Ian Ritchie Business HQ / The Herald December 11th 2022
Ian Ritchie explores the prospects of Scotland producing brand new unicorns by welcoming international experience and skills to create a business-friendly environment similar to Estonia
It’s an amusing fact that Scotland’s national animal is not a real beast but instead a mythical creature, the unicorn. Chosen originally as a symbol of purity and innocence, masculinity, and power, it features on Scotland’s Royal Standard and a rampant statue guards the gates of Holyrood palace.
The cover image of the February 2015 issue of Fortune magazine featured a striking illustration of a unicorn wearing a hoodie, making it look more like a technology geek than a royal guard.
The feature article inside the magazine – The Age of the Unicorns – referred to a description first coined by an investor, Aileen Lee, in TechCrunch. She defined a ‘unicorn’ as a technology company which is less that 10 years old that is now valued by its investors at at least a billion dollars.
The term has stuck.
These days the 10-year limit seems to have been relaxed a bit, and the unicorn has become known as any type of high-growth business, which although relatively youthful is valued at over one billion dollars. These beasts are scattered across the world, and hordes of them can be found roaming the innovative economies of the USA, China and India.
Unicorns have become an effective way of measuring the relative dynamism of entrepreneurship in an economy; a good indicator or how good business founders are being at applying new innovative technologies or services and creating companies that can provide the new champions of a business community.
So how is Scotland doing at breeding our very own new unicorns?
Frankly, not well.
For a small northern European country of 5 million or so, Scotland has only managed to create three unicorns in modern times, two of which have already been sold. Fanduel, the US-based sports gaming site, which was founded in Edinburgh, and was acquired by Irish betting giant Flutter, and Skyscanner, the travel comparison service, which is now part of China’s Ctrip. The only surviving Scottish unicorn is Brewdog where the technology innovation being applied is fairly minimal.
This might seem odd as Scotland rates well at innovation. In the league table of world universities there are five Scottish institutions in the world’s top 200. For a population of five million people this is a phenomenal score. Scotland has more elite Universities per head of population than any other country on earth. And, as a result, in terms of highly rated and published academic innovative research we outperform both England and California.
And in terms of start-ups, we are doing moderately well. About 75 per cent of all the UK’s entrepreneurial activity is based in London, but Edinburgh is one of the country’s other leading hotspots.
So, what is our problem with growing our companies to scale? Other small northern European countries are well ahead of us. Denmark with a population of 5.8 million has created 10 unicorns, Norway, at 5.5 million has six, and larger Sweden, at 10.4 million, leads the table at 35. Ireland, probably our nearest comparator with 5 million or so citizens, has so far created seven billion-dollar businesses.
But the runaway winner of the European league table is Estonia which has created 10 unicorns so far. Estonia is by any measure a small country of 1.3 million people which until 30 years ago was part of the Soviet Union.
Since then, it has established itself as a major hotbed of new tech businesses and now leads the world in the number of unicorns per head of population. We might do worse than try to learn from the Estonians how they achieved this.
One of the few benefits bestowed on them from their Soviet past was the focus on mathematics and physical science education, providing a good stock of skilled technologists and although Scotland has dropped down education league tables in recent years, we still educate about 12.5 per cent of the UK’s students, despite being about 8.5 per cent of the UK population. As a result, we do generate a decent stock of smart young people.
Another factor was Skype, Estonia’s first tech break out company, which not only acted as a role model for others, but also made a lot of its senior executives very wealthy when it was sold. Many of those have gone on to found or invest in other new start-ups. Partly because of this, Estonia today has more start-ups per capita than any other European country.
By contrast, Scotland’s star start-up Fanduel, which achieved unicorn status in 2015 with a $1.2 billion valuation, exited in an all-share deal in 2017 which had the effect of cutting its founders out of any financial return from the business they had built. Consequently, the Fanduel executives, unlike those of Skype, don’t have the funds to invest in others. A recent decision by a US court that Fanduel today is worth $20 billion casts significant doubt on the fairness of that deal.
Estonia, like Scotland, has developed a large population of angel investors and now has 8 VC funds, similar to Scotland. It also attracts attention from other European VC funds. And like in Scotland, their start-up companies tend to be managed frugally, making a lot of impact with limited resources.
But the key difference is almost certainly Estonia’s ‘Startup Visa Scheme’. Like Scotland, Estonia is a relatively small economy, with few large corporate headquarters. As such they have relatively few individuals with experience in building and operating large global enterprises.
This Startup Visa Scheme has attracted more than 4,000 people from around the world to contribute to scaling up Estonian businesses, and the ability for anyone to easily become an e-resident of Estonia and take advantage of their attractive business climate, has attracted many others. Over 25 per cent of Estonian founders are foreign citizens.
Could Scotland also open its doors to experienced international business skills and create a business-friendly environment like Estonia? It might be our best chance of creating a decent herd of new unicorns.
They are, after all, supposed to be our national animal.