Jun 2, 2021
Capital Strength
As a melting pot of financial, tech and life sciences expertise and with a robust start-up scene, Edinburgh is proving popular with investors
The Edinburgh skyline, dominated by the castle, is famous across the world. Historical buildings and heritage are a major draw for tourists — as is the annual Edinburgh Fringe Festival, the largest arts festival in the world.
But Edinburgh is also an attractive destination for private equity and venture capital investors, which are drawn to its robust and varied start-up scene. The city has considerable expertise in areas such as fintech and health, and a number of facilities that help young companies to get off the ground.
The University of Edinburgh plays an important part, with its worldleading research attracting top students, many of whom stay on in the city after graduation, and its innovation management service, Edinburgh Innovations, which commercialises the university’s research, connecting its academic expertise with industry. According to analysis by EY and Parthenon Financial Services, in comparison with other major European financial sectors, operational costs are also relatively low in Scotland (Edinburgh and Glasgow offer the lowest cost for commercial rent per square metre).
“There are clusters of ambitious tech businesses scattered across Scotland, with 42% currently based in and around Edinburgh,” says Jan Robertson, the Interim Director of the Scottish Investment Bank, the investment arm of Scottish Enterprise, the national economic development agency.
CodeBase, the UK’s largest technology incubator, began life in 2014 in Edinburgh as a landlord, and since then has grown fivefold in the city. Tenants and alumni of the company have raised US$4.8 billion in investment. “Edinburgh already had the beginnings of a start-up scene before we came along,” says Stephen Coleman OBE, CEO and Founder of CodeBase. “It was those beginnings of a community and culture that were so attractive to us.”
CodeBase focuses on tech product start-ups, bringing their expertise and best practice knowledge to these scalable projects. FanDuel, a sports betting company valued at US$11.2 billion, is one of CodeBase’s most notable success stories.
Sectoral strengths
Edinburgh’s rich history as a financial centre, with over 350 years of financial services expertise to draw upon, means that it has a lot to offer fintech start-ups.
At the start of 2020, Scotland was given formal accreditation by the European Secretariat for Cluster Analysis as the UK’s first fintech cluster of excellence, and the Global Financial Centres Index places it 13th worldwide in terms of competitiveness (fourth in Europe). “The combination of financial services and tech expertise in the city has definitely played a key role in attracting inward investment,” says Catherine Burnet, Edinburgh Office Senior Partner, KPMG. “Political and business leaders have embraced the opportunities and really collaborated to champion the talent that exists within Edinburgh.”
The Global Open Finance Centre of Excellence, a collaboration between the University of Edinburgh, the Financial Data and Technology Association and FinTech Scotland, is set to be established in the Scottish capital following a successful bid for funding from UK Research and Innovation. The centre was awarded £22.5 million last year. “Edinburgh received the backing of the UK government because it is already home to world-class data scientists and supercomputing facilities,” says Dr George Baxter, CEO at Edinburgh Innovations. “It is hoped that the centre will also play a role in bringing in more jobs and international investment to central Scotland, further enhancing its cluster of financial technologies.”
Edinburgh is also home to considerable healthcare and life sciences expertise. “We’re seeing a rise in investments in healthcare and pharma scale-ups, which will undoubtedly have been boosted by the pandemic,” says Burnet. The city’s BioQuarter, a 160-acre bioscience cluster, was established to promote activity in this field and to encourage cutting-edge research and entrepreneurship. The City of Edinburgh Council, NHS Lothian, Scottish Enterprise and the University of Edinburgh are all closely involved in the BioQuarter, which has also attracted considerable private funding. IOmet Pharma, a drug discovery start-up based at the BioQuarter, was acquired by Merck in 2016 for US$400 million; and Roslin Cells, also based at the BioQuarter, has created over 80 jobs and two spin-off companies.
Supporting start-ups
Through Edinburgh Innovations, the University of Edinburgh provides financing and backing to start-ups, helping homegrown talent to reach its potential.
Recent notable successes include spin-out company Resolution Therapeutics receiving £26.6 million from healthcare investment firm Syncona in December 2020 to fund the company’s search for new cell therapies for liver disease. And in August last year, venture capital firm EMV Capital led a £2.3 million investment round in Sofant Technologies, a spin-off company that is developing lowenergy antenna technology for 5G and satellite communications.
The university also helps startups through its in-house venture capital fund, Old College Capital (OCC). “OCC follows a coinvestment model; partnering with experienced private sector investors to leverage further support for companies within the University of Edinburgh ecosystem,” says Baxter. It currently has £14 million under management and invests around £2 million per year in University of Edinburgh-associated companies.
To attract new talent, the university offers innovator and start-up visas for entrepreneurs starting a business in the UK for the first time. Applicants must show they have a genuine and credible business that demonstrates innovation, viability and scalability.
Even in light of the COVID-19 pandemic, Edinburgh’s start-up scene looks to be in rude health and shows no signs of slowing down. According to KPMG Private Enterprise’s latest Global Venture Pulse Survey, Edinburgh saw nine venture capital deals in the last quarter, valued at £55 million.
“The research seems to back up the anecdotal evidence that private equity investment in the capital remains incredibly robust and resilient, with investors regarding the city as a safe option for placing their funds,” notes Burnet. “It is seen as a city that is confidently building a network of growth-hungry, entrepreneurial start-ups.”
Startup focus
Mocean Energy
Established in Edinburgh in 2015, this green tech startup is developing ocean wave energy converters (WECs) to harness the power of the waves. It has secured more than £4 million in funding so far and is focusing on two key technologies: Blue Star WEC will provide renewable energy to subsea equipment, while Blue Horizon is a larger hinged-raft WEC that will deliver grid-scale power
Current Health
Also established in 2015, Current Health has developed an AI-powered patient monitoring solution that collects health data via a wearable. The data is analysed in real time, allowing for earlier interventions and more accurate forecasting of health trajectories. It has raised US$11.7 million in funding so far and is developing its technologies to aid in monitoring and understanding the effects of COVID-19.
Celtic Renewables
Founded by Professor Martin Tangney, the Director of Napier University’s Biofuel Research Centre, Celtic Renewables’ patented low-carbon technology turns whisky production waste into biofuel. Having won a host of awards, the company aims to develop world leading biorefineries worldwide. It secured £20 million in new funding last year.
This article is from the BVCA Journal spring edition, published March 2021. BVCA members can access the full publication here.
This Spring issue explores ‘how to do well by doing good’ as we examine the environmental, social and governance opportunities for venture capital; and reflects on the work-life rebalance and what this new employee-employer dynamic means for talent retention. This bumper issue also features an in-depth interview with Alice Hu Wagner on what it takes to address structural inequality; a detailed look into what makes Edinburgh such a thriving hub of financial, tech and life science expertise, and much more.
