The overarching story of 2020 for startups was the pandemic and the battle to innovate and to survive.
This year the rise of healthtech and fintech startups will inevitably continue after record levels of investment last year with IPOs on the horizon for many.
But away from the pandemic another crisis will become just as, if not more important: the climate.
With Britain set to host COP26 and the government doubling down on its commitments to create a net zero economy by 2050, green tech will become the next hot topic.
City A.M. spoke to investors about their predictions for the year and how the environmental crisis could change where investors put their money.
Interest in climate tech grows
The appetite for ESG investment remained steady in 2020 but with the environmental crisis only likely to worsen this year green tech is likely to be a hot topic.
European investment in climate tech investments has surged in recent years from €949m in 2015 to €4.9bn last year, according to data from Dealroom. In the UK alone climate tech received €1.5bn in funding last year.
In 2020 three climate tech accounted for three of the biggest transactions: Swedish battery company Northvolt raised $600m in early-stage funding, Climeworks raised $110m and indoor-farming company Plenty brought its total fundraised to $500m.
“In 2021, UK green tech has huge potential to attract record sums of investment, especially at the early-stage,” Amy French, head of Level 39 says. There is a “growing collective of entrepreneurs innovating in the space – we should expect VC investment to follow the curve and invest in green.”
Fintechs will move into ESG
But it won’t just be firms working directly on green solutions that will attract investment this year, predicts Natasha Jones, fintech investor at Octopus Ventures.
“We will need a more transparent financial system that accurately measures the climate impact of investments, along with the creation of brand-new financial instruments. There’s a huge role for fintech to play in driving this change.”
Additionally as investor appetite grows and regulators ramp up the pressure on companies to disclose ESG data there is room for innovation.
“2021 will see financial institutions partnering with new data providers that use tech to plug data gaps and build out new datasets to help investors find ESG ‘alpha’, creating another big opportunity for the fintechs who can do this best,” Jones adds.
Diverse investing will be key
If impact investing is going to be the buzz word for 2021 then it also needs to be reflected in the makeup of the industry.
Atomico’s State of European Tech report released last month revealed some grim statistics around diversity in the industry. Some 83 per cent of all founders who responded to the survey identified as White/Caucasian and only two per cent identified as Black/African/Caribbean. None of them raised external funding.
“If we are going to unlock the power of tech to solve challenges like the climate emergency… we need to see greater diversity and inclusion at the highest level and investors committing to back diverse businesses,” French says.
There have been some encouraging moves following the resurgence of the Black Lives Matter movement which has refocused minds somewhat.
There has been a “meaningful shift in the way that investors thought about, and acted on, diversity and inclusion” in the last year, says Check Warner, partner of Ada Ventures and cofounder of Diversity VC.
With venture capitalists not only receiving pressure from legislators but their own investors, diversity is likely to become an integral part of many funds’ investment strategy. Initiatives such as Ada Ventures’ own angel investing scheme will start to bear fruit this year.
“Investing in women and underrepresented founders is smart investing, as they on average outperform on both time to exit and returns,” says Lea Bajc, partner at Antler. “In a way, it is alpha hiding in plain sight. The right thing to do and the smart thing to do. No better time than now.”
“I expect to see far more funding going to Black, Asian and ethnic minority founders and female founders in 2021 and in the decades to come,” Warner adds.