which are much needed. This Government has had a troubled relationship with the business community, which has not been helped by the fact that the junior coalition partners are actively hostile to economic growth.

Our track record on business start-ups is poor. In 2019, the last year before Covid, Scotland had 48 new business registrations per 10,000 of the adult population, compared to a UK average of 72. Excluding London, the UK figure is 62 so, even on that basis, we are lagging far behind other parts of the UK.

In welcoming the announcements today, I ask the cabinet secretary the following questions. First, does he have a target for increasing the business start-up rate for Scotland? If so, what is it and when will it be delivered?

Secondly, in relation to the serious issue that he raised of the lack of start-up capital for women entrepreneurs, when does he expect the initiatives that he announced today to be delivered?

Thirdly, in relation to entrepreneurial learning in schools, does he intend that that will be mainstreamed across the curriculum and taught to all pupils? Or is the intention for that to be an optional, stand-alone subject?

I thank Murdo Fraser for the constructive way in which he has responded to the statement and its intent to make Scotland the start-up hub of Europe. He thanked me for advance sight of the statement, some of which we discussed last night, with Daniel Johnson as well, at the RBS dinner.

We discussed some elements of the issues that are before us, including access to finance, which I recognise is a major challenge for some who are looking to start up a business. That is exactly why we are looking to instil the confidence in the market: to ensure that access to finance continues.

I mentioned in my statement the fact that we have seen a record investment in Scottish start-ups over the past year. We want to build on that. It is not enough, and last night we heard evidence of where there are challenges. I will keep working with finance colleagues and with the business community to see what more we can do to ensure that finance can continue to flow.

I do not have a particular target. I am happy to talk to Murdo Fraser about where we might see this ending up. However, I think that we have seen, not least in what Murdo Fraser highlighted in his contribution, where we have room for growth—and we certainly have room for growth.

On the work that is being done in schools, I will be working with my colleague Jenny Gilruth and education colleagues on how much further we can go in ensuring that there is access to education on this area in our school environment.

I, too, thank the cabinet secretary for advance sight of his statement.

I welcome the statement’s focus, because I agree with the cabinet secretary without doubt that start-ups have the potential to drive new jobs and growth in the Scottish economy. I also welcome the reintroduction of Scottish EDGE funding, the interruption of which led to a reduction in the number of awards that it was able to make this year.

However, I will engage in something of a critical consensus. Although I agree that there are strengths in terms of Scottish start-ups, there are also issues. On total number of start-ups, the only English region that Scotland beats is the north-east. We lack high-growth firms. We have 1.5 high-growth firms for 10,000 people, compared with three per 10,000 in the UK. Indeed, the statistic from last night that is ringing in my ears is that 40 per cent of Scottish businesses have never accessed any formal finance at all.

Therefore, I have questions to ask. Following on from the point about targets, the cabinet secretary said that there would be a scorecard. When will we have that scorecard, and what metrics will it contain? Will it cover a broad spectrum of start-ups, instead of just high-tech, high-growth ones?

On the point around growth in small and micro businesses, we know that many businesses start but then stall. What initiatives will there be to help investment in growth across the broad face of small and micro businesses—

Cabinet secretary.

Can we make sure that there is no overfocus on—

Mr Johnson, resume your seat. I call the cabinet secretary.

I am happy to have a further discussion with Daniel Johnson to respond to some of those points in more detail and to answer more of the questions that he was looking to ask.

In his questions, he diagnoses exactly why we need to take this intervention. He is absolutely right about the statistics that he and I saw from RBS last night and how they relate to the work that still needs to be done in terms of access to finance and encouraging a greater number of start-ups. I am happy to engage with Mr Johnson over the summer months on answering some of the questions that he poses.

I thank the cabinet secretary for his statement. I am hugely encouraged by the amount of work that is going into taking forward the entrepreneurial agenda.

It is worth noting that Scotland’s business start-up rate for young people is actually among the highest in the UK, thanks to the good work of Young Enterprise Scotland, the Prince’s Trust, Converge Challenge and others. What is the Scottish Government doing to build on that good work to make starting a business be seen as a genuinely aspirational career choice and positive destination for young people, including by providing information support for young people who are thinking about becoming entrepreneurs?

First, I pay tribute to Ivan McKee and Kate Forbes for starting the work, which I am now able to build on, to ensure that we have the foundations of a support network. That network ensures not only that we have the infrastructure that allows people to start their own business, but that they are encouraged from an early age to do so.

He is absolutely right about the work that is being done with the likes of Young Enterprise Scotland. I was involved in a Young Enterprise programme when I was at school. It is a wonderful initiative carried out alongside the Prince’s Trust that ensures that young people are exposed as early as possible to that type of mindset.

I also point Ivan McKee to the announcement this week by the First Minister on entrepreneurial campuses. I think that that will make a transformational change.

I, too, welcome what the cabinet secretary has said, but does he agree that this will be deliverable only if there is a broader perspective on economic policy that enhances productivity and economic growth and reduces the tax burden for businesses?

Liz Smith and I had a very interesting discussion this morning around some of the issues. I am looking to foster a wellbeing economy in Scotland where we recognise that there cannot be a good strong economy without a good society, and there cannot be a good society without a strong economy. The two need to work together. Alongside the work that has been published this morning, we are looking to realign our relationship with business and we are making sure that we deliver on some of the points that have been raised on that. We need to make sure that we have economic growth, but that economic growth has to be for a purpose. That purpose is about making sure that we deliver on the wellbeing of our people as well as our businesses across Scotland.

I thank the cabinet secretary for such a positive statement. I am particularly delighted to hear of the start-up initiatives for women. However, start-ups will be facing additional financial pressures, given the current challenges that our economy faces. Can the cabinet secretary provide any information as to the steps that the Scottish Government can take to mitigate those pressures?

I thank Rona Mackay for that. Obviously, we are acutely aware of the challenging operating environment that businesses continue to face in the wake of Brexit, recovering from Covid, the current conflict of Russia’s illegal invasion of Ukraine and the resulting cost impacts. The Scottish Government is well connected to the start-up ecosystem, and it is in constant dialogue to understand the pressures that start-ups are facing as well as the opportunities that we must capitalise on at pace.

We appreciate that start-ups are operating in a complex economic environment, but that is why our £42 million national Techscaler network is committed to providing founders and leaders in terms of the necessary skills on funding models, investor attraction and pitching. Alongside other initiatives, including enterprise agency support, we are committed to fostering an environment in which access to funding is seamless, despite economic pressures.

Presiding Officer, I apologise that I cannot stay until the end of the statement today.

Universities are at the forefront of innovation in medical sciences and renewables but, despite that success, people working in the city of Glasgow have expressed concerns to me that their expertise is not being converted into jobs growth on the scale that it should be. What plans are there for the Scottish Government to capitalise on the skills and innovation that are being developed in Glasgow’s universities?

That speaks to what I just said in answer to Ivan McKee about entrepreneurial campuses making sure that we continue to enjoy the benefits of university spin-offs, and to the recently published innovation strategy to ensure that we have a strong economic performance through the incredible work that has been done by our researchers and academics at universities including those in Glasgow.

Like other colleagues, I greatly welcome the statement and its relevance to the energy sector. The north-east-based Net Zero Technology Centre’s TechX programme has, to date, supported the successful acceleration of almost 60 start-ups, with eight technologies commercialised, more than 200 employees hired and at least £80 million in start-up equity funding raised. Given the significant success of the TechX accelerator programme, will the cabinet secretary support having an enhanced clean-energy technology acceleration programme such as TechX as part of an energy transition cluster in Scotland?

I am certainly happy to meet Audrey Nicoll to discuss that potential. I recognise the enormous economic and entrepreneurial potential of Scotland’s expertise in net zero technologies, paired with the abundance of our natural resources, so supporting the growth of the sector is a priority for the Government. Businesses seeking to start up, grow and scale in the field will be supported through our entrepreneurial ecosystem. I look forward to hearing more about Audrey Nicoll’s proposals.

Although the proposals are eminently sensible, the cabinet secretary will understand that, for years, the issue has been as much about a cultural change as it has been about a system change. I do, however, welcome the proposals, particularly for ensuring that we tap into the potential of women-led businesses. Universities will be important to make the proposals a success. Is the cabinet secretary sure that we have the right balance when it comes to freeing up intellectual property? How will the cabinet secretary reverse the decline of the performance of Scottish university research in comparison to that of the rest of the UK?

Willie Rennie is absolutely right about the cultural change. I have set out in my statement that we should work with financial centres and other agencies to ensure a mindset shift and cultural change in order to support greater diversity in our start-up ecosystem.

On universities, I pointed towards the entrepreneurial campus model in my responses to Pauline McNeill and Ivan McKee, but I am more than happy to have a further discussion with Willie Rennie on the areas that he has raised.

Social enterprises are key to creating inclusive and empowered communities and the fairer and more equal society that we often speak of. The 2021 social enterprise census recorded a £2.63 billion contribution to the Scottish economy. Does the cabinet secretary agree that social enterprises will be key to that innovation that lies at the core of driving many of Scotland’s societal changes, which he touched on in his statement? What role does he see the social enterprise model playing in supporting Scotland’s journey to become a start-up nation?

The Scottish Government’s long-term vision is for social enterprise to be at the forefront of ethical and socially responsible business and for it to be far reaching and central to the way that Scotland chooses to do business. Social enterprises are supported through a world-class system here, which includes a pipeline of social investment into the sector from the pre-start-up stage through to loans for growth-ready business, as well as innovative funding for those businesses in between those stages. Last year, we funded the start of nearly 100 social enterprises through Scottish Government investment; in addition, a range of business support for the social enterprise sector continues to be provided.

I thank the cabinet secretary for advance sight of his statement. He will be familiar with the need for successful start-ups to consider both scaling up and scaling deep, as we have heard from Professor Logan. Following on from the previous question, the cabinet secretary will also be aware of the value and social good that co-operatives provide as they build community cohesion, resilience and placemaking, and create and sustain social capital, community wealth and more. By their nature, they, like social enterprises, scale deep. How will the Government’s positive vision support the co-operative business model for the benefit of local people and community economies across Scotland?

Maggie Chapman is absolutely right that alternative business models, such as co-operatives—I declare an interest in that I am a member of a co-operative—can deliver that scaling up and scaling deep. We will continue to provide support to co-operatives in Scotland, and I will write to Maggie Chapman to provide more detail on that support.

My colleagues Murdo Fraser and Liz Smith have already highlighted the fact that the number of start-ups in Scotland lags behind that of England, and the concern that one area that impacts on the situation is Scotland’s tax policy. I am sure that nearly all in the chamber will agree that it is vital that we foster a pro-business environment to ensure that start-ups have the best possibility of success. How will the Scottish Government ensure that entrepreneurial interests are being considered across all relevant policy areas?

I slightly challenge Jamie Halcro Johnston’s assertion that our tax policy puts off investment in Scotland. Scotland is outperforming the rest of the UK on inward investment, so his point does not quite match up.

For Scotland to be the best place to do business was part of the theme of the new deal for business group. We want to continue to talk about the package of support that is on offer—I was talking to Liz Smith about that this morning. It is my job to sell Scotland as being a good place to do business and I will continue to do so. I will ensure that, as the member has suggested, I continue to listen to entrepreneurs about the work that they are doing—not least, to our chief entrepreneur, Mark Logan—which is what we base our plans on.

Entrepreneurship can better be driven by tapping into the most diverse talent group possible. What steps is the Scottish Government taking to break down social and economic barriers to entrepreneurship and to support diversity in start-ups and business?

As the pathways review report sets out, unlocking Scotland’s full entrepreneurial potential offers a significant—huge—economic opportunity as we fully develop the delivery plans to implement the review’s recommendations. We will widen access to entrepreneurial support and education across all underrepresented groups and deliver accessible support where and when it is needed.

As I have said previously in the chamber, there is no doubt that unlocking the economic potential of women—ensuring that we close the gender pay gap, the employment gap and the gap in female start-ups—is one of the greatest economic potentials that we can invest in.

Scotland has always been an innovative and entrepreneurial country, including through start-ups. The gap lies in what happens next, in the early growth of businesses. Previously, the seed enterprise investment and the enterprise investment schemes have been vehicles through which the public and private sectors have been able to work together to invest in early-stage companies, giving them a step up. What will the Scottish Government do to encourage private investment in early-stage business growth, including through the tax-efficient use of funding from investment houses and high net worth investors?

Part of the challenge that we heard about last night is in where private investment comes from. A lot of it is international rather than domestic.

I point to the support that we are looking to provide to our entrepreneurs and start-ups through our investment in the Techscaler network and by ensuring that it is married and matched to the likes of the NHS test beds, to give better certainty to the projects that they are working on from an investment perspective. I am more than happy to provide more detail on that to Brian Whittle to give him confidence about the work that we are doing.