Venture capital funds are essential for the green industrial revolution

7 months, 3 weeks ago - February 14, 2022
Green Industrial Revolution
Green Industrial Revolution
Venture capital funds can support the development of the green industrial revolution according to experts.

A number spoke to Money Marketing about how venture capital trusts (VCTs) and the Enterprise Investment Scheme (EIS) can play a role.

OnePlanetCapital co-founder Matt Jellicoe said: “The fight to tackle the environmental issues of the day requires an incredible amount of innovation.

“For example, if you’re a big corporate looking to move your business towards net zero as fast as possible, you’re likely to have to use scores of supplier firms to help you do that.

“Whether it’s to monitor carbon within your business, whether it’s to have strategies to offset carbon, or whatever the problems you’re trying to solve, you’re going to require a lot of companies to help you on that pathway.”

Jellicoe believes that the EIS market is an “interesting space” for investors looking to tackle environmental issues.

“What they can see here is that there’s a chance to marry up impact, supporting climate change and solving environmental problems with businesses that are likely to grow very quickly,” he added.

This is also the case for VCTs according Association of Investment Companies (AIC) communications director Annabel Brodie-Smith.

She said: “VCTs are well placed to contribute to the green industrial revolution as they back pioneering new companies, many of which are striving to create better outcomes for our planet and its future.

“Some investee companies are looking at technology-enabled solutions to providing healthcare innovations while others are helping to reduce carbon-footprint through sustainable fashion.”

Timothy James & Partners chartered financial planner Christophe Beaupain also believe EIS and VCTs can contribute to the green revolution.

But he warned that from an investment perspective, they should be considered as part of a diversified portfolio.

For Jellicoe, one of the issues is that a lot of firms target similar problems at the same time.

He said: “When you start seeing scores of companies coming to market at the same time trying to solve the same problem, it becomes very difficult to make a call on it.

“None of these companies really have traction, they’re all early stage, with a similar offering.

“You have to be very diligent about when you get involved in companies.

“If there are too many companies doing the same thing, it’s better to wait for some of those companies to get traction and then possibly get involved later on when they’ve proven that model a bit more.”

For Beaupain, there is also an issue with valuation when it comes to early-stage investments.

He said: “I think there is a valuation issue with all early-stage investments; little or no revenue, no profits, uncertain futures then arriving at a valuation is hard.

“If we are to assume that, in this area, the costs of research and development and the duration of collecting/assessing data may be higher than in some other sectors then one could argue that this makes a valuation even harder.”

Jellicoe added that he has seen more businesses with an “unrealistic valuation” over the last six months.

He said: “Sometimes, we do see businesses where we just turn them off straight away on the basis of their valuation.

“Unfortunately, I think a lot of founders are making mistakes about their valuation.”

Things like COP26, government announcements and big statements from industry figures might be all be explanations for the surge in price.

Beaupain also noticed that the interest among clients around the sustainability/impact space is growing.

He said: “While there is a growing interest certainly in this area, the number of opportunities for investors to commit to this area is also increasing.

“It is far from a mature market, but it is growing very quickly, and I believe as advisers we have a commitment to understand the client’s requirements and interests with the opportunities in this area.”

According to the AIC, two-thirds of VCT investors appreciate they can support green technologies by using VCTs.

It is one of the most important motivations alongside supporting the UK economy and backing cutting edge-science.

Praetura group marketing director Ben Davies stressed that early-stage businesses have been trailblazers in new markets in the past.

He said: “Early-stage businesses are the lifeblood of any economy and are often quietly leading the development of any new market.

“With more entrepreneurs enabled and galvanised by greater global connectivity, we’ve seen a real gear change in SME innovation, and this is reflected in the sustainability market.

“As the mainstream continues to adopt sustainable thinking in almost every industry, early-stage companies will need to think and act sustainably to be a responsible member of the business community.”

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