From start-up to scale-up: The ‘death valley’ in the Scottish tech ecosystem

Scotland prides itself as a start-up nation.

According to research from trade body R3, more than 38,000 start-ups were launched north of the border in 2023, a boost of around 12 per cent compared to the year before.

Recently, the Scottish Government’s flagship start-up initative, Techscaler, published its first annual report, revealing the programme had raised more than £52m in investment through 2023.

And as of lately it has had its eye set across the sea, with Techscaler opening a new hub in Silicon Valley in February.

However, with the initiative still at its early stage, meaning its long-term impact is still to be assessed, professionals in the industry have been keen to highlight what they see as a significant gap in the sector: the scale-up stage.

Speaking to Holyrood in January, Nigel Eccles, co-founder of FanDuel, the tech firm which founded in Edinburgh, said he had been forced to look elsewhere for money to continue growing the business.

Amid this apparent broken method of support, Holyrood spoke to Dave Hughes, the founder of sensors specialist Novosound, on his views on Scotland as a start-up nation, and how his recently patented device could “revolutionise” the health and care sector.

Novosound was the first spin-out from the University of the West of Scotland and in March it reached a milestone after securing a patent for its ultrasound instrumentation system, the Slanj.

The patent is for a wearable ultrasound device. Strapped to a patient’s body, it constantly monitors blood flow and pressure and is able to produce images on mobile devices.

Holyrood: Was it hard to start-up the business in Scotland?

Hughes: Starting a business is never easy. When we started in 2018, we only had four people. Also, as an early startup, March 2020 wasn't good for us. At the time the pandemic hit we were starting to really go places with the business, and then all of a sudden the world shut down around us. At the time, we were selling ultrasound sensors into aviation and energy as well as oil and gas markets so when the planes stopped flying and the price of oil barrels went negative all the clients that we had started stepping aside. They didn't have as much money to spend on innovation or new sensor products.

As I have a background in biomedical ultrasound, we then started doing a lot more on healthcare innovation. Throughout the pandemic we got a lot of people asking us whether could the ultrasound be used to monitor lung health or as a biomedical monitor so we basically put our energy in solving some health challenges with our tech. This is when we filed the patent for the digital health monitor with ultrasound that we just got granted. This monitor allowed us to push the limits of what you could do with ultrasound by breaking it away from being a hospital tool to putting it on the body as a wearable. We also recently got some really good data to prove that it can actually be used to monitor blood pressure from the wrist, which is one of the holy grails of the smartwatch industry. We think that's going to be the next big game changer in digital health.

What countries do you see as the leader of start-up nations?

I think if you want to build a significant business in Scotland, and especially if you have a potentially world-changing technology, you have to have a global outlook.

Most of our revenue currently comes from North America and that's partly because they have a lot of appetite for innovation. Big tech companies and a lot of the innovation technology is based in America at the moment because there’s both appetite and money to be spent on modern technologies, whereas in the UK and Europe there tends to be a more conservative approach when it comes to new technologies. They want to see what's going on in the rest of the world first.

I very much see America and other parts of the world being testing grounds for new technologies that we can then bring back to Scotland. I'd love to work with the NHS but the routes for technology innovation are a lot slower than what you see over there.

Do you think there's currently enough support for startups in Scotland?

I think in Scotland we've got a great scene for startups and building a business. However, there really needs to be a bit more focus is on what happens after you get a start-up off the ground and you're on that curve of inflection, where perhaps the demand outstrips your capacity to deliver. Where is the support for companies that aren’t perhaps profitable yet but have a clear line of sight? So, we have that valley of death in the middle where companies need injections to go from being a start-up to being a mature business. That is the gap where companies start to look across the Atlantic for those pots of money, investments, or ventures. While Scotland's making good movements towards addressing that challenge, that is where most the attention needs to focus on for businesses at this kind of level.

You have spoken before about Scotland having a lack of presence in global events. What do you think is the impact of this on Scotland’s reputation as a start-up nation?

The message I have been trying to get across is that for Scotland to be a superpower in technology and to scale these businesses across the world, the businesses need to be there. It can’t all be done by Zoom. It can’t all be done digitally. I know that during the pandemic things had to go remote, but now that the world has opened back up again businesses need to be out there to actually engage with the clients face-to-face.

The critical part is to actually go out there and be targeted as to why you are there. The business culture in America is all about face-to-face relationships so you have to be there.

So, perhaps the focus needs to be flipped on taking small companies out on trade missions that are extremely focused on client and commercial building. The investment stage would come as a secondary aspect.

Recently, the Techscaler programme announced the opening of a new hub in Silicon Valley. Do you think these initiatives will help solve this gap?

I think it will help companies that are targeted towards that ecosystem and style of business. Silicon Valley is a phenomenal place to go if you're a tech business that works in the digital realm, so having a Scottish presence out there will allow businesses to be closer to their clients. However, I think a lot more can be built upon that for other markets, such as life sciences. For example, Boston has a massive presence of medical devices and life sciences companies that perhaps aren't as suited to the Silicon Valley ecosystem.

Building on the Techscaler programme while widening our view of what entrepreneurialism is would be great. It's not just writing apps and digital businesses, it's also the deep tech hardware and the med-tech businesses. These need to have their place and their support from government to grow just as much as digital companies that the Techscaler perhaps focuses more on. Overall, I think Techscaler is a great endeavor for start-ups but if we just start to look at what happens at the scale-up stage for other industries then we'll really be able to build something cool for Scotland.

There’s an ongoing talent shortage in the tech sector. Have you experienced difficulty in trying to recruit staff?

Novosound operates in the ultrasound technology sector, and around seven universities in Scotland have ultrasound research departments generating masters, PhDs, etc, so, the talent pool in Scotland for ultrasound is huge and we've not really found a challenge for niche recruitment for us as a business. However, it's highly competitive in terms of recruiting electrical engineers and software engineers. That's where there is a talent shortage. I think a lot of the time, the big banks that are building their skyscrapers in Glasgow - so the JP Morgans, the Barclays - are sweeping up all the software engineers, so most of Glasgow university graduates end up going for a job at a bank rather than in tech instead.

The issue is that if you're a recent graduate, are you going to want to work for a nice big established bank, get a really good onboard salary and a stable job for the next ten years or are you going to decide to go into a scrappy start-up? At age 23, I know what I'm going to be looking at. However, that can be changed by transitioning more of those scrappy start-ups into scale-ups and mature businesses. This is how they become the recruitment option for the computer science graduates. So, this goes back to what the Scottish Government should be focused on when supporting the tech scene in Scotland.

Let's have a culture in Scotland where we actually build mature tech businesses, life science tech, med-tech, hardware tech so they become valid career opportunities, rather than graduates just going to the banks.

I think sometimes you see a lot more coverage on the time companies raise investment rather than when companies actually get off the ground and start getting customer and client money, which is much more important to growing businesses and the economy.

Recently the Scottish Government announced £5m in funding for the start-up sector. Do you believe this funding will help close the gap between start-ups and scale-ups?

Five million pounds is a good-sized pot for the start-up scene, and if it can accelerate a start-ups growth to scaling then it will be positive for the economy. Larger funds will be needed to support scaling businesses, and perhaps this £5m can whet the public and private sector’s appetite for turning on the tap of support.