Challenge 2: Investment – Financing Innovation and Infrastructure for the Green Transition
Speakers : Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston | Pru Ashby, Head of Sustainability, London & Partners | Jonathan Clark, Head of Investment, Capital Enterprise | Mario Gruber, Researcher & Consultant, Westminster City Council | John McNamara, Investment Specialist Lead, Newable
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
Without further ado, I’ll start the introductions.
The keynote speaker earlier, Jace Tyrrell, really set the scene around London as a real destination for investment in Net Zero. How that’s coming alive from the ground and at the coalface.
Pru Ashby, Head of Sustainability, London & Partners
Hi, I’m Pru Ashby. I’m Head of Sustainability at London & Partners. We are the business growth and destination agency for London. We promote London around the world to attract leisure visitors to events, conferences, and exciting cultural events like the Abba Voyage. On the business side, we attract businesses from around the world when they are looking for their next city or place on their global journey. If they want to come to London, we streamline the process. We also support very small businesses through our Grow London Local campaign and growth companies in their next stage of growth when they’re scaling and going global through our Grow London Global campaign. We work with corporates on their innovation strategies and help them to engage effectively with the innovation ecosystem. We have an insights team that does a lot of research, so we understand the investment landscape, particularly around innovation. We’ve also worked with a number of VCs and investors who’ve actually chosen to come to London, which I’ll talk more about later.
Jonathan Clark, Head of Investment, Capital Enterprise
I’m Johnny Clark. I run the investment programme at Capital Enterprise. Before that, I was a technology entrepreneur, angel investor and originally worked in economic development. But I focus very much on the levelling up of ecosystems and support for overlooked early-stage entrepreneurs and helping them to build their businesses. At Capital Enterprise, we’ve got just over half a dozen programmes in flight. We’ve run probably getting towards the hundreds of programmes historically, and we’ve got some really interesting initiatives in development as well. Some of them are really broad-based. We work with Barclays on a programme that supports 400 founders per quarter, around getting the basics right, the building blocks of how to raise investments and build their business. Other initiatives are really specialist as well. We work with Cancer Research UK on a specialist cancer medicine technology accelerator. One of the key areas that we’re looking at is Net Zero, decarbonisation and decoupling of economic growth to fossil fuels.
Mario Gruber, Researcher & Consultant, Westminster City Council
I’m Mario Gruber. I come from a research background in economics with a PhD from King’s College London with a focus on complex system transitions, particularly on sustainability and its implications on consumer acceptance. For example, how can you make electric vehicles more acceptable and more easy to adopt for the end consumer as well as the implications for firms and start-ups that are in that sustainability, innovation space? I also convened the London and South forum of the UK Productivity Forum at the Productivity Institute, where we built a compendium of all the business productivity issues, and around London’s major relationships between investment, skills and green growth. I then took that research and the models that we built and applied them in some of the recent socio-economic strategies and local governments such as Lambeth. I created Westminster City Council’s green economy strategy, and now I’m helping a foundation investment firm to raise the returns in synergy with social value.
John McNamara, Investment Specialist Lead, Newable
Hi, good afternoon, everyone. John McNamara from Newable. We’ve been around for about 40 years, we support 20,000 businesses a year, and we help them at all stages of their business lifecycle. From very early stage right through to scaling. We run a number of programmes for people like JP Morgan, Innovate UK and the Mayor’s Office. If you are interested in starting a business or you’re growing your business, and you need funding and finance, come, and have a chat with me.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
Thank you. I’m going to quickly say a little bit about Kingston. Since the pandemic, we’ve really accelerated our strategy in the green economy and transition to the green economy. We have a Climate Action Plan, a recently adopted Biodiversity Action Plan and we created a green business community to which 300 businesses signed up. That was one of the first of its kind that we know of. We also awarded grants to 20 companies for their green transition and the legacy of that’s been fantastic. I believe we are a Borough that’s really leading the way. We were the first London borough to adopt the Good Business Charter, which was about ethical practice and environmental responsibility. Now, a number of councils across London are doing that.
The first question goes to Mario. We were just talking in the previous session about the challenge of businesses understanding this area and seeing the benefits of transitioning to Net Zero operation and business model. What do you consider the benefits? If you were to talk to a business in this room today or out and about in the wider world, how would you pitch that?
Mario Gruber, Researcher & Consultant, Westminster City Council
For businesses to engage in the sustainability transition, we need to stick with the traditional things that are important to business – cashflow, profitability and increased sales. Many businesses that have the capital to do it, or just want to do it for the planet – have already done so, or they do so without us needing to engage them. But if there’s a typical SME that asked the question of how can we get through this transition, make money from it and employ more people? It’s most important to understand exactly how the local area or the sector fits into the global market trends. We’ve done some modelling where we can see that starting with global trends in wind, or in solar, and then what local sectors there are and the strengths, and then how that SME would fit into that supply chain. The thing with sustainability is that there are system dynamics, many things we know will save money. There are a couple of investments that businesses can make like heat pumps and building upgrades, and electric vehicles that are quick wins. But in many cases, this will eat up a lot of the savings. There are some more innovative financing mechanisms that are important. Another dilemma is that, in many cases, a new product or an innovation will be profitable. And we know that it will be more profitable than the current version of that product, which is not as sustainable. But then we need new skills. In order to get new skills, we need skills training centres. But without demand for them, there isn’t any investment in that. So, there are these sorts of dilemmas that we as organisations and as local councils need to really invest into to make sure that the bottlenecks on the journey of an organisation or SME towards profitability in the green economy are resolved. And then, do a lot of marketing of changing the world, if you will, a lot of persuasive work and stakeholder engagement, so that they understand these benefits and that they can trust the process of going through with it. For many SMEs, the best thing to do is to expand into adjacent markets. For many scale-ups, the opportunities to jump into some really fast-growing parts of the economy, then they usually need a lot of investment to jump onto that train.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
I’d like to bring John in here. From your point of view, dealing with businesses and start-ups. How do you get them on board with the benefits of this green transition?
John McNamara, Investment Specialist Lead, Newable
Well, stepping back. First of all, it’s about getting the right mindset. The reality is we need to halve emissions by 2030. If we’re going to reach the Net Zero target by 2050. Whether you like it or not, there’s so much capital deployed in this area. There’s $140 trillion committed to achieving Net Zero by 2050. There’s a commitment to deploy $5 trillion every year. The reality is that every business will have to get on board. So, first of all, it isn’t an option. It’s happening. So, get your mindset right and become an advocate. There are simple changes you can make and start small. Over the years, I’ve been supporting businesses. They all want the same thing. Quick impact, minimal cost, minimal risk. So, start small. You are consumers, and you are businesses, and you can choose who you purchase from. So I get the whole, I haven’t got the budget to do huge transformations very quickly. But you can start somewhere. So that would be my first kind of rallying call. And then, essentially, look at what your long-term strategic plan is and where you need to invest, and then look at what your options are. But I think a lot of people switch off from Net Zero, and I think the starting point is just to get onboard and then look at how you can make that transformation over time. If you’re interested in raising investment, there is money out there. It’s fully committed. It’s just about having the right support, really, and that’s where Capital Enterprise, can help you with preparing to raise investments. It’s a big question, but the way I look at it is you’ve got to start somewhere.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
From your perspective Pru, from London UK PLC perspective. How are we incentivising big companies? We’ve talked about small companies. But what’s the environment like in the UK? How appealing is it for companies coming into the UK to understand what’s available to help them transition?
Pru Ashby, Head of Sustainability, London & Partners
We have offices around the world. We have offices in North America, Germany, France, soon in Sweden, India, and China. We have people on the ground, listening to what companies are wanting over there. What we’re seeing is that companies are very keen on London and the UK. Really, for four reasons. Firstly, the commitment of the Mayor of London to achieve Net Zero by 2030, that is driving innovation and behavioural change in our city. We speak to companies that are coming to London because of his policies around his accelerated green pathway, which is on the london.gov.uk website on how we are going to get there, that is attracting companies here. The second reason is investment. As we were touching on, we’re seeing increasing numbers of venture capital firms that are either growing here with climate tech funds or coming in from overseas. So recently, Fifth Wall, which is the world’s largest prop tech, so technology for the built environment which has expanded from New York into London. We helped them set up here and we’re doing an event with them next week, if anyone is interested in speaking to them. Andreessen Horowitz, the biggest venture capital firm in Silicon Valley has just expanded into London, their first and only so far international outpost, which says a lot. And then also TDK ventures, which is a corporate VC focused on energy, and climate tech, they’ve just announced that they have set up their first international outpost from America into London. So, the investment is there. We’re seen as leading in green finance. The third area is talent. We have four of the best of the top 50 best universities. We have some very strong universities, like Imperial, with really good climate change courses. We also have a diversity of talent because a company doesn’t just want climate tech experts; they want salespeople, they want legal advice. They want all the other things that go around the business. The fourth point is that we have the second largest climate tech ecosystem in the world, but not only climate tech, we have everything else that you might want. We have the corporates that you want to sell to. We have consumers who are seen as early adopters of new technology here, particularly in London and are very aware of sustainable technologies. We have the government here that has ways of engaging and the test beds. So, if you are in the mobility field, there’s a testbed here in London where you can trial your technology and embed yourself in the community. I think those four reasons are proving really strong. We’re also, for example, working with two Swedish companies. One is called Iron Ride, which is in freight mobility. They came here because of the strategy around transport and greening transport in London. The second one is Klimato, they are in the restaurant industry, and they measure the impact of your food from restaurants on the environment. They came to London, because a lot of their clients are here. They have clients like the O2 and some of the big hotels. But what we’re seeing is that companies are now using London as the launch pad to go over to the US and conquer the US market. We run a programme called Grow London Global, which is for those scale-up companies helping them go over there, which Klimato is now a part of. About a week ago, London was crowned the top smart centre in the world. So, in terms of smart cities and smart centres, you may all think, why is that? It’s based on a number of factors, things like digital and data leadership, the strength of our ecosystem, and the transformation of our infrastructure. For example, we have more 5G towers than anywhere else in the world. And finally, the engagement with the citizens of London. We’ve got a lot to be proud of with our city.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
That’s the big international investment piece. Jonathan, from your perspective, you’ve done a lot of work in Liverpool, and you’ve worked with lots of different businesses across the UK. Are they seeing it in the same way? Or are you seeing more barriers? How is it dealing at the micro level with some of these businesses?
Jonathan Clark, Head of Investment, Capital Enterprise
There are pockets of not just innovation, but actually very successful innovation in the North. There have been a couple of recent reports done by not just northern but Northwest based firms. You’ve got GP Bullhound, which is an investment bank for high-growth technology start-ups, and you’ve also got Praetura Ventures which is a very active venture capital investor based out of Manchester. They did a report about what’s powering the powerhouse, which revealed that there is a lot of really good innovation coming out of the universities. There’s also Northern Gritstone, which is a university spin-out dedicated fund that’s just raised £370 million from pension funds. That will be targeting tech start-ups, deep tech start-ups coming out of the research-intensive northern universities. A big part of that research-intensive base is in sustainability and Net Zero. When I was in economic development, I spent a lot of time working with legacy businesses to help them innovate in various ways, in productivity with staff and sustainability strategies. We’ve moved a long way in 10 years. 10 years ago, I remember reading a lot of reports that said, ‘Well, you could put a solar panel on the roof, and maybe you could swap out the lightbulbs a little bit.’ There are a lot more effective and productive off-the-shelf solutions now, whether you’re a manufacturer, a nightclub landlord, or any kind of legacy economy business. In my role now, my particular interest is in start-ups and deep tech start-ups as well. The challenges they face are pretty much universal. They probably would have an easier time in London, just because of the density of investors and the density of start-ups. It helps to be in that environment, which is why London does so well. We are seeing successes in all of kinds of sustainability tech areas in northern cities. Also, there’s a key problem with a lot of the innovation that will power the transition to Net Zero. I’m not demeaning SaaS or software companies. But comparatively, it is much easier to build and scale a software company or an app compared to a more effective wind turbine or a more efficient solar photovoltaic cell. The lifecycle, and the length of time are different. It’s probably more akin to drug discovery. A lot of people invest in software start-ups. It’s kind of easy, you have the money, you get the shares, and you might see a return in seven years. With something like drug discovery or deep tech for the Net Zero transition, it could be 15 to 20 years before the product actually reaches the market and begins to make any revenue. It’s like playing on hard mode for investors. And consequently, it puts off a lot of more risk-averse investors. So that’s why you do see a big concentration of money in these super funds, like Pale Blue Dot ventures in Sweden, pouring hundreds of millions into things like hydrogen fuel cells.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
John, you spoke about the trillions of pounds that are out there. Do you recognise the anxiety of investors or are you seeing it slightly differently with the amount of capital waiting to be invested out?
John McNamara, Investment Specialist Lead, Newable
Building off that point. Investors are looking for quick wins. The problem with Net Zero, is it’s really a hardware infrastructure problem, which, as you mentioned, is longer term. We need greater cooperation from the public sector, more public-private investment, to enable governments to be more willing to take risks on investing in that technology. I think we also need new funding models. If you if you take a traditional, say steal power plant, and you want to convert it to be Net Zero, you’re looking at a CapEx investment of circa £10bn. And the problem – who invests that kind of capital? It’s a very small field. I think that we need more action from the government. And we need more collaboration between investors to find new funding models and greater collaboration, hopefully, to get greater investment.
Pru Ashby, Head of Sustainability, London & Partners
We get approached by companies from around the world. They say to us, we want contracts, we want business. And as you say, it’s a much longer, complex process for hardware solutions. Say we are working with a company that has a dual solar wind unit that goes on roofs. They need to have proper engagement with construction companies, with the local government and so on. What we decided to do was develop something called a ‘demo day’, where we had 10 companies that would pitch for five minutes. The audience was a mixture of government, local government, the likes of GLA and TfL because they have big real estate across London Boroughs, estate managers of big estates, and big corporates as well like Shell. What this allows them to do is potentially win business, which then, if they can actually win a client, get engagement, get all the appropriate approvals in place, then that allows them to grow better.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
I’m glad we covered that, because one of our questions is around how can the public sector make the return on investment case. The funding model is incredibly difficult. Mario – do you have any answers?
Mario Gruber, Researcher & Consultant, Westminster City Council
For the past couple of minutes, we’ve explored the interdisciplinarity and how many different kinds of stakeholders have to come together in order to really make this happen, and particularly what Pru said about how London’s ecosystem is just extremely strong. That is essentially what we need to do: connect stakeholders in different sectors. Public sector bodies are also interested in a more conventional economy, not just start-ups, but creating jobs in a normal local economy. Most of the potential in the green economy might lie in the in broad, conventional businesses that are just shifting from fossil fuel to the sustainable version of their sectors. Here, one of the massive bottlenecks is the productivity level of many of the SMEs. So, management practices and skills which have been shown in countless studies to be a large issue. When you’re interested as an investor or as a large investment organisation, like a pension fund, to invest in business greening or new innovations, you also need to know and be assured that they will have the absorptive capacity actually to do something with that innovation, with that investment. I think for the public sector for local governments, it’s very important to connect these dots, and there are many dots. There’s some really interesting work by people at Stanford, for example, some really interesting work from Oxford and Cambridge on modelling green economy growth. But I think we’re only really starting to have what you could call a sustainable economy playbook. When we know what to look out for, and we know who to approach and when, and for what, right in the beginning, everything’s very hard, transitioning from the horse-drawn carriage to the car. The more we understand, from global potential to exactly which firms exactly what kind of skills they need, exactly what kind of investment they need, and what can create clustering effects, all these things you need to model, and if you have a good understanding for that, then you can probably achieve the greatest multiplier effects of pretty much anything apart from perhaps AI. It remains to be seen if we can regulate AI. To answer your question, the public sector has to draw on much more sophisticated modelling to understand more of where the potential lies and how to go about implementing the strategies that it creates from realising where the opportunities lie.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
Zooming into southwest London, it does feel like we’ve got some of those ingredients to do that, particularly with the BIG South London collaboration, which brings together higher and further education and business.
Do you recognise that as well around the need for that partnership model both in private investment, but also public investment, which is also quite risk averse?
Jonathan Clark, Head of Investment, Capital Enterprise
As an investor and as somebody who works with a wide array of investment firms, from individual angel investors, who put in relatively small cheques of £25k, £50k or £100k into early stage risky companies, right through to private equity funds, which are playing in the hundreds of millions scale. The first thing to remember is that 50% of all investors, and that includes your hedge funds, your CFA Level 7/8 people fail to return the money that is actually given to them by people who they invest on behalf. The next 30/40% will have a rate of return that’s like one, maybe 2x, which is less than if people are just putting money in a stock market return fund. And then the final 10% hit big with 10x 15x 20x 30x returns. It’s the Andreessen Horowitz’s of the world, the Sequoia’s of the world who do this really well in venture. I worry sometimes that when we use words like collaborate or democratise, these kinds of buzz words they they’re a bit of a tell, in that they can mask actual technological progress and invention and innovation can be another one. And that’s not to rubbish anyone who uses those terms. I’m not applying this in a blanket manner. I’m just saying that from an investor experience. If someone comes to me and says, I’ve got an AI cloud-based solution which will democratise access. I just know straight away that there’s the reason they use those words is that they can’t actually tell me exactly what it is that they’re doing, whether it works or whether it will make money, which is just as important as products. I’m not saying that market solutions are the only thing here, there is absolutely a role for the government and its various departments and organisations to build coalitions, and alliances to stimulate demand and growth. I think we’ve seen that to really good effect in renewable energy developments today. There’s absolutely a role for nuclear there. But similarly, that can also be a bit of a smokescreen for other issues. In the past few days, I’ve been sent two articles. One where a multibillion-pound Science Park development within the M25 had been halted because it interferes with people’s views whose apartments are on the M25 anyway. Then I’ve seen a similar one today in Oxford. Basically, a golf course Members Association managed to block a much-needed wet lab space for biotech research just near the University of Oxford because it was going to infringe on the views from the golf course. You could have someone who’s got the next nuclear reactor invention that could save us, but they can’t. It takes them an hour to get anywhere because they’re in the middle of Blackburn or Darwin up North.
Duncan Brown, Assistant Director of Regeneration & Economic Recovery, London Borough of Kingston
I’m very conscious of time and the audience may have questions. Is there anything you’ve heard today that you want to ask about?
Delegate
A question for Jonathan. Where’s the funding for the commercialisation of ideas emerging from our innovation ecosystem? Let’s say somebody wants to build an electric taxi, and they’re going to need £100m. Who should they go to? Is the investor appetite here to build something in South London?
Jonathan Clark, Head of Investment, Capital Enterprise
Well, we’re going through what is probably right now the worst slowdown in private equity funding for all stages of private business since the .com bust. We had a big boom a couple of years ago, and people were pouring millions and billions into all sorts of weird and wacky things. Some of them worked. But a lot of them didn’t. If there’s an up, there’s a down, and right now, to combat inflation as well, which is a little bit stickier in the UK and Europe than potentially the US market, which seems to be back on track and going towards another growth period. If I have a million pounds, why am I going to put it into a risky electric vehicle start-up when so much could go wrong? I could just put it in a Treasury bond for 7% right now and be guaranteed to get £70K off it for zero risk? That’s basically the question that people have got to answer. The good news is that Net Zero technology, AI, and health are the probably three areas that have held really well. And I’m still seeing people get money. For the blue skies research, Innovate UK, are giving out more smart grants than ever. They are highly competitive, but it is a good route if you’ve got a real new technology. That’s a great way of getting free money. There are no strings attached to it. There are still angels from early-stage specialist offices, and VC firms that are writing cheques, right up to £500k for pre-seed stage businesses.
Pru Ashby, Head of Sustainability, London & Partners
Could I just add – some public sector organisations have portals – TfL has an innovation portal. So does the GLA and Re.London that we heard from earlier, they have a matchmaking service. These are where you put the details of your business on there, and then if they have a need for that they have a problem that needs solving with that technology, they’ll contact you. In terms of investment, we’re seeing from our data that climate change investment has been resilient. In terms of other areas, I mentioned TDK Ventures coming in specifically on climate, tech, and energy. They came here for two reasons. One is the governance and the legal framework, international law, and federal law, which is similar to America in a lot of ways. So that was comfortable for them. But the second reason they came here was the strength of the funds of all sizes. So small, medium growth, equity funds within London, the concentration of that, and that’s why they came here, and hopefully they will contribute. I know a couple of companies on our programmes are going down the crowdfunding route. So that’s another way in which companies are raising.
Delegate
How can we tap into investment funds to decarbonise large estates like universities?
John McNamara, Investment Specialist Lead, Newable
Government want pilots. They want to see low-risk options. At London & Partners, the innovation, fellowship is a fantastic model. You can see how so much creativity around innovation works. Governments will look at that and say, that’s fantastic, we’ll fund it. They’re looking from micro to macro. They want to de-risk it, a bit like investors. See if it works, and then essentially, they’ll amplify their investment. We work closely with an organisation called Sustainable Ventures in London which is a fantastic business. They can help any Net Zero company. They provide space, they provide investment, and they’ve got venture building arm as well. They started out small, and now they’re going national across the UK. We work closely with that team. And it’s a fantastic model.
Back to the £100m. Essentially, investment works on scale. So, you can’t just go in and say I want £100m. It doesn’t work like that. There’s a natural kind of journey – pre-seed, seed, Series A, etc. You go through the through levels. The money is out there. Essentially, you need to be working with specialist organisations. I think it’s back to the points I raised. First of all, it’s important to get the right stakeholders around the table and make sure the investment proposition stacks up because if it doesn’t, no one’s going to invest in it. It doesn’t matter whether it’s a Net Zero innovation or a shoe or anything else. Then, essentially, you’ve got a hustle because people forget fundraising is a sales process. The money is out there, get access to the right contacts and the right advice, and essentially, it will transport you from where you are to where you want to be.
Delegate
My question to the panel is when it comes to investing. What do you look for more – impact or profit? What is your opinion on blockchain technology?
Jonathan Clark, Head of Investment, Capital Enterprise
My personal approach to investing is knowing that it’s risky and that 95% of businesses fail. I do all sorts of due diligence and look at business models and markets. But if you’re looking at a start-up in its first couple of years that is so finger in the air, it’s such a guesstimate.
I’ve worked with some really good blockchain companies. I think we’ve been through a bit of a mania, and now we’re on the other side, where if you say blockchain, everyone thinks it’s a scam, and I think I think probably 90% of the stuff out there was a scam. But there is some blockchain technology that big banks are using right now. There’s some very interesting stuff around validation and credentials that I think could be quite successful.
