Edinburgh bids for tech glory — again

Thirty years ago, Scotland had a burgeoning tech industry. It made three in 10 of Europe’s personal computers, and electronics accounted for 28 per cent of the nation’s exports. But “Silicon Glen” failed to expand much beyond manufacturing, and growth fizzled out in the 2000s.

Now hopes are rising that Edinburgh is finally on the road to becoming a world-class self-sustaining global tech hub. This time, much of the action is focused on applications of artificial intelligence, particularly in healthcare and financial services.

This specialism builds on the University of Edinburgh’s expertise. It is home to Europe’s largest concentration of academic AI researchers and is preparing to open the UK’s biggest supercomputer and a huge data centre. The hopes for the Scottish capital also reflect the maturing fintech and biotech sectors and the ability to access the Scottish National Health Service’s unusually detailed health data.

Rather than relying on fickle multinationals, this time the sector is building on start-ups spun out of local universities and nurtured by local venture capitalists. Edinburgh was recently named the UK’s top innovation city behind London, and its high-growth companies drew more than £1.2bn in investment in the last decade, according to Beauhurst.

Although the city’s tech sector is decades behind more established rivals, it is starting to benefit from the kind of virtuous circle that fuelled exponential growth in California’s Silicon Valley and latterly in Cambridge and Oxford. People involved in early Scottish successes, such as Skyscanner, the online travel site that sold for £1.4bn in 2016, have stuck around to found, advise and fund new start-ups. Their experience makes it that much easier for the next generation to attract additional investment.

Several recent developments have also nudged Edinburgh forward. The pandemic has turbocharged interest in digital health companies. A glut of venture capital money in the US has made investors there more willing to look abroad. And tighter US immigration rules, high housing prices and quality-of-life issues in Silicon Valley have made it easier for other tech centres to hang on to their own talent and compete internationally. More than 53 per cent of Edinburgh university students say they plan to stay there after graduation, more than in any other UK city outside London.

In January, Global Healthcare Opportunities, a private equity group with $5bn under management, invested more than $100mn in RoslinCT, which focuses on advanced cell therapies. GHO founder Andrea Ponti says the fund was attracted partly by the company’s location. “You have an educated and cost-effective workforce. You can get both young people who have been trained at the university as well as more senior people who are more than happy to go back to Edinburgh,” he says.

But the city’s success is by no means guaranteed. Even the fiercely enthusiastic Scottish government concedes that its tech ecosystem is approaching a critical tipping point rather than being globally established.

As with most would-be tech centres, Edinburgh is home to lots of entrepreneurs and fledgling companies, but the numbers fall off sharply with company age and size. Some backers argue that there is a funding gap for companies that need seed money ($5-10mn) or early-stage venture capital ($20-25mn). Local investors can only support so many of them and overseas investors often want Scottish partners who can check that the enterprise’s dreams are grounded in reality.

Most start-ups also lack personnel with proven records. “Edinburgh isn’t quite there yet, but it’s coming up fast,” says Elizabeth Roper, of Epidarex capital, a transatlantic venture fund. “The problem is getting the companies ready to be invested in.”

The region suffers from a shortage of office and lab space for midsized companies that have outgrown shared locations but are not big enough to commission new buildings. High tourist traffic mean many commercial buildings have been converted into hotels and apartments. The Scottish government is trying to help companies that want to scale up, including with funding, advice and support. But nationalists’ dreams of leaving the UK add uncertainty on what would happen to visa rules, backing for research and other aid in the longer term. Still, some investors think the upheaval would be worth it if Scotland eventually rejoined the EU.

Cute wordplay involving “Silicon” and a local feature does not guarantee tech success, as Edinburgh knows well. Its older and wiser entrepreneurs have to hope that the second time round is a charm.

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