Current Trends in Funding for the Low Carbon Technology Sector
The landscape for provision of funding to the low carbon sector has evolved significantly over the past few years, with the most significant shift occurring in the venture capital sector.
Public sector grant support for innovation and low carbon technology development in the UK has remained fairly steady over the last five years and is set to continue on a similar trajectory. In addition the EC, under the current Framework Programme 7, provides a further significant tranche of grant funding for the period to 2013. In the UK, the majority of public funding is focused on early stage support for start-up businesses, rather than market support mechanisms (see What are the Different Sources of Finance? – Soft Funding).
In contrast, funding from the private equity sector has increased significantly over the same period and investment in low carbon technologies has become an accepted mainstream activity for venture capital firms. This has been driven by concerns over energy security, increasing oil prices and climate change, all which have become core policy issues for the Government.
In parallel, new companies in the sector have become increasingly sophisticated, with the evolution of serial entrepreneurs and experienced management teams that have been involved in multiple start-ups. This has made the sector more attractive to the venture capital funds and there are a limited, but increasing, number of specialist venture capital investors who deal exclusively in low carbon technologies (see What are the Different Sources of Finance? – Equity Finance)
Although the UK currently boasts the largest private equity market in Europe, there is some evidence that the availability of early stage private capital is declining. However, as private venture capital firms move further downstream away from early stage investment in search of larger profit margins, public sources of capital finance (such as seed funds) have increased their share of the early stage investment market. It is considered likely that, in the future, public equity finance will play a critical role in bridging the gap left by private investment funds.