London becomes top global hub for impact tech, VC investments increased by almost 800%

London Image credits: IR Stone/Shutterstock

In recent years, numerous investors are looking to pump money into purpose-driven tech solutions, as various startups across the world are working to tackle issues like climate crisis and social inequality. 

In general, the impact tech startup refers to any company addressing one or more of the 17 UN’s Sustainable Development Goals (SDG), including climate action, clean energy, gender equality, and zero hunger.

London – The fastest growing global hub for impact tech

According to the latest report from London & Partners and Dealroom.co, London is cementing itself as a top global hub for impact tech. In fact, the VC investment into London’s purpose-driven tech companies has increased by almost 800% (7.8 times) since 2015, compared to 3.1 times in Europe as a whole. 

Deputy Mayor for Business, Rajesh Agrawal, said: “London is a global hub for tech and innovation – these findings show that our city has quickly become a global leader for start-ups aimed at tackling some of the most pressing challenges we face as a city and as a country. As we recover from the impact of the Covid-19 pandemic we have the opportunity to help build a greener, fairer, and more inclusive city – and clearly, London’s dynamic tech sector has a critical role to play.”

In 2020 alone, the London-based impact tech companies received $1.2B (approx £910M) in VC investment from January to October. So far, London’s impact firms have secured 429 deals between 2015 and 2020, more than any other city globally.

Janet Coyle, Managing Director for Business, London & Partners said: “Today’s figures offer further proof that London is a thriving tech hub with an array of innovative companies striving to tackle some of the most pressing environmental and social challenges we face today. The fact that London is home to more impact startups than any other city is a testament to the collaborative and supportive tech ecosystem here, including dedicated VCs and accelerators for purpose-driven tech companies. SVC2UK connects the Bay Area and UK tech communities to foster an inclusive and diverse network of entrepreneurs and inspire the next generation of innovators. It is now more important than ever that we come together to drive good growth as we build back better from the effects of the global pandemic.”

The report reveals London is home to the largest impact tech cluster in the world with 241 impact startups since 2006, compared to 95 companies founded in San Francisco, 132 in Berlin, and 129 in Stockholm.

Attracted 14.9% of overall VC investment

Notably, impact investment into startups is quickly becoming mainstream, with London’s impact companies attracting 14.9% of overall VC investment into the city this year, a larger share than any other year. 

San Francisco leads globally in terms of VC investment value in 2020 so far, with $1.8B (approx £1.3B) VC investment into its impact startups, followed by Shanghai’s $1.5B (approx £1.1B) and London with $1.2B (approx £910M).

Three impact unicorns from London this 2020

This year alone, London produced three new impact unicorns – Octopus Energy, Arrival, and Gousto. This takes London’s impact unicorns to total up to four, with Babylon Health making up the list. In this list, San Francisco leads with seven impact unicorns, while London ties with Shanghai and Paris with four each.

Greg Jackson, CEO, and Founder, Octopus Energy said: “It was a no-brainer to set up Octopus Energy in London, surrounded by like-minded tech innovators and game-changing businesses. We’re using technology to make a big green dent in the universe, and from our base in London, we’ve built a further 5 offices across the UK and also have businesses in Australia, Germany, and most recently the US. We’re passionate about making the UK the global ‘Silicon Valley of Energy’, but we would not have been able to grow so quickly domestically or internationally without the support of London’s highly innovative tech ecosystem.”

Notably, the three new impact unicorn companies are also amongst the biggest funding rounds into London’s impact startups in 2020 so far, with Octopus Energy closing a $360M (approx £273M) funding round in April and Arrival securing $103M (approx £78M) in January followed by another $118M (approx £89.5M) round last month.

Clean Energy and Climate change interests investors

London-based impact companies tackling climate change and clean energy have attracted the most interest from investors over the last five years, making up 53% of overall VC investment into London’s impact tech companies.

As per the report, there is a growing interest from North American investors YoY in addition to European investors. Funding rounds including at least one North American investor have made up $234M (approx £177M) of VC investment so far this year, up from $85M (approx £64M) in 2018.

The rapid increase in VC investment into London’s purpose-driven startups over the last five years indicates that increasing interest from international investors is likely to continue over the next few years.

The United States is also a key market for London-based impact firms looking at international expansion. Similarly, San Francisco is looking across the Atlantic to London for its international expansion plans.

Sandeep Verma, SVP of Commercial, Allbirds said: “We opened our first store outside of North America in London two years ago with an on-the-ground local team, and it placed us in a strong strategic position to expand into other European markets from the UK capital. Our e-commerce platform and brick-and-mortar locations have seen a fantastic response from the UK market and as a result, we have accelerated our European presence, now serving 28 new countries, with four physical stores. As a growing company dedicated to balancing purpose and profit, the strength of our international business allows us to continue to invest in natural material innovations, expand our retail fleet and commit to meaningful environmental initiatives.”