UK ‘impact startups’ raise £2bn in 2021

UK technology startups addressing one or more of the United Nations’ Sustainable Development Goals (SDGs) have raised £2bn in 2021 so far, up from £1.7bn in 2020.

Data released by market intelligence firm Dealroom shows that investment in these firms, also known as “impact startups”, has increased by 127% since 2018, and that the UK now has nearly 900 startups and scaleups working across a wide range of technologies.

These companies have a combined worth of £50bn and employ over 35,000 people, with most of the capital raised going to companies working on clean energy and other climate change-related technologies.

Collectively, climate tech companies make up 65% of the deals signed by impact startups throughout 2021. Among these are firms such as green energy provider Octopus energy, which raised the biggest funding round of any impact startup at £438m; electric car subscription platform ONTO, which raised £130m; and waste management and recycling firm Plastic Energy, which raised £123m.

Outside of climate tech, a number of UK impact startups are looking at how technology can help solve global health problems. BenevolentAI, for example, uses big data and deep learning to discover more effective medicines, while Huma enables remote patient monitoring to reduce hospital readmission rates in countries including the UK and Germany.

In October 2020, previous data from Dealroom and entrepreneurial network Tech Nation revealed that investment in impact startups increased nearly tenfold between 2014 and 2019.

“Impact investing has come a long way since its start in the late 1990s when it was considered more of a philanthropic endeavour until investors realised these investments could deliver not only a social benefit but also a financial return,” said Luisa Alemany, associate professor of management practice in strategy and entrepreneurship at London Business School’s Institute of Entrepreneurship and Private Capital.

“At the heart of this is technology, as the way to scale social impact is by applying science and technology. From biotech to nanotech, cleantech, computer science and medicine, technology is not only improving our lives but finding solutions to these pressing problems that only entrepreneurs, with the right source of financing, can dare to solve.”

Of the roughly 900 impact startups in the UK, 12 have now also reached unicorn status – meaning they are valued at over $1bn – and 22 high-growth scaleups are on track to achieve unicorn status in the next few years.

Six of the 12 existing unicorns are based outside of London, including Bristol-based Vertical Aerospace, which is building zero-carbon, commercial flying taxis; Sheffield-based ITM Power, which designs and manufactures hydrogen energy systems; and Ceres Power Holdings in Horsham, which is creating low-cost next-generation fuel cell technology to enable companies to deliver clean energy at scale.

In September 2021, Dealroom data revealed that the UK is now home to a total of 105 unicorn businesses, with 20 passing the $1bn valuation in the first six months of the year – meaning one new unicorn is created in the UK every week.

“With more money than ever being invested in UK tech companies, it’s critically important to see that an increasing amount is being dedicated to supporting this new generation of impact companies,” said Rana Yared, general partner at Balderton Capital.

“These companies have dual missions to have a positive effect on the world, while being self-sustaining businesses. As these companies grow and scale, it’s important they have the right conditions to thrive and become global leaders.”

During the pandemic, more than £1bn of convertible loans were issued to of nearly 1,200 startups through the government’s Future Fund programme, which was launched in April 2021 by finance minister Rishi Sunak to support startups and loss-making companies with the investment needed to stay afloat during the pandemic.

The British Business Bank revealed on 14 September 2021 that, as a result of the Future Fund loans, the government now has equity stakes in 158 high-growth startups.

According to digital secretary Nadine Dorries – who hosted the Future Tech Forum at the Science Museum on 29 November, a two-day event bringing together governments, industry, civil society and academia to discuss future public policy issues relating to the development and use of digital technologies – harnessing technology to make greener, healthier and safer choices will require new governance, policy and cooperation.

“I’m gathering you all here today to start a new and frank conversation about the future of tech; about how we can work together to harness its incredible potentially, particularly when it comes to tackling the biggest challenges we face, like climate change while protecting people from the darker side of the digital age,” she said in her keynote speech at the Future Tech Forum.

“It’s on us, as like-minded partners, to make sure the tech revolution is a democratic one. Together, we’ll be discussing a number of challenges over the next two days, like: How do we get the governance of tech right from the start, rather than playing catchup? What are the issues we need to think about now, before the adoption of new and emerging tech becomes widespread? How do we ensure new technologies reflect our liberal and democratic values? And where do we need international solutions – given tech is global in its very nature – and how do we deliver them?”

So far at the forum, three Memoranda of Understanding (MoUs) have been signed by Dorries and the Singaporean minister for communications and information, Josephine Teo, which will underpin the UK-Singapore Digital Economy Agreement (DEA) currently being negotiated.

The DEA seeks to enhance the trade relationship and boost digital trade for businesses and benefits for consumers. 

The three MoUs include an agreement on ‘digital trade facilitation’, which aims to reduce the barriers involved in digital-led trade by establishing a pilot project for the transfer of electronic bills; an agreement on digital identity systems to help smooth how they operate between jurisdictions; and an agreement on cyber security, which acknowledges countries’ shared goal of protecting their interests online.