The new Labour government must stop a “missing middle” in start up investment from stifling UK climate tech firms if it is to become a major global destination of choice for innovative net zero scale-ups and investors.
That is the headline finding in a new report from Barclays today, which warns that early-stage UK start-ups continue to face significant challenges in securing the next stage of public and private funding needed to grow their business and scale their innovations, particularly at the Series B+ investment stage.
The report, which sets out a spate of recommendations to the new government to help address the issue, highlights the high initial upfront costs and long timeframes to profitability that climate-tech start-ups continue to contend with in the UK. Faced with an investor market more acclimatised to software start-ups, climate tech firms can struggle to demonstrate scale and revenue potential meaning they fail to secure funding needed for their next growth stage, Barclays said.
“The UK is renowned for its innovation but there is a missing middle of capital holding back successfully scaling viable real economy ideas that can support the transition to net zero emerging from our institutions, entrepreneurs and universities,” said Daniel Hanna, global head of sustainable finance at Barclays.
As such, today’s report suggests the new government provide direct support for companies by addressing a gap of between £10m and £25m in public financing, which it said could be led through a specific climate tech fund or work programme overseen by the British Business Bank (BBB) or the UK Infrastructure Bank (UKIB).
The government could also look expand financing mechanisms and maximise existing tools and mandates to improve the impact of public finance institutions, as well as review existing support and consider the benefits of consolidating existing organisations, the report adds.
It also claims a lack of “organisational connection” between the likes of the UKIB, BBB, UK Export Finance and Innovate UK results in missed opportunities for collaboration, adding that the recently announced National Wealth Fund presents an opportunity to facilitate better links and unlock greater financing.
The report follows the announcement of a flurry of green bills in the recent King’s Speech, which included recognition of both the urgency of the global climate challenge and the new job opportunities that can come from leading the development of the technologies of the future.
The government was considering a request for comment at the time of going to press.
But Hanna urged the government to act swiftly for the UK to leapfrog international markets and become a destination of choice for innovative climate technologies.
“The National Wealth Fund presents an opportunity for the UK to fine-tune the UK’s public finance approach and help mobilise greater private capital,” he said.
“Our policy paper Scaling growth-stage climate tech companies suggests four practical steps for the National Wealth Fund and UK public institutions to unlock financing critical to scaling next generation climate tech companies and support the UK becoming a global centre for climate tech.”
According to the International Energy Agency, more than a third of greenhouse gas emission cuts required by 2050 will come from technologies not yet on the market. Barclays’ Sustainable Impact Capital portfolio has a mandate to invest £500m into developers of such tech by the end of 2027, backing 20 climate tech innovators to the tune of £138m between 2020 and 2023.
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