When discussing tech ecosystems, Silicon Valley is held up, not just in Scotland but internationally, as a source of inspiration and emulation.

In the Logan Review – the blueprint for Scotland’s tech sector – Silicon Valley is noted as the ecosystem the country needs to evolve to compete with.

The question then is what Scotland can learn from Silicon Valley, both to improve itself, and what pitfalls to avoid.

To better understand this, DIGIT spoke with Andy MacMillan, CEO of San Francisco-based customer insights company UserTesting, to find out his views on both the Silicon Valley and Scottish tech ecosystems.

Silicon Valley

When MacMillan first came to Scotland in 2002 to study at the University of Edinburgh, the country’s tech scene was still in its nascent stage. But the country’s legacy of tertiary education, especially in computer and data sciences, gave it the infrastructure and skills needed to build the sector to where it is today.

With Scotland looking at growing its tech sector, it is natural to turn to Silicon Valley as a model. It boasts the US’s highest per capita number of tech positions, all working at companies from international giants to small startups.

And despite falling in recent years, it still brought in a quarter of all US venture capital investment in 2021 .

Born from the right set of circumstances, MacMillan warns that the Silicon Valley ecosystem can be difficult to replicate, especially for smaller countries.

“Silicon Valley is extremely unique,” he notes. “A lot of that uniqueness is the funding ecosystem and the risk-taking that exists in that environment.”

“It’s done at such scale that the economics work. For venture capital, you make lots of bets and you hope that one of them is an outsized success, but a lot of them fail. Silicon Valley created an environment where that ecosystem works.

“I don’t know that that’s a replicable model,” he adds.

Scaling Up

The sheer volume of funding available to Silicon Valley makes its model difficult to follow. For Scotland, the fail-fast mentality of Silicon Valley is one pitfall to avoid. A smaller ecosystem with less capital available lacks the capacity for a failed startup to quickly be replaced by another. As such, it needs more nurturing and support to lower the fail rate.

But if Scotland can’t follow the Silicon Valley model, where can it go? Too often, following the leader can blind tech ecosystems to other potential ways to develop.

“Occasionally, there’s an over rotation towards trying to become the next Silicon Valley or funding the next unicorn versus trying to attract existing unicorns to come to an ecosystem and make investments,” MacMillan says.

“The more interesting opportunity is to be where the scaling happens,” he adds.

If Silicon Valley takes the risks and produces the early stage, high-growth companies, other ecosystems can provide places for these companies to grow – stable environments with high-skilled workers, along with affordable and high standards of living.

In return, the companies moving there bring jobs and investment.

“More and more companies are looking to do a lot of that scaling outside of Silicon Valley,” MacMillan adds.

The Unicorn Question

He points to Dublin as one of the ecosystems Scotland can emulate. It has attracted major tech companies, such as Google, Meta, and AirBnB, getting them to establish European headquarters there.

“It’s hard to create unicorn tech companies. And when you create one, with global remote work, it doesn’t even mean all the jobs are going to stay in the ecosystem.

“So the question for the Scottish economy is what’s the goal? If the goal is tech jobs, and investment from technology-related businesses, you could have a home-grown unicorn founded in Scotland and they could decide to put their offices in other parts of Europe, expanding in North America, with a lot of the investments going elsewhere.”

In fact, this is arguably what happened with Scotland’s two unicorns, Skyscanner and FanDuel. Skyscanner was purchased by a Chinese group in 2016, while FanDuel merged with America’s DraftKings and is now headquartered in New York.

“Having later stage, high-growth venture-backed companies that are raising $100-million funding rounds can bring jobs with some level of stability.

“I think that’s a really unique opportunity that Scotland has, because of the tech skills that are here, but also the language skills,” MacMillan adds.

The Funnel

This in turn can help fulfil Scotland’s long-term ambitions for its tech industry. The Logan Review uses a funnel model – a wide brim of startups, leading down to a smaller volume of scaleups, down eventually to the coveted unicorns.

But building these startups through the different stages needs capital and skills. Attracting scaleups can provide both.

“The more there’s an ecosystem of people that have seen the different stages, even if it was when they were at a Silicon Valley startup company that did their scale up here, it improves the success rates.”

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Ultimately, MacMillan notes that there is more than one path to widen the funnel. It could be increasing the number of startups, helping existing ones succeed, or bringing in later stage companies to the ecosystem.

“I would love to see plenty of inward investment from global companies that are scaling, but then also have this environment where the direct investment supporting the local ecosystem gets a better return because you have this broader ecosystem of people that have been there and done that.

“Attracting and putting in place jobs from overseas tech companies that are scaling is a faster path to more jobs in Scotland. They provide stability to that tech ecosystem.”

Scotland’s Strengths

When UserTesting was looking to open a European office in 2019, it chose Edinburgh to host it. Scotland’s talent pool was one of the big attractors for UserTesting when it chose to base itself here.

“It’s a really effective way for us to scale across Europe by picking a highly multinational, multicultural city,” MacMillan says.

“There’s the right mix of employment law that matches up well with the US. We can hire people here in Scotland that are native German and French speakers or just have really strong language skills.

“I would say of all the environments that we hire in, Scotland’s been one of the most productive for us in terms of getting great talent on board. And I think that’s been true not only of tech talent, but again, of sales and customer support talent as well, where we’re getting great language skills, great work ethic, and good business background.”

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