Why investors are giving green tech the green light

Is there a growth sector hotter than green tech right now?

If you’ve been following my newsletter for a while, you’ll know I am a big advocate of green tech. Last week’s news that the ESA’s UK space tech incubator has passed ￡200m in funding is another reminder that green tech has travelled light years in the last decade. Over half of the ESA’s startups since 2013 have had a green focus, and satellite tech that enables better monitoring of ESG is the latest use case in the spotlight to make headlines.

I remember when green tech was mostly about innovation in recycling. In the last decade or so, it’s been energy and electric vehicles. At the Majar Group, we’re working with companies like Lilium who are about to make zero-emissions air mobility a reality. Now it’s space tech that’s expanding the meaning of sustainable technology even further.

Green tech has been on the agenda for many years, but the journey hasn’t been easy. Expertise has mostly been concentrated within academic research. Much of the tech wasn’t yet battle-ready, and government support and subsidies have not been consistent, which means uncertainty for businesses and investors.

Today it looks to me as though the pieces are falling into place. There is real urgency to address climate issues, and there’s huge public awareness and pressure. That has changed how companies attract talent, with environmental responsibility a bigger consideration for twenty and thirty-something job seekers.

Most importantly, we now have the various technologies we need to make real progress. Green tech needs data, and the rapid evolution of data and AI mean we now have the data and processing power to solve incredibly complex problems.

I’ve seen the progress at home myself too, and the commercial opportunities that are springing up. We installed solar panels two years ago and it has made a real difference. When solar panels first came out, you needed a battery the size of your entire wall. The technology has advanced so much in just a few years, that batteries the size of computers can be stored in your garage. Energy companies are making moves too, so I can store solar energy during the day for use in my home and not be a drain on the grid, and I can charge my electric car at night at lower rates. Imagine where we’ll be soon. Three years from now, Toyota says its new generation of lithium-ion batteries could power EVs with a range of over 1,000km.

At the same time, there are real commercial opportunities for companies and their backers. For the last 10 years, a lot of the green tech ideas I saw were sat within universities and research facilities, as problems to be solved by PhD graduates. Now, we’re reaching the moment of monetization. Among the VCs and private equity people I know - all of whom are looking 10-20 years down the road - there is universal agreement that green tech is the place to be. There are many problems for technology to solve, and a lot of money to be made.

Every investor is looking for these types of companies and there's more capital to be deployed than investment opportunities to be snapped up. ?This is a win for young green tech companies who, in any other sector, would have to pitch hard for attention and funding. In the green tech space, they’re getting approached every day, and that explains how they’re able to raise tens of millions at some pretty scary valuations.

There are still challenges ahead though. The government seems to be watering down its climate commitments and enthusiasm for green initiatives in preparation for next year’s election. The UK has been regarded as a leader in the incubation of green tech companies, and if we want to keep that reputation, I‘d like to see our government, whoever they are, supporting the growth in this space – it will help the industry, the technology itself and society as a whole.

The main challenge, however, is scarce skills. We need people capable of creating these solutions, and from a tech perspective that means core engineers, data scientists and machine learning experts. There's a finite number of people with these skills in the market, and there needs to be a real drive to develop young people, provide training for relevant skills, and transfer people across sectors. This is true for new entrants into the market - agile startups, creating unique ideas and getting traction – and for big tech, who are seeing the growth area and positioning themselves to take advantage, so they don’t lose market share to a scale-up.

Green tech relies on big data and it has attracted certain types of people, particularly academics, and that can limit the diversity of thought. We need to make green tech more accessible and find ways to get different types of people into the industry. Technology can help us with that, because a lot of the work can be templated now, and you won’t need a PhD to understand it and add value. That’s a hill the industry still has to climb, and as technology keeps speeding ahead and creating new commercial opportunities, I hope that the people and public policy side can keep up.?

Are you in green tech and facing some of these challenges? Or maybe your company is currently outside the space but you want to find a valid green angle to your proposition.

As always, tell me your view in the comments or reach out to me for a chat. Thanks for reading, please share this newsletter with others in your network who might find it interesting. See you in a fortnight!