Ian Thomas, Managing Director at Turquoise
UK ClimateTech VC investment interest is high – but how do businesses achieve funding past the start-up stage? Ian Thomas, managing director, Turquoise International, shares insights from its new partnership with specialist investment manager Redwheel.
Venture capital (VC) investment is surging in the UK, with start-ups attracting $21.3 billion last year. The third-highest total on record, levels of UK start-up investment exceeded both France and Germany combined. This growth is continuing into 2024, with the amount of venture capital raised by UK start-ups rising in the first five months of 2024, despite a fall in deal volumes. The UK is the top European market for VC funding activity and also ranks among the top five markets globally both in terms of VC deals volume and value, as measured between January to May this year (GlobalData, June 2024).
Partly, this increase was due to a rise in ClimateTech investment, also a growing field.[1]
Interest in ClimateTech, which refers to technologies and business models that work to decarbonise energy, transport, buildings and infrastructure, carbon and climate, industry and agriculture, is indeed high among investors. New ClimateTech has the potential to combat approximately 90% of the world’s carbon emissions by 2050, according to a recent report by The Climate Brick (April 2024). Start-ups of companies pioneering the new technologies critical to future carbon reductions is currently fuelled by innovation from universities, business angels, and government incentives. However, as businesses transition from start-up to growth phases, they face significant funding challenges, for which there have historically been few solutions. Government support ends as tax advantages no longer apply, and as investment requirements get larger there is shortage of experienced, lead investors at this stage.
The UK ClimateTech sector requires substantial investment – often five to six times higher than that needed in, for example, fintech. Solutions such as carbon capture and transport electrification demand significant pre-production capital. Scaling businesses up commercially to ensure they can grow their teams, expand internationally or build their first plant is a key challenge for many in this sector. While conditions are favourable for growth, leveraging this requires strategic investment and support from experienced lead investors.
New investment strategies
The UK’s sustainable investment landscape will increasingly focus on technologies that deliver both strong financial returns and environmental resilience. The partnership formed by Redwheel and Turquoise is poised to further ClimateTech investment, fostering the development of sustainable technologies that will shape our collective future.
Turquoise and Redwheel have joined forces to launch the Redwheel-Turquoise ClimateTech Fund (RTCF), aiming to provide growth capital to UK companies developing low-carbon technologies and services that address environmental challenges and promote sustainability. Combining Redwheel’s access to institutional capital with Turquoise’s ClimateTech expertise, RTCF will lead investments in companies ready to scale up.
A strong track record
Turquoise brings over two decades of ClimateTech investment experience, with a portfolio of more than 140 completed transactions. Through the Low Carbon Innovation Fund 2 (LCIF2), Turquoise has invested in a diverse portfolio of businesses including Skoot Eco Group, Net Zero Now, and Unum. In November 2023, the fund invested in a £23m investment round for electric motor developer Advanced Electric Machines alongside Barclays and Legal and General.
Redwheel, entering the VC market for the first time, leverages its strengths in institutional capital access and fund management, focusing on governance and investor reporting. This partnership aims to harness Turquoise’s deep sector knowledge and Redwheel’s established institutional platform to identify and support high-potential growth-stage companies.
Strategic focus
RTCF is committed to identifying post-revenue and growth-stage companies with the potential to disrupt their industries. The fund will strategically focus on energy, transport, mobility, and resource efficiency. Investments will be selected based on their potential for strong financial returns and measurable positive climate impacts, assessed using a rigorous, independently designed methodology.
Turquoise will manage the fund’s day-to-day operations, ensuring investments are strategically aligned with environmental goals. This partnership aims to accelerate the growth of ClimateTech companies by providing much-needed access to later-stage capital.
Strategic alliances for a sustainable future
By focusing on robust business models, strong management, market validation, strategic partnerships, clear milestones and ESG integration, ClimateTech companies can attract the necessary funding to drive their growth beyond the start-up phase, ultimately contributing to a more sustainable future.
By bridging the funding gap for growth-stage ClimateTech companies, the Redwheel-Turquoise partnership is set to drive significant advancements in the sector, ultimately contributing to a more sustainable and resilient economy. This collaborative effort underscores the importance of strategic investment in addressing environmental challenges and promoting long-term sustainability.
[1] HSBC Innovation Banking and Dealroom, January 2024
