Over the past year, FinTech, cloud-computing software, e-commerce and HealthTech companies have grown rapidly in terms of capital raised, generally taking advantage of the move online and the associated opportunities resulting from COVID-19 restrictions. We see no reason why this will not continue.
Another area where we expect to see growth is ClimateTech – the intersection of technology and innovation with sustainability and prioritisation of the environment. The demand for ClimateTech certainly exists and, where there is demand, the supply and growth in companies and associated investment typically follow.
At a macro level, it is widely recognised that we need suitable alternatives to fossil fuels, and fast. The recent announcement from the International Energy Agency that, to reach net zero emissions by 2050, investors should avoid funding new oil, gas and coal supply projects, will inevitably lead to investment being focused instead on clean energy sources, electric mobility solutions and green utility providers.
We expect more countries to join the US, Germany and Poland in prioritising capital investment into renewable energy.
At a start-up level, we are seeing an increasing number of companies looking to find scalable tech solutions to reduce the carbon footprint of a product or sector. For example, companies are developing alternatives to single-use plastic to create a more sustainable food chain and combat plastic waste.
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Companies are working on alternative foods to reduce the impact on land and food waste, and other companies are improving public awareness of climate change through intelligence platforms. Investors are increasingly providing investment to accelerate these ideas. Germany already has the most ClimateTech start-ups at over 250 and the UK and France have around 100 each. Universities are also supporting initiatives to help solve climate issues, which will lead to more spin-outs with high calibre founders.
However, ClimateTech is wider than this and the drive for sustainability is impacting other traditional tech verticals. For example, cryptocurrency is under the spotlight due to the extensive amount of fossil fuels that are required to create the digital currency.
More broadly, every director of a UK company has a statutory obligation to consider the impact of the company’s operations on the environment as part of their duty to promote the success of the company. Some companies have taken this one step further and committed to the Certified B Corporation standard, joining an independently verified list of companies that aim to meet the highest standards of social and environmental performance.
Overall, there is an increased awareness of ESG factors for investors and companies, which measure the environmental sustainability and societal impact of an investment or decision. Venture capital investors have reporting requirements to their own investors and many now need to show a commitment to ESG in their portfolio companies, through policies and practices. ESG has therefore gone from a buzzword to a necessity.
Finally, it is also worth a brief note on “SPACs” – special purpose acquisition companies – that are formed for the sole purpose of raising capital through an IPO to acquire an existing private company. It is an alternative way to ‘go public’. SPACs have existed for several years, but it is a recent trend that has had a lot of activity in the US. Whilst SPACs are not a vertical, nor are they ‘vertical-agnostic’, they are certainly something we expect to receive a lot of attention and capital growth for the rest of the year in European markets.
Written by Adam Thatcher, Associate at Goodwin