Venture Capitalist funding is so often seen as a milestone for startups and scaleups.  It can be intimidating and oft-impenetrable, which is why so many vaunt it – not only does it provide essential resources for your business, it’s validation that your operation is going in the right direction. 

Insights and narratives on the health of VC funding often conflict, as stories of shrinking inflation match tales of diminishing cash flow, as business confidence flips on the monthly.

But things are – at least – looking good for Scotland – private equity investments were up by a third in 2024, with VC investment in Scotland rising by 14% in the last quarter of last year. 

Emerging technology like AI continues to gain traction in funding rounds, and global uncertainty, emerging technology, and cybersecurity woes have created opportunities for regulation tech, med tech, and cyber firms. 

Still, when we take in the much more thorny and complex global VC climate, how are Scottish companies supposed to gain a foothold in international tech ecosystems? As the UK continually tops VC funding in Europe for AI and FinTech, and Edinburgh climbs in the rankings for funding across the UK, emerging Scottish firms are hungry to feel the effects of this surge for themselves. 

Still, the stars of the Scottish tech ecosystem seem almost to be exceptions to the rule due to their oft-spoken about exceptional potential and prolific rises – Skyscanner, FanDuel, and now Quorum Cyber, have taken their potential, either based around excellent proven track records or inspirational leadership, and grown into the global companies they are today. 

While funding seems available, Scottish companies struggle to scale, and are often confronted with difficult choices in talent acquisition, international expansion, let alone finding the funding to support these growth ventures. 

So, how are venture capitalists making the decisions that will eventually contribute to the creation of the next generation of Scottish unicorns? 

To find out, DIGIT spoke to Alan Robertson, partner at Maven Capital Partners, one of the premier venture capital and private equity firms operating outfits in Scotland, to discuss what drives VC decision making, the upcoming economic headwinds, and what the Scottish ecosystem can expect in the coming year. 

What Are VCs Looking For? 

There are three key things Robertson says VCs look for when companies approach them looking to scale – a proven product with traction, a stellar management team, and a large enough market to take advantage of. 

“It’s ideally about finding a proven management team who understands their market, and who has traction in that market,” Robertson said. 

Breaking this down, having the right people in the right place, at the right time, is vital to progress. Countless leaders will tell you the same thing – making leadership transitions during scaling is crucial, and difficult. 

“As a business scales, it is important to understand the need to have the right people and experience in critical roles, and having the support of an investor who can help you bring in people at the right time, is important,” Robertson said.  

Finding the right place for people who were key to the startup journey can be difficult once a company needs to scale, and their priorities shift. Having a management team with resilience, as well as being willing and able to make these decisions and shifts in directions, is key to gaining the support of funders. 

Finally, ensuring that a company’s offering has a wide enough market is key – entering into a realm with no competitors is not a sure fire win, as there simply may not be a large enough customer base to ensure long-term success. 

What Does Scotland Bring to the Table?

With Scotland having a comparatively diminutive population of under five and a half million people – are scaleups and startups feeling constrained by the market?

Robertson contests this – according to him, Scotland has the funding, the network, and the startup drive to push forward. 

“There’s a lot of support here (Scotland), and ultimately this is a fantastic base upon which to grow out from,” Robertson explained. 

Scotland’s small size is a positive, according to Robertson, as its close knit networking opportunities, as well as the giving nature of its successful entrepreneurs, can provide scaleups solid footing to launch from. 

Still, firms will end up looking to the horizon, and hopping the pond to look for funding from US investors, and breaking into its much larger market. 

This is where technology continues to see its benefit – while software is continually changing, it is global by nature. 

US investors are increasingly looking at Scotland and Scottish startups due to the quality of the businesses coming out of the nation: 2023 saw 115 Scottish startups share £359m in funding rounds, with top investments in food technology, medtech, and fintech.

Scottish companies are already successfully expanding their offerings into America, from TalkingMedicines, a medtech offering, to Lupovis, an innovative cyber company. 

Further, Scottish companies are increasingly acquired by US outfits, with major acquisitions often allowing Scottish companies to maintain their headquarters and Scottish workforce. 

International expansion seems inevitable, but doing this is an expensive risk. Going directly for the big bucks promised in the states can be foolhardy without first establishing a basis in Scotland and the UK.

“Entrepreneurs and management teams can often appear frustrated at the apparent availability, size of funding rounds and support that is available locally,” Robertson said. “When actually, there is significant levels of funding available.

Scotland is very fortunate to have a thriving eco-system inclusive of venture, private equity and angel investors, in addition to former executives who are constantly giving back to the ecosystem. 

As far as scaling, Robertson thinks the main hurdles entrepreneurs face have little to do with supply, but execution and the pace at which business plans and forecast revenue can realistically be delivered, a delay which can increase the total level of funding a business requires. 

“You might have to go through more than one investment round to get the right amount of funding to scale at the level you want,” he said. “Even if you get that capital, time can move quickly, and the cash runway and the progress of the business might not match up,” he expanded. 

“Nothing is straightforward, because if it was easy, you’d have more people do it.”

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Businesses often need to adapt quickly, innovate on the fly, and stay up to date with emerging trends as they scale – the key to this is again, having the right talent, but also having the right mentors in place to help guide startups to scale. 

For Robertson, Scotland’s size is an advantage – the close knit network means that when someone asks for support, it is often answered. 

“Its rare that I come out of a meeting where someone doesn’t mention a name to go to for help, or someone doesn’t offer an introduction. I’d like to think that we have a very supportive ecosystem in this country.”

This sentiment has been echoed many a time by startup founders and successful scaleups in Scotland who spoke about the importance of mentorships and networking. 

When faced with a lack of support, Robertson says that “being bold enough to ask” for help cannot be underestimated as a key factor in growing a business. 

But once in the VC room, it comes down to forming a partnership with investors and VC to help a business scale – it becomes about more than winning a pot of capital, but about forming a genuine connection over a business proposal, product, and leadership team. 

“Everybody looks for different things when they’re a VC, but ultimately, the partnership has got to click, and people have to want to work together, because whether its a management team or a group of investors, it’s ultimately about a group of people coming together to deliver a common goal in what can be quite a difficult environment.”

What Trends Are VCs Keeping Their Eye On?

Robertson discussed how VCs are constantly looking for disruptive technologies, and how these can be applied across various sectors. 

But what this looks like is more to do with the market interplays and the ability to evolve than anything. 

“Take cyber for instance,” Robertson said. “There is a huge global market to go after, so having something innovative in that will make a startup a strong contender.”

It is almost impossible to get through a VC meeting without some mention of AI – but Robertson says that companies should also look at how AI will impact them. 

“A company needs to have an understanding of how AI is going to impact a business model,” Robertson said. 

For instance, talent acquisition is one of the more expensive costs of scaling up – hiring the right talent, especially in specialist subjects like medical and biotechnology, can be a major drain for company finances. If a company can, however, use AI to streamline their teams and improve overall efficiency, VC may have more confidence in a company’s ability to use their cash runway effectively. 

Economic headwinds, tariffs, and changing global policy will continue to be challenges to the stability of the Scottish business ecosystem, but for Robertson, who has been with Maven Capital since 2012, this is nothing new. 

“We’ve had the independence referendum, Brexit, Covid, energy crisis,” he said, just naming a few tumultuous times for Scotland and the world. 

“We’ve always faced these challenges, it’s never been entirely stable,” Robertson said, “But we have businesses  and management teams who have proved resilient and have come through, which is really inspiring.” 

In particular sectors, changing regulations and technologies can be seen as an opportunity or a hurdle. 

“If you’re in risk and compliance, then these shifts in global and international regulation can be a major benefit to your growth and business,” Robertson said, “Whereas for others it might hinder their growth.  There’s a risk and an opportunity, depending on each case by case.”

But overall, Robertson advises firms to use what makes the Scottish ecosystem special to their advantage. 

“Network, and don’t be afraid to ask the question,” he advised. “Whether you get funded this year, or in two or three years’ time; it’s never too early to have that conversation and build a relationship.” 

Having conversations, multiple in fact, is key to gaining the right level of traction to take a startup to scale up in Scotland. 

“There’s no shortage of ambition through the entrepreneurs, and having those conversations, casting their net wide so they can be certain of the partner they’ll have alongside them for the journey is equally as important as securing money.”