Despite the challenging business environment of the last couple of years, Scottish tech businesses continue to thrive, with many turning their eye to the next logical step in their development: scaling up.

Unfortunately, there’s no shortage of challenges for any business looking to do this anywhere, and Scotland is no different.

So often, the conversation in board rooms around scaling effectively revolves around having the right staff, funding and tech in place and yet, even having all of these can present a false dawn. So, what’s holding them back?

Intellectual property, data privacy, commercial contracts and competition law all form part of the legal and regulatory landscape that can be overlooked by businesses that are too keen in their ambitions without first assessing the lay of the land with regards to the product, platform or tech they’re trying to bring to market.

In this interview with DIGIT, Partner & Head of Technology and Commercial at Burness Paull, Callum Sinclair, discusses how companies can navigate these murky waters while also taking a broader look at the regulatory landscape and how emerging technology is changing the face of that discourse.

What’s holding Scottish companies back?

While there were a few pandemic casualties, most tech startups have managed to grow, and many are looking to expand further in 2022.

On top of that, Edinburgh routinely scores highly on lists of the UK’s hubs providing attractive homes for tech startups. There is little doubt that Scotland has the talent, funding, mentors, and support available to help companies get off the ground.

But as so often dominates the discourse, it’s that first point that’s ever more becoming a salient roadblock, according to Sinclair.

“It always comes back to talent, we have a bit of a perfect storm that’s contributing to a shortage in this area,” he comments.

“It’s incredibly difficult to get hold of the right talent, there’s not currently enough investment in STEM at an educational level. This, compounded with Brexit challenges, is driving a market where tech is moving faster and faster, with Covid accelerating that. Essentially, the talent pipeline just can’t get enough people out there quickly enough,” he adds.

What we hear regularly from the emerging scale-up tech businesses in Scotland is that a lot of their talent is being swallowed up the big tech players, offering salaries that SMEs can’t match.

Add in the fact that these companies have frameworks in place to allow employees to work for these big companies remotely and it simply serves add to the challenges Scottish SMEs have with scaling through talent as the catalyst for growth.

Talent and talent acquisition has been a well-publicised challenge for SMEs seeking to scale but funding is arguably presenting an equally difficult proposition.

On this, Sinclair says: “There is a local funding gap, particularly in that Series A to C level in Scotland. We do the angel and seed funding very well but moving to that next level – there’s a clear gap.”

However, Sinclair sees cause for optimism in this regard.

He adds: “The Logan Report tech scalers are coming down the track and that will hopefully be a big push in the right direction in creating an ecosystem that attracts that sort of investment more than we are seeing at the moment. Also, some of the investors down south are taking more of an interest.

“There’s also been optimistic news on this front with regards to foreign investment in Scotland compared to rest of the UK, showing that there’s something compelling about tech scale-ups in this country.”

While this all great, according to Sinclair, “It’s still not enough. That Series A to C, there’s a real gap.”

Finally, Sinclair speaks to an arguable lack of aspiration in terms of having a global mindset and ambition when approaching business, with models that begin insularly without any accommodations made to scale on an international level until that opportunity unequivocally presents itself.

On this, Sinclair says: “There are probably two attitudes that manifest: There’s either the mindset of ‘we need to crack Scotland, then London, then we’ll maybe go beyond that’ – as opposed to global business by design.”

The other, Sinclair says, is businesses that say, “we’re going to be a unicorn, we’re going to take over the world, we can go global right away” – it’s not a major traditional business that needs to change direction, we design from scratch. What they do is forget that there’s a whole world of regulatory challenge out there.”

Sinclair’s advice is to harness entrepreneurial spirit and be aspirational, but identify the markets you want to/can enter from the start, as well as consider how your tech integrates with regulation within those markets so that scaling up is not only possible, but as intuitive as possible.

As Sinclair puts it: “Absolutely go for the global mindset and ambition but do it on an informed basis and understand the regulatory challenges and then take that in bite-sized chunks – decide where your key territories are, have a good understanding of the regulatory landscape there.

“Having that ‘helicopter’ view means that you don’t necessarily have to design for every market, but you can pivot more easily to them when you’re ready to scale.”

When’s a good time to scale and what resources are there?

The first thing a business should always recognise is what they can do themselves to scale in a way that recognises and manages risk. One of the biggest risks and common pain points that Sinclair often sees is when tech businesses try to retrofit for markets, regulation, data protection, security ethics – the list goes on.

On this, Sinclair says: “None of this [retrofitting] works. All of that has to be done by design. It’s very tricky to design from the ground up something that would be regulatorily compliant everywhere. Although this is an area where someone like me may get involved, there’s a lot businesses can do themselves to navigate this.”

Sinclair adds: “There’s a lot of information available online – for example, in the UK, with regards to GDPR, the Information Commissioners Office website (ICO) has a huge amount of information that enable privacy by design.”

The other thing businesses can do is take advantage of communities like accelerators or meet-ups (Sinclair cites the Smart Things Accelerator Centre as a good option). These can offer support, mentoring and peer support.

Sinclair expands: “These can deliver a huge amount of value through lived experience – those that have been there and done it, failed and come back. Outside of the central belt there’s things like the Elevator accelerator in Dundee and Aberdeen as well which are amazing resources.”

He adds: “One of the things we’ve got that offers that really powerful helicopter regulatory view is that we’re part of the Lex Mundi network – the leading legal network of independent law firms around the world. There’s a 125-plus jurisdictions covered that are producing business guides and offering a huge amount of free guidance and advice.”

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It’s something to seriously consider as Sinclair rounds off some of the roadblocks he often sees that could be circumvented if businesses made use of the networks available to them.

He says: “Issues we commonly see include things like early-stage IP arrangements, usage, and licensing. Also, instances where companies use contractors instead of employees without understanding default IP implications.

We also see weird and wonderful share option schemes being given which cause serious problems when they try and get investment down the line because they’ve done it on the back of a napkin, and employment and immigration problems.

There are all sorts of issues that could be avoided by speaking to the right professional advisors.”

Scotland has a wonderful recent history of tech SMEs that have scaled exponentially but, on the flip side, there’s too many with all the potential in the world that just couldn’t take that next step – either because they didn’t consider the regulatory impact of what they were creating, or carefully judge how their business would fit into international markets.

Considering these, as well as keeping your finger on the pulse with regards to talent, means that the tech you’re creating can actually get its day in international sun.

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