UK ‘impact startups’ see investment surge

Investment in UK technology startups addressing one or more of the United Nations’ Sustainable Development Goals has increased nearly ten-fold in six years, research reveals.

Data released by entrepreneurial network Tech Nation and market intelligence firm Dealroom shows that investment in these firms, also known as “impact startups”, increased by 9.5 times between 2014 and 2019.

The data further reveals that UK impact startups have raised €1.4bn so far this year, with Cleantech and climate tech companies raising most of the capital.

“UK impact tech firms have come on leaps and bounds over the last six years, with nearly 10 times more investment made into groundbreaking companies in 2020 than 2014,” said George Windsor, head of insights at Tech Nation. “UK tech must continue to play a key part in tackling some of the world’s toughest challenges, including  climate change.”

The data also reveals that impact startups now account for over 15% of all European venture capital (VC) investment – double the global average and three times higher than a decade ago, with European firms receiving a total of €6bn in 2019 alone.

Most of this investment in the wider European context has gone to climate technology startups, including those developing electric vehicles, which have attracted €9.8bn of VC investment in the last five years.

“This research shows that what was once fringe investment and innovation activity is finding traction and proven success in Europe, becoming a core part of European innovation ecosystems,” said Tech Nation in a press release.

Separate research by Tech Nation from early September also revealed that, within Europe, UK net zero startups were leading the way in investment, receiving £336m in 2019, a 28% increase on the previous year. By contrast, French and German net-zero firms secured £216m and £283m, respectively.

In September 2020, industry body TechUK and consultancy firm Deloitte launched a report, How to make the UK a digital clean tech leader, which suggested that digital technology already in the field can enable a reduction of 7.3 million tonnes in the UK’s carbon emissions, or 15% of the 48 million tonnes of carbon dioxide equivalent needed by 2030.

However, despite the long-term upward investment trajectory of the impact sub-sector, UK technology startups in general are struggling because of the Covid-19 pandemic, with an analysis by co-working and innovation space company Plexal and database firm Beauhurst showing that more than 1,000 startups have filed for administration, liquidation or dissolution since the start of lockdown in March.

Of the total 1,067 filings, 273 were made in September alone, making it the highest monthly figure for startup collapses in a decade.

The analysis also shows high-growth startups in general have raised £5.37bn in investment in the same period, which means clean and climate tech startups have received about one-fifth of all 2020 investment when compared with the Tech Nation figures.

However, the Plexal-Beauhurst analysis also revealed that most of this investment was directed to already-established firms – just £458m went to first-time fund-raisers, for example, representing a 55% year-on-year decrease.

This trend has been present since the start of the pandemic, with previous research by Plexal and Beauhurst from May showing that only £52m of just over £1bn raised at that point was going to early-stage startups and entrepreneurs who had never raised money before.