Perfect alignment - the five forces that mean it’s an ideal time to invest in sustainable start-ups

“Climate change is the single greatest threat to a sustainable future but, at the same time, addressing the climate challenge presents a golden opportunity to promote prosperity, security and a brighter future for all.”

Ban Ki-Moon, Former Secretary General of the United Nations

At Vala, our goal is to spot emerging technological, industrial and consumer trends, then invest in start-ups and early stage companies that we believe can capitalise on those trends.

Recently, we have seen a powerful investment case emerge for backing sustainable companies - innovative businesses whose products and services have the potential to make a difference to sustainability challenges, including issues such as cutting carbon emissions and resource scarcity.

We’ve also found that investors already have a good grasp of this opportunity. In a recent poll carried out for Vala by Wealth Club, 77% of investors expressed the view that small companies have a major role to play in tackling sustainability. And only a quarter of investors said they would not be interested in an EIS fund that only invested into sustainable start-ups.

We believe the opportunity for such companies to quickly achieve scale and create significant value for investors has never been greater.

There are many interconnected factors which underpin the sustainable investment opportunity. As we see it, the five main forces are:

Political will

There is a new sense of urgency about sustainability issues, reflected by governments around the world committing to net zero emission targets. In 2019, the UK passed legislation which commits the country to having a carbon neutral economy by 2050. The European Commission’s long-term strategy also sets 2050 as the target date for achieving net zero carbon emissions across the EU. Other major economies, including China and Japan, have also now expressed their determination to hit net zero emissions within the next few decades.

Consumer trends and preferences

Environmental and societal issues have captured the public imagination, leading to changes in consumer behaviour and the sudden growth of companies and industry subsectors. Being a sustainable business is now not just a feel-good marketing message, but a potential differentiator that could help companies to outgrow and outlast their less sustainable competitors.

Demand from bigger companies

Consumer demand and government action will combine to put pressure on bigger companies to improve their sustainability, and this creates a third major force to stimulate the sustainable investment opportunity.

Regulatory pressure from governments together with evolving consumer and investor preferences will simultaneously increase costs and chip away at demand. By creating technology, products and services that can help big businesses comply with regulatory standards, operate more efficiently and consume fewer resources, start-ups and early-stage companies could grow rapidly.

Novel technologies

Using new and emerging technologies to address sustainability challenges has the potential to create seismic changes that could dramatically improve the way we operate our economies and societies. Many entrepreneurs are now turning technologies ranging from artificial intelligence to novel materials towards tackling pressing sustainability issues.

Funding and exit environment

There are a growing number of later-stage venture capital and private equity funds that are focused on investing in sustainability innovation. Bigger companies may also seek to acquire start-ups, in order to bring innovative sustainability technology in-house. For early-stage investors, this should mean that successful start-up investments should be able to access further funding to support their growth, as well as potentially having clear routes to an exit.

To find out more about why we think it could be the right time to invest in sustainable start-ups, please read more about the Vala Sustainable Growth EIS.

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Vala Capital Ltd (FCA number 827386) is an appointed representative of Sapphire Capital Partners LLP, which is authorised and regulated by the Financial Conduct Authority with firm reference number 565716. Our address is Audley House, 12-12a Margaret Street, London, W1W 8RH.

Investing in start-ups and early-stage companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution. It should be done only as part of a diversified portfolio. There is no assurance that the investment objectives of any investment opportunity will be achieved or that the strategies and methods described herein will be successful. Past performance is not necessarily a guide to future performance and the value of an investment may go down as well as up.

The investments which we promote are targeted exclusively at investors who understand the risks of investing in early-stage businesses and can make their own investment decisions. Any pitches for investment are not offers to the public and investments can only be made through Sapphire Capital Partners LLP as the fund manager. Neither Vala Capital Ltd, Sapphire Capital Partners LLP nor any of their members, directors or employees provide any financial, legal or tax advice in relation to the investments and investors are recommended to seek independent advice before committing or if they have any doubts as to the appropriateness or suitability of such an investment in relation to their specific circumstances.

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