Northern Scale-up Fund is a breakthrough moment for the Scottish start-up sector.

In theory, if a country wants to produce more large-scale companies, it simply needs to ensure that it is creating plenty of start-ups at the other end of the funnel, and that it provides a supportive environment such that the funnel doesn't narrow too quickly, i.e. that every start-up is able to reach its natural level of scale:

But, in practice, it's not so simple. Start-ups located in regional ecosystems traditionally have had to cross a funding chasm during their journey to scale, in addition to the usual challenges of scaling.?

For example, in Scotland, early-stage start-ups are relatively well-served by the country's strength in angel syndicates. And scale-ups that have crossed the chasm will attract investor interest regardless of geography. It's when they are between these two stages that regional start-ups have relatively more difficulty in attracting scale-up capital, compared to those in larger start-up ecosystems such as London or Silicon Valley. Why is this??

1)?Distance still matters. VCs tend to cluster within big ecosystems, and it's much easier to visit start-ups near you than it is to make a day trip, or overnight trip, to visit them further afield. This also applies to maintaining relationships after an investment, which, of course, affects the decision to invest in the first place. And, yes, founders can spend more time where the VCs are, but it just isn't the same as living in the same city.

2)?Relative sparsity.?Most regional ecosystems exist at the wrong side of a critical tipping-point.

Before the tipping point, the relative density of start-ups and scale-ups is lower, which makes it difficult to attract sustained attention from scale-up investors. But it's this very lack of attention that keeps the ecosystem in a pre-tipping point state. Conversely, after the tipping point, when there exists a critical mass of potential scale-ups in the area, investors are attracted to spend time in the ecosystem. Their subsequent investments help to produce more scale-ups, which attracts more investment. A virtuous cycle is thus installed. A similar effect applies to attracting senior talent into the area and the recycling of talent from scale-ups back into start-ups:

For a long time, Scotland's start-up ecosystem has been affected by these two factors, distance and relative sparsity, which contributes to the phenomenon of "funnel collapse" in the ecosystem, a state in which there is a relatively large number of early stage start-ups, but disproportionately few scale-ups.

Consequently, the Scottish Technology Ecosystem Review (STER) made recommendations to bridge this chasm, including a public-private partnership to create a Scale-up Fund, targetted on Scotland. The fund would both directly crowd-in scale-up capital to Scotland, and would also accelerate Scotland's start-up ecosystem towards its tipping point.

After much work, such a fund has now arrived, led and managed by Par Equity, already a pioneering supporter of the Scottish start-up scene, and corner-stoned by the Scottish National Investment Bank. In the prevailing investment climate, the creation of the ￡100m fund (with a first close of ￡67m) is a significant achievement. It's also exciting to see Strathclyde University, one of Europe's leading entrepreneurial institutions, participating in the fund.?

The launch comes on the back of the British Business Bank's (BBB) recent announcement of the Innovation Fund for Scotland, which provides multiple funding categories, including early-stage scale-up investments of up to ￡5m. The BBB is also a participant in The Northern Scale-up Fund.

Of course, on its own, scale-up capital is not enough to accelerate Scotland's ecosystem towards its tipping point. But it's a hugely important element in the nation's wider start-up ecosystem strategy, alongside other initiatives such as TechScaler, the Ecosystem Fund and Pathways Fund, Entrepreneurial Campus, and the ongoing partnership/integration programme amongst Scotland's key ecosystem assets, to name just a few.?

Together these and other initiatives constitute a powerful ecosystem accelerant, to the benefit of Scotland's start-ups and scale-ups. In my 30 years of working in Scotland's start-up sector, I can't recall a time as vibrant, with so much start-up activity, supported by such a rapidly evolving support environment.? This week's announcement is another major step in that development.