As we work to transition to net zero both across the UK and globally, debate abounds about the impacts of that transition for traditional industries and the regions across the UK. Will traditional industrial heartlands – sometimes implicitly summarised as coal, steel and car manufacturing hubs – suffer as we move to new, zero-carbon technologies? Will net zero innovation be a net negative for regions outside of Greater London? And are venture capital investors, who need to play a key role in supporting innovations that will help us deliver on a zero carbon economy, mainly supporting the largely London-centric software-based net zero enablers, at the expense of the rest of the country? Or, on the contrary, is there an excellent opportunity to look beyond the M25 and find hidden gems? We believe there is.
Some moves in the market – but it’s far from good enough
In 2022, the Greater London area attracted as much as 70% of total VC investment in the UK, according to Dealroom (guide to UK Venture Capital).
Of course, the data can also be spun positively for the rest of the UK, which has been growing rapidly, from less than $5bn in 2017 to $9bn in 2022. Some regions like the East Midlands, Northern Ireland, and Yorkshire and the Humber have seen investment amounts more than double over the past three years.
Specifically in the climate solutions space, there is a growing recognition of the importance of the regions as a key part of the UK’s transition to a zero carbon economy, as discussed during a useful session at this summer’s Innovation Zero conference (which took place in West London).
There is movement towards the regions – but it’s easy to see that it’s neither bold enough nor rapid enough.
72% of Green Angel Ventures’ investments since December 2021 were outside of London
Out of Green Angel Ventures’ portfolio of 41 companies, 9 are within the M25, which means that 78% are outside the Greater London area. And out of the £20m invested by Green Angel Ventures’ vehicles (Green Angel Syndicate members, the Climate Change Fund and our British Business Investment mandate) since 31 December 2021, 72% went to companies outside London.
In other words, our geographical split is exactly the opposite of the broader VC market: more than 70% outside of London versus 70% in London!
From AI-based flood prevention in Belfast to methane-detecting cameras in Cardiff.
Statistics are good, but what about the quality of these investments? Here are just a few examples of some ground-breaking early stage businesses that we are very proud to support:
- Low Carbon Materials, the 2022 Earthshot Prize finalist making zero carbon concrete blocks, based in county Durham;
- Power Roll, a business developing uniquely lightweight and inexpensive solar film, based initially in Sunderland and now next door to Low Carbon Materials;
- Stormharvester, an artificial intelligence innovator solving the challenges of flooding and spillage from water networks, which has built impressive traction with large water utilities across the UK;
- Kelpi, the recent winner of L’Oréal’s Beyond Plastic Challenge, and which is based in Shrewsbury, North-West of Birmingham;
- Smile Plastics, based in Swansea, making and selling beautiful recycled plastic panels to the likes of Selfridges;
- QLM Technology, which has invented uniquely accurate and low cost cameras detecting ultra-low quantities of methane gas and is now starting to sell to some of the largest global oil & gas companies, is based in Cardiff.
And these examples are just the emerging part of the iceberg. Indeed, we are selecting those portfolio companies from a pipeline of deals which is literally coming from all parts of the UK – as demonstrated by the map below, which shows the locations of companies that have applied for funding from Green Angel Ventures over the past 12 months.
Why we put a deliberate emphasis on the regions
Our rich, geographically diverse deal flow is the result of many years of hard work by the Green Angel Ventures team: reaching out to universities and other innovation hubs across the country, building a network of trusted co-investors in the regions, and, last but not least, leveraging our unique network of angel investors – many of whom are based outside of London.
Why are we doing this? It’s obviously a good thing to help all regions of the country take their part in the transition to a zero carbon economy. We are extremely proud to be associated with British Business Investments, as a partner of their Regional Angels Programme, which aims at fostering early stage investment in the regions.
However, we also strongly believe that such an approach is a very important positive differentiator for Green Angel Ventures – simply because it can be a key tool to deliver superior investor returns:
- The UK is incredibly rich in terms of universities across the board. For sure, Imperial College London, Oxford and Cambridge are world-class research universities, and we are always delighted to work with innovators stemming from those. But Durham, Bristol, Edinburgh, Bath, Salford and many other universities are also producing world-leading IP that is being leveraged to solve some of the most pressing climate-related problems.
- The cost of doing business is lower in most regions than in London – if only for rents and salaries, two important factors for startups like for any company. So an investor’s money should go further in the regions than in London.
- In addition, we see many regional portfolio companies finding significant local support, which can take many forms. This includes subsidies from local authorities, and hopefully from central government as part of the levelling up programme(s).
- And last but not least, valuations of early stage or VC rounds are probably lower in the regions than in London, on average – which is a good place to start when considering potential investor returns.
What does the future hold and how do we continue to close the regional investment gap?
One thing is clear – significant gaps exist in opening up capital for and investment in emerging climate technologies and solutions across the UK regions. It’s inevitable that the wider UK regions will play a key part in delivering the technologies needed, but this needs to be backed by the investment needed to support their growth and potential.
At Green Angel Ventures, we believe that this is not only a necessity to enable a harmonious development of the UK economy as it transitions to zero carbon over the coming decades, but it’s also a source of future returns for investors who are making a deliberate move to be active in the regions – given how rich and diverse innovation and entrepreneurship is across the board.
Interested in discussing this further? We’re looking forward to discussing this and other key topics at this month’s upcoming Climate Technology Show, which takes place at the ExCel Arena in London, on 26th and 27th September, later this month.
Join our President and Founder, Nick Lyth as he joins a panel entitled ‘The Power of Collective Action: Bridging the Financing Gap for Climate Innovation’, on Day 1 of this major event.
Alternatively, if you’re going along, we would love to meet you there to discuss investment opportunities and meet with founders to explore future deal flow opportunities, to look at how we can work together to identify and fund the best climate technologies and solutions that will create tomorrow’s growth.
See you there!
Antoine Pradayrol
Photo by Krzysztof Hepner on Unsplash
Disclaimer – Investment in early-stage companies involves risks such as illiquidity, lack of dividends, loss of investment and dilution. Even when diversified within a fund, investing in early stage companies carries a higher risk than investing in more established companies. Investment in EIS and SEIS funds should be considered as part of a diversified portfolio. Green Angel Ventures Limited is authorised and regulated by the Financial Conduct Authority with Firm Reference Number 963377. The content is for information purposes only and should not be used or considered as an offer or solicitation to purchase or sell any securities.