A LEADING academic has said the business support infrastructure in Scotland hinders the ability of businesses to ‘scale-up’, while a “preoccupation” with technology firms was skewing what funding is available.

Colin Mason, professor of entrepreneurship at the University of Glasgow, said Scotland lags behind the rest of the UK in creating new businesses, and more fundamentally, the country has a weakness in growing companies in the 250 to 1,000 employee range.

“It is a major issue for Scotland, and for the UK. Venture capitalists (VC) don’t look below £5 million and angel groups can do £500,000 to £1 million,” he said. “That’s where the gap is today, it’s not the start-up money, it’s the half million to five million, beyond the limit of what an angel group can put in to the bottom limit of what a VC would put in.”

Another issue facing Scottish start-ups, he said, is lack of experience in senior management positions.

“That’s just as big a challenge as raising capital, because there’s not a deep pool of folk who have been there and done it, which is partly a symptom of companies being sold too early,” said Mr Mason.

“We’re in a vicious circle, of everything reinforcing everything else to prevent companies scaling up.

“Angel investors and venture capitalists need exits so it’s inevitable that these companies get sold, but I wonder if they’re getting sold too prematurely,” he said. “The earlier a business gets sold, there’s not that much wealth created in the Scottish economy. Secondly, the management team don’t achieve a lot of learning.”

He highlighted the sale of Canadian tech firm Radian6, which was sold to salesforce.com for $300 million in 2011.

“That money was recycled; one of the angel groups made 30 new investments on the profits they made from Radian6’s sale. A couple of mega-exits would do an awful lot [in Scotland].”

Mr Mason also highlighted the lack of flotations by Scottish businesses. Of about 30 initial public offerings (IPO) on the London Stock Exchange this year, none were Scottish with the exception of Glasgow-based Clydesdale Bank. You have to go back to March 2014 and Exova’s £550m IPO to find a Scottish trading company flotation.

In its most recently published figures, for 2014-15, Scottish Investment Bank (SIB), the investment arm of Scottish Enterprise, doubled its investments to £66.5m in 155 businesses, and leveraged £100m of private investment.

Included in this sum was £10.5m from the Scottish Co-Investment Fund. This fund matches accredited investment partners up to a maximum of 50 per cent of the total funding package on a commercial basis.

Mr Mason said the fund played an important role in plugging the bottom of that angel to VC gap, but that cultural differences between venture capitalists and angel groups continued to hinder co-investment at a scale-up level.

“We do have entrepreneurial successes but we don't have as many as we should have for our five million population economy. We still talk about Skycanner and FanDuel – they are clearly successful, but they’re exceptions when they shouldn’t be.”

Though highlighting the success of these ‘unicorn’ firms valued at more than $1 billion, Mr Mason said very few high-growth companies were technology-based.

He cited the success of the likes of Craneware and Barrhead Travel.

“Economic policy in Scotland is pre-occupied with technology – a lot of money goes into university commercialisation and technology businesses, that’s where they think the growth is going to be, which is nonsense.”

Mr Mason called for advisors to be matched to growing companies, and for more peer to peer learning. He also recommended more formal links between Scottish and US angel groups.

And, while commending Entrepreneur Scotland and the Saltire Foundation for taking companies to US universities like Stanford and MIT, he also called for Scotland to create an entrepreneurial focused business school similar to Cranfield University in Milton Keynes.

“There needs to be a commission of the great and good to produce a blueprint for returning Scotland to an entrepreneurial economy,” he said.

SIB head Kerry Sharp said: “Scotland’s funding landscape continues to evolve and the early stage risk capital market in particular is experiencing unprecedented levels of growth, in large part due to success in attracting increasing amounts of international investment.

"Scottish Enterprise recognises that there remain challenges across the funding market, and we are focused on supporting Scottish companies to secure the funding they need to grow. In particular, work is underway to increase the remit of the Scottish Investment Bank to support a wider range of companies through a wider range of support mechanisms, at the request of Scottish Government.”