Will the desert bloom for Scottish Tech?
It’s been a great and long awaited week for the Scottish start up scene — the great liquidity event, not once but three time: Skyscanner acquired for £1.4bn, FanDuel merging with DraftKings and FreeAgent floating on the Stock Market.
The primary agents in this are the companies themselves, their founders and employees — and a big shout out to them.
But all the long patient work of building dynamic, interconnected tech communities, endless meetups, product and marketing events, the putting down of infrastructure, the great work that Edinburgh University did, Turing Festival, CodeBase and all the rest now come in to play.
Edinburgh is waiting like the desert for the rain, a rush of both money and skilled people who know how the money can be used, and the heady sudden bloom of new companies, we hope. The road to the first 10 $1bn unicorns is wide open.
The contrast between Stoke-On-Trent and Edinburgh couldn’t be more stark. Stoke has bet365 — the UK’s largest internet company — which turns over $1bn every 11 days on 3% margin — but lacks any community or other infrastucture (or the will to build such) that could turn that benighted town into a major tech hub.
Edinburgh’s conscious organisation of its tech sector as being company-led and featuring inter-company co-operation (for Scottish companies only!) has more than proved its worth.
But you wait for one once-in-a-lifetime event to happen and along come two.
The election of Trump
Trump is a kleptocrat who ran for Autocrat of the US and not President and he and his kin are bent on enriching themselves on a prodigious scale.
The richest prize is the tech sector — all those great companies which own nothing but an intangible network — AirBnB the building-less accommodation business, Uber the vehicle-less transportation behemoth — all that lovely cash.
Among the less noticed aspect of the confirmation process is that Trump intends to add three opponents of net neutrality to the FCC, the Federal Communications Commission. The elements of the shakedown state are clear — those that bend the knee and allow ‘strategic’ investment by Trump-related counter parties will magically not be subject to on-ramp charges to be paid to cable companies.
That East German, Angela Merkel, is no fan of Putin’s cyber army peering in from the outside, and she will be even less enamoured of a-Trump-in-every-phone.
The old ‘Reaganite’ settlement with regard to the tech sector is on fire. The one that said: we need them, they must be cosseted, they can dictate where and how they pay tax.
The structure of the new tech regime has been developed in the ‘sin’ sector. In gambling we see two major features of the future. The first is the shift from tax-at-point-of-hypothetical-production to tax-at-point-of-consumption. The second and less well understood is regulation and oversight of software businesses.
Because online gambling (think online bingo or card games) is software the opportunities for fraud are enormous — poker games the punter can’t win, bingo cards that never come up — and the software needs to be regulated.
Gambling companies are subject to random inspection — they need to be able to demonstrate that the software running in production corresponds to that in the software repositories. The software they run is subject to external audit and approval.
Extrapolate from that to the post-Trump world and some things become clear. People selling hardware with installed app stores to European customers will need to have those app stores physically domicilled in the European Union and subject to inspection and audit. (Ditto with knobs on for self driving vehicles.) If you want to rehome your own phone, that will be fine, your own car not so much.
Chinese, Turkish and Russian attempts to control the web via external state-run firewalls will remain anathema — but websites will not be able to ordinarily take money off European citizens and companies unless they are also appropriately domiciled and subject to inspection. Europe should take control of the flow of money.
Appropriate safe-haven cross-recognition will ensure that Canadian-like-countries can pay-to-play in this world.
I would imagine that the major US tech companies will have to go through the sort of disaggregation that happened to the Standard Oil in 1911 when anti-trust legislation broke it into 34 companies. Trump has already mused that Amazon needs to be subject of anti-Trust legislation — the better to loot it. Such a process would inevitably lead to big US companies calving European public companies in the break up.
The European Union has the will and the ability to take on big tech — it forced Microsoft to break IE out of Windows and make it a standalone (and replacable) component.
More recently Facebook denied that fake news was a problem on the Monday, were called in by the German Interior Minister on the Wednesday and told Germany (and Europe) were considering regulating them as a media group, and announced a fake news task force on the Friday.
Europe can, Europe will. This is the second great opportunity for us in Scotland (it is of course a disaster for the US).
So what now?
Time to step it up a gear. Building a startup eco-system is a pipeline problem. Low-capital companies have a ‘frog spawn’ life-cycle — lots of frog spawn, some tadpoles survive, fewer froglets and then declining numbers of baby frogs and out pop a couple of full blow unicorns. The focus up to now has been on reducing the death rate at each stage.
One of the things we should do is deepen and extend that work — because all these stages are about people and management skills: analytics, strategic thinking, cash management, maintaining focus on the right thing. Tech success is only marginally dependent on tech.
I think we should set up a mentoring network of juniors to seniors, of business people to technical ones (and vice versa) of external business sectors into tech. We should be supporting personal skills development of our human resources whilst they are part of the pipeline and before — someone in an early stage tech company is also ‘pre’ a future start up. The networks of skills and relationships we have cultured are still not deep enough.
Secondly we also need to set a new cultural goal. Remember all the fuss when the shared goal of having our first billion dollar startup was mooted? Now it is all about getting 10. Shifting the centre of ambition was hard work.
We currently live in a lagging world, all the pitches are of the style: Facebook but for hamsters, Uber but for pushchairs. We need to culturally shift to a world in which the pitches all take place in the future: privacy but for after Facebook, urban transport but for after Uber, tech but for after Trump/Thiel, tech but set in 2023.
The third thing we need to do is get out of the tech ghetto and into the public policy world.
We should engage with political process to shape the regulatory attack on internet businesses based in the US to best suit our local sector, and to try and make Scotland the default place for the calves of US internet giants to base themselves.
In my book Winning The 2nd Independence Referendum — Scotland In The EU After Brexit I talk about Scotland in the EU flensing rUK of European institutions and university research departments.
We need to adopt the same strategy towards the US.
Due to the Edinburgh Stanford Link we also understand the academic support for the tech sector in Silicon Valley very well. We should put Stanford and the various research institutes that surround it high on our flensing list and get the post-indy government to to go and actively trail quick-access EU passports around the academics there and try and relocate them to Edinburgh to feed our tech scene.
This is a time for boldness, let us be bold.
If you read this far you should:
- follow @gordonguthrie on Twitter
- buy my book Winning The Second Independence Referendum — A Manifesto For Scotland In The EU After Brexit
- read more of my stuff
- buy my book War Is Coming or watch my lecture about it
