In the past year, climate technology emerged as the primary recipient of startup funding in the UK, indicating a positive trend in venture capital (VC) funding recovery. UK startups collectively raised an impressive $21.3 billion, making it the third-best year for VC funding, trailing only the outlier years of 2021 and 2022 marked by record-low interest rates.
Despite the widespread growth in artificial intelligence, particularly with advancements like ChatGPT and other generative AI systems, it was climate tech that secured the spotlight. Recent research from HSBC Innovation Banking and Dealroom unveiled record-breaking funding for climate tech firms, reaching an all-time high of $6.2 billion. This accounted for a substantial 29% of the total VC investments in the UK and marked a remarkable 40% year-on-year increase, surpassing the $4.5 billion raised by the UK AI sector.
Within the climate tech domain, sub-sectors such as electric mobility, EV batteries, circular economy, and green buildings attracted the most VC investment throughout the year. Notable contributors to these record figures included startups like Ev.energy, a London-based app facilitating efficient electric vehicle charging management, which secured £26 million in July.
Other noteworthy funding rounds within the climate tech sector featured smart home energy startup Myenergi, raising £30 million in October, and carbon removal platform Isometric, securing £19 million in July. A separate study by A/O Proptech in December highlighted that the UK’s built-world climate tech industry raised $1.1 billion during the year.
The growth observed across all subsectors was primarily fueled by early and breakout-stage funding, with later-stage funding progressing at a slower pace, according to the report. London continued to be the focal point regionally, attracting a substantial $12 billion in funding.
Despite a slow start, overall funding for the UK picked up towards the end of the year. With VCs having deployed $25 billion over the last three years, there remains a substantial amount of capital available for further investment, termed as ‘dry powder.’
In the global context, the UK maintained its position as the most funded tech ecosystem in Europe and secured the third spot worldwide, following China and the US. India and France rounded out the top five. Erin Platts, CEO of HSBC Innovation Banking UK, emphasized that this data reflects a significantly positive trajectory for the UK’s innovation economy, showcasing resilience despite global challenges. She encouraged pride in the UK’s commitment to addressing complex problems through innovation.