2023 was a turbulent year for the global economy, with inflation pressures, rising interest rates and large geopolitical shocks all causing uncertainty in the financial markets. Despite this, the UK economy proved more resilient than anticipated, but it is still suffering from high inflation and weak growth.
Venture capital investment into UK cleantech has also remained remarkably buoyant throughout 2023 – reaching £2.6 billion, matching 2021 levels of investment – a small drop-off from 2022.
We also observed a decrease in the number of late-stage deals year-on-year – a number still surpassing the deal number in 2021. Indeed, we continue to see low activity at Series B, and growth equity has slumped to be the least active investment stage in the UK. Series B investment loosely corresponds to the demonstration and first-of-a-kind (FOAK) stages, with a typical deal size of £25-60 million) Projects require significant capital to take a project from pilot phase, to a FOAK and beyond. Here, we observe a notable shortfall of capital.
To crowd in capital for cleantech deployment, clear market signals are needed. Politically, that has to be built on a foundation of stable, predictable policy.
Regrettably, however, 2023 offered little by way of stability.
The two main political parties have used commitments on climate change to attack each other. Unfortunately, matters such as the Government’s rollback of the ICE phaseout, and the Opposition’s cuts to spending commitments have resulted in lowered ambitions and a confused voter base.
The cleantech community represents an opportunity to revitalise the UK’s industrial economy, and bring jobs and prosperity to all corners of the country. We look to policymakers to support bridging the funding gap that innovators face at the scale-up stage, which currently sees cleantech startups struggle to close Series B rounds and onwards.
With this in mind, Cleantech for UK argues for the following priority actions in 2024:
- Develop a unified funding ladder
- Implement agile regulation
- Ensure equity in the green transition
