Market assessment – UK venture capital market for early-stage clean tech companies – March 2023

Practice area: Data & technology | Energy economics | Productivity, Innovation and New Economy
Client: Department for Energy Security & Net Zero
Published: 13 March, 2023
Keywords: qualitative analysis quantitative analysis UK 2023 finance market study Net Zero

The Department for Energy Security & Net Zero commissioned London Economics to assess the UK venture capital (VC) market for early-stage clean tech companies, aimed at enabling economic activity to provide goods and services while generating significantly lower greenhouse gas emissions. This study examines the state of early-stage investment in UK clean tech companies, comparing them with other dynamic technology sectors such as Artificial Intelligence and Biotech.

The report shows that early-stage investment in UK clean tech companies has increased in recent years, both in the number of deals and overall value. Specifically, between 2017 and 2021, the total volume of seed and venture investments in UK clean tech companies grew from approximately £163 million to approximately £420 million, with an overall increase of 158% and a compound annual growth rate of 27%. However, the AI and Biotech sectors still received more investment, with £710 million and £615 million respectively.

The report also suggests that the majority of growth in clean tech investments occurred in 2020-2021. London-headquartered clean tech companies accounted for between 27% and 34% of deals between 2017 and 2020, with 33% to 39% of investment.

The report highlights the opportunity of a virtuous cycle from the current surge in early-stage clean tech investment. If the increasing investment volumes seen in recent years produce a cohort of UK clean tech success stories, this is likely to inspire investors to invest more in clean tech; at present, perceptions that there is a lack of a ‘track record’ of profitable clean tech companies deter investment. Moreover, the entrepreneurs behind those success stories would accumulate experience to lead another wave of clean tech companies.