Intelligent lending: How a new type of loan could help Scottish tech sector flourish

Wordsmith AI, co-founded by former Skyscanner executive Ross McNairn and others, raised $70m from Highland Ventures and Index Europe to further develop its AI tool that helps law firms review contracts, draft documents and answer complex legal questions.

Yesterday, a fintech spun out of Edinburgh University’s School of Informatics called Aveni, whose AI widget is used in financial services, secured £12m in a round led by PXN Ventures.

While this is obviously good news for Scotland’s entrepreneurial ecosystem, it doesn’t mean the funding environment is flush with cheques just waiting to be written.

Rather, it highlights two things. First, investors have become more selective about what they think is investable. Second, AI is the sector of choice for many.

For a sense of what’s really going on as young businesses seek funding for growth, the latest annual assessment of the health of Scotland’s risk capital market by Scottish Enterprise, published on Monday, is instructive.

Covering 2025, it shows a clear trend for fewer, larger equity deals in the UK, where investment value increased by four per cent to £24.4 billion, despite deal count falling by seven per cent to 5,982. The increase in value was driven by growth in deals worth £100 million – so-called megadeals.

Scotland achieved a record-breaking year for investment value, with £1.15bn raised – a 26 per cent rise on the previous year. Yet this was flattered by a single megadeal accounting for 39 per cent of Scotland’s total: £445m ploughed into Edinburgh-based battery storage business Fidra Energy.

“The results reflect a global ’flight to quality’, where investors backed fewer, larger deals and placed greater emphasis on strong fundamentals, proven revenue models and differentiated technology,” the report said. AI clearly fits the definition “differentiated technology”.

Moreover, this refining of investor focus had “placed further downward pressure” on the valuation of very early-stage and start-up companies.

Combined with increased market uncertainty and slower global growth, capital had become more expensive, making it even harder for some early-stage companies to raise new funding.

I asked one of Scotland’s leading angel investors, David Alexander, what the market looks like from the perspective of such investors, who specialise in smaller amounts for startups. 

With merger and acquisition activity subdued and stock market exits still tough there was a lack of money being recirculated into the funding cycle. Yet at the same time, existing portfolio companies are often looking for further funding from what has become a tired shareholder base.

“One of the underlying problems in Scotland is investor fatigue and many investee companies either not scaling quickly enough or generating positive cashflow,” he said. 

This is particularly difficult for startups trying to reach scaleup size – thereby filling a “scaleup gap” highlighted in the “Scaling Scotland” report authored last year by another former Skyscanner executive, Shane Corstorphine.

What is to be done? One of the UK’s high street banks, NatWest, thinks it has an answer: IP lending, or lending against a company’s intellectual property, such as proprietary technology, software copyright for designs and brands.

Artistic creations also qualify. This week, NatWest’s Royal Bank of Scotland unit launched IP lending in Scotland, allowing companies to borrow £250,000 to £10 million against the value of their IP.

It said this would be particularly attractive to university spinouts and those in the technology and creative sectors who have “big, transformative ideas” but do not have the assets – like machinery and buildings – against which to borrow.

Such lending has only been possible in Scotland since passage of the Moveable Transactions Act 2023, which brought Scotland in line with in England, where it has for some time been possible for banks to take security over intangible assets like IP.

NatWest launched IP lending in England and Wales in 2024, and will use the same specialist valuation company, Inngot, that it uses down south to value businesses’ intangible assets for Scotland.

Speaking at a launch at the Edinburgh Futures Institute on Wednesday, NatWest’s head of tech, media and telecoms, Neil Bellamy, said such lending “plays well into the Scottish tech ecosystem”.

The bank had already lent to 25 “good, scale-able businesses” in England and Wales, including Open Bionics, a Bristol-based maker of prosthetic arms for adults and children, with the funding allowing expansion into the US. IP lending would be “rocket fuel to allow more businesses to scale up and go international”, Bellamy claimed.

Hopes are particularly high for its use in the Scottish gaming sector. “We think this is a milestone for valuing and financing games across Scotland,” said Nick

Poole, chief executive of UKie, the trade body for the UK video game and interactive entertainment industry.

Others are looking at IP lending, including the British Business Bank, which told me it is “exploring how we can go further to support IP-rich companies, including whether we can use our financial guarantee capacity to support IP-backed lending”.

There are reasons to be cautious about how far IP lending can go. It is still unsecured lending. Valuing intangibles like IP is an inexact science, although Bellamy says the bank monitors loans on a quarterly basis, revalues them annually if needed and has already gathered “really interesting data on what happens to IP assets over time”.

High street banks also have every incentive to offer new types of lending at a time when lending to small- and medium-sized businesses has become highly competitive with the entry of so-called “challenger” banks and specialist lenders.

But given the funding squeeze faced by Scotland’s early-stage businesses, having a new route to funding can only help.