Hambro Perks

06/09/2022Posted by Duncan White - Hambro Perks Environmental Tech Fund on Pensions for Purpose Platform

Delivering impact, scaling profit - the value of investing in environmental technologies

Delivering impact, scaling profit - the value of investing in environmental technologies

The current policy and investment environment is understandably focused on the energy transition but increasing greenhouse gas emissions is not the world’s only environmental challenge: much of our planet is facing extreme water scarcity, food supply chains are shockingly fragile and inefficient, our natural ecosystems are losing biodiversity at an alarming rate and our oceans are filling with plastic. Technology has undoubtedly contributed to some of these problems, but technology must also be part of the solution.

Many innovative companies are rising to meet these environmental challenges by commercialising new technologies, products and services across the energy, water, food and industrial markets.  These new solutions may generate energy efficiencies, reduce greenhouse gas emissions, improve the security and supply of water, remove waste from global food supply chains or promote the circular economy. 

Environmental technology scaleups are one of the most exciting categories of company that are delivering tangible and measureable impact each time they sell a product or service. If that wasn’t enough, scaleup companies in general are a crucial component of economic growth: in 2021, scaleups in the UK contributed £1 trillion to the UK economy and employed 3.2 million people.[i] In terms of scaling profit and purpose it is hard to imagine a better investment than environmental technology scaleups.

Simply put, a scaleup is a high growth business, which the OECD defines as one with more than 10 employees that has achieved growth in headcount or sales of at least 20% per year for the past three years. From an investors perspective scaleups offer an attractive risk/reward profile because technology risk has been substantially reduced, the business model has been proven at scale, product-market fit can be evidenced, the management team is established and there is an emerging track record of trading performance to diligence.

The scaleup phase is typically the fastest stage of a company’s growth but rapid growth isn’t easy and the challenges faced by scaleups are completely different to those faced by startups but no less difficult to overcome. Some common scaleup challenges are:

§  Strategic focus – with some early success it can be tempting to immediately dive headfirst into hiring, entering new markets and developing new products, however, successful scaleups are often those that can evaluate and separate opportunities from distractions.

§  Culture and team – a scaleup’s culture is very different from that of a startup and many people struggle with the transition. For example, management may struggle to delegate decision making, sales may be making promising that engineers can’t deliver etc. As the team gets larger each department must continue to work together effectively, even as internal competition for attention and resource grows.

§  Cashflow management – for most venture capital backed businesses, cashflow management consists of measuring cash burn and completing the next fundraise. Scaleups have a new challenge: how to manage the cash coming in to build a sustainable company that can stand on its own two feet and is no longer addicted to fundraising. 

§  Pruning – any gardener will tell you that selectively removing certain parts of a plant will facilitate better growth and the same is true of a scaleup. Over time, parts of a business will no longer be contributing towards its success and removing them, although difficult, is necessary. For a business that has grown accustomed to successively larger funding rounds and increasing rates of hiring, this can be a rude awakening and requires a completely new skillset.

The challenges of scaling up are often amplified for environmental technology scaleups that sell complex hardware and software products into conversative industries such as energy, water and agriculture. For example, managing the cashflows of a multi-year project to upgrade a wastewater treatment plant on the other side of the planet is slightly more complex than watching the number of subscribers to your app grow. It is because of these unique operating challenges that environmental technology scaleups need to work with experienced investors that understand how their markets operate. 

The problem is that there is a lack of experienced environmental technology scaleup investors, as PwC highlighted in their excellent State of Climate Tech 2021 report.[ii] Many scaleup investors abandoned ‘cleantech’ after the disaster of ‘Cleantech 1.0’,[iii] largely attributed to generalists throwing vast sums of money into highly regulated and conservative markets that were not ready to adopt. Alarmingly, with this lack of experience from the investor base we are starting to see many of the mistakes of Cleantech 1.0 being repeated.

Fortunately, following the Paris Agreement in 2015 where 196 countries and countless corporations agreed a goal to limit global warming towards 1.5 degrees Celsius, the market for environmental technologies is much more favourable. Green infrastructure investment has boomed, a large number of early-stage environmental technology venture capital funds have been raised, seasoned entrepreneurs are moving into the sector and large corporates are adopting, development, financing and acquiring environmental technologies. 

As such, investing in environmental technology scaleups is more attractive than it has ever been before and experienced scaleup investors, like the Hambro Perks Environmental Technology team, are getting ready to meet the opportunity head on with the launch of a new GBP 200 million fund.


[i] https://www.scaleupinstitute.org.uk/scaleup-review-2021/introduction/
[ii] https://www.pwc.com/gx/en/services/sustainability/publications/state-of-climate-tech.html
[iii] https://digital.hbs.edu/platform-rctom/submission/clean-tech-vc-a-decade-of-failure/