Extreme events can disrupt firms and cause stress or uncertainty resulting in the formation of an event chain, such as the creation of new policies or frameworks to respond to the event (Hannah et al., 2009; Morgeson et al., 2015). For example, 31.4% of export-oriented Scottish businesses were exporting less than usual, with 60% of businesses stating Brexit as the main reason for export challenges. COVID-19 has resulted in a decreased turnover for a high percentage of businesses across multiple sectors. 

Investigating the effects of extreme events on small and medium-sized enterprises (SME’s)  is crucial since they are more susceptible due to their financial vulnerability, administrative burdens, and uncertainty (Bartik et al., 2020). To study this, we turn to Scotland's context due to the significant presence of private sector SMEs (Brown, 2020) and because it has been significantly affected by Brexit and COVID-19.

In this paper, we explore how COVID-19 and Brexit led to macro-level regulatory events impacting the Scottish SME innovation ecosystem. We analyzed data from Scottish EDGE (SE), the UK’s largest business funding competition. As SE’s primary purpose is funding Scottish SMEs, and SMEs in this competition are mostly about innovative endeavours, this institution was used as a proxy for the contextual conditions of Scotland's current and future innovation ecosystem.

This study aims to answer the following research questions: (1) How can a funding institution be considered a proxy for the innovation ecosystem? (2) How do disruptive or extreme events affect the proxies of innovation ecosystems? Using secondary data, we provide insight into the impact of macro-level stakeholders on the innovation ecosystem and highlight the importance of institutions in fostering current and future innovation and entrepreneurship, especially in Scotland.