Against a backdrop of rising global temperatures, the new Labour government’s creation of the National Wealth Fund is an important step in accelerating the UK’s green transition. The fund’s blended finance model – providing debt and equity funding – will channel £7.3bn of public cash into low-carbon projects.
The hope is that the fund will bring together key institutions and private investors to mobilise over £20bn of private investment into green technologies and, crucially, help them to scale.
Traditionally, VC-backed companies have relied on equity funding as most software companies do not create major sunk costs until they launch their first version of a product and test customer demand.
However, debt financing is critical for hardware startups – particularly in the climate tech sector – as they require investment into fixed assets such as production facilities. For VCs to make bets on climate tech startups, they have had to adopt different funding strategies to address the need for substantial upfront capital investment....