The Academic Entrepreneur is circling back to innovation policy in light of the upcoming Referendum on Scottish Independence. The polls are closer than ever and now is the time to be discussing policy, especially venture capital policy which could evolve under independence for the new Arc of Prosperity State or under further devolution from centralized control.
This essay will tie immigration policy and innovation policy together as has been done before in this blog as well as in other academic outputs in the past. Suggested here is a policy and programme that will greatly drive the supply of venture capital in a rebirthed state. As discussed before in the Academic Entrepreneur, the immigration policy lever is Scotland’s greatest opportunity to spur innovation, exploit its knowledge assets, increase start-up activity, attract entrepreneurs, and build a wealth state that could outdo even Norway.
First, why is the supply of venture capital important? Simply put, it attracts entrepreneurs and catalyzes innovation. Regions such as Silicon Valley, New York City, Boston, Seattle and London for instance have a competitive advantage in the global innovation game because of a healthy supply of entrepreneurial risk capital in the form of formalized investment management organizations we refer to as venture capital firms. Entrepreneurs go to where the money is; competition amongst venture capitalists leads to further innovation in models and more startup activity and growth.
Scotland can capitalize on the massive need and want of Mainland Chinese investors to internationalize and diversify their holdings. These same people also desire residency in Western countries as well. There are myriad reasons for this, from investment strategy to pent-up demand that is finally being released by the Chinese Government, to concerns over pollution, water resources, and corruption; to the desire for Western education for children. A much longer writing is deserved here. However, in my own research I have found this to be the case. The West is just seeing the tip of the iceberg on this pent-up demand for capital outflows, so I learned in Vancouver.
There are other wealthy investors from other regions of the world as well that would like to immigrate to a renewed Scotland as well. I would argue that with the right policies in place, this would include the United States of America as well.
The current investor visa being offered up by the UK has much to be desired by Chinese (or other) immigrants who are seeking to deploy capital and gain residence. You can find it here: https://www.gov.uk/tier-1-investor/overview
For starters, not only is it constraining, but it does not provide for permanent residency, but just a visa for 4 years that then needs to be extended for another 2. This is not attractive to many Mainland Chinese who are aware of Canada’s more liberal (until recently) immigration programme that provided a fast track to permanent residency.
Proposal: Fast-Track Visa for Investor Immigrants to Scotland
While the country is moving towards a massive increase in venture capital supply through an investor visa, the research funding problem can also be solved as well. This will go far in building a superior university system and attracting researchers from all over the world.
The current investment scheme in the UK calls for a minimum investment of GBP 1 million. I recommend keeping that amount and adding a GBP 500K in return for a Fast track permanent residency visa in Scotland of 1 year.
Investor Requirements:
*GBP 500K tax-beneficial donation (gift) to research (contributors will have option to donate to a research funding pool or directly to universities or even to research centres)
*Minimum investment of GBP 1 million in a technology venture capital fund-of-funds (15 – 20 year length funds).
*Application and 1 year waiting period
*Successful completion of a course, also offered online, on Scotland, its history, the country, and so forth. The written exam will be administered on-the-ground in Scotland in multiple languages.
In return:
*Scotland provides a permanent residency visa within 1 year to the investor
More or less, its that simple. There shouldn’t be any minimum time requirement for living or residing in Scotland; afterall , these are high net worth individuals that just donated GBP 500K each to research in Scottish universities, and invested GBP 1 million in a 15 year venture capital fund-of-funds. They are globetrotting international investors; don’t constrain their movement.
The venture capital fund-of-funds should be competitively and privately managed. They will only be allowed to invest in venture capital funds and related structures that will only invest in high growth innovative ventures in Scotland.
Some of these innovation areas will be information technology, education, life sciences, cleantech, renewable energy, design and art. A portion of the venture capital fund-of-funds will be invested in incubators and accelerator programmes that are privately managed as well as into venture capital funds.
THE NUMBERS
What kind of impact are we talking about? Let’s first keep in mind that the entire US Venture Capital Industr is approximately USD 200 billion. With the above policy in place that would be promoted, Scotland could surpass this amount and build a GBP 200 billion technology industry within 5 years. Here is how:
40,000 fast track investor visas per year * GBP 1 million minimum venture capital fund-of-fund investment * 5 years = GBP 200 billion
at the same time, the research pool over a 5 year period will look like this:
40,000 fast track investors per year * GBP 500K of research donation to Scottish Universities * 5 years = GBP 100 billion
Some of you will question: Will 200,000 investors take this visa deal over a 5 year period? I believe so. In fact, I think the potential is closer to 100,000 or more per year.
Remember that by conservative accounts, there are 100 million entrepreneurs in China. 200,000 over 5 years is but a small percentage of successful business people.
When the Canadian (Federal ) Investor visa was shut down, there were 50,000 applications in the queue that were denied. Tip of the iceberg. By year 2016 and with no other Western States capitalizing on this opportunity, the demand for such a visa programme will be huge.
To make this work, no other investor visa programme in Scotland can be offered. Real estate we’ve learned lessons from, with bubbles in Sydney and Vancouver for starters. Chinese will naturally be attracted to real estate, and instead Scotland’s SDI or some such organization will have to help educate and steer them towards the benefits of technology venture capital fund-of-fund investments. After all, it would be the only way to get fast tracked into the country.
Such a policy would also greatly enhance the China-Scotland connection. It would open up new markets for Scottish products and technologies. Maybe Mandarin would thus be the 2nd language that is widely taught and embraced for its economic benefits.
This is how to drive a huge supply of research funding and venture capital into the new state. GBP 100 billion in increased research funding and GBP 200 billion in venture capital supply would make the country a leader in both regards. Imagine dozens of big new life sciences venture capital funds, dedicated greentech and renewable funds, a network of national incubators and 100 in Edinburgh alone, each specialized. What could be done in terms of creating new knowledge with GBP 100 billion over a 5 year period — research galore.
Can such a programme be implemented without independence for Scotland? I seriously doubt it. Even under devolution, the UK Government would never pass such legislation. If anything, under a NO result, immigration in the UK is going to tighten and it does not appear that any party is willing go give a further devolved Scotland more immigration powers.
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