Impact investing is a strategy through which investors, such as venture capital funds, private equity firms, and business angels or syndicates, aim to generate positive, measurable social and environmental impact, alongside a financial return.
Over the last decade, social impact investing has become an increasingly popular avenue of deploying capital. And last month, group members were announced for the G7 Impact Taskforce, part of the UK Government’s plans to “harness private finance at scale to ensure a sustainable recovery from COVID”.
Yet still less than 7% of active equity funds in the UK are openly focused on impact or purpose-led investments, despite these deals being 35% less likely to fail. Here, we explore the data on impact investing in the UK, spotlighting the five most active impact funds in the high-growth ecosystem, plus our full list of qualifying investors.
Download our free PDF to see every active impact fund in the UK.
How Beauhurst classifies impact funds
‘Positive impact’ means different things to different people, so it’s difficult to establish a precise definition. For the purposes of this article, we’ve focused on intent. We’ve included funds that have explicitly stated that having a positive social or environmental impact is central to all of their investment decisions, rather than a byproduct of philosophy or sector restrictions. We’ve also excluded those simply investing in an environmentally and socially-responsible manner (ESG investing).
There are currently 44 active funds in the UK equity market matching this description. The figures used in this article are based on these 44 fund portfolios (an additional six are no longer active but were included in the section below, for the purposes of tracking impact investment trends over time).
The UK’s impact investing market
Globally, impact investment activity has grown steadily over the past decade, with particular progress being made in impact measurement and management. The Global Impact Investing Network (GIIN) estimates in its 2020 Annual Impact Investor Survey that impact investing had a global market size of around USD 715 billion last year.
Within the UK private sector, we’ve similarly seen a huge rise in the number of announced equity deals involving impact investment funds, from just 13 fundraisings in 2011, to 58 fundraisings in both 2019 and 2020. With 51 deals already announced this year, and four months left to go, we expect 2021 to be a record year for impact rounds.
The value of these equity investments has also been growing year-on-year since 2015. So far, 2021 has seen the greatest amount of money invested in deals that involve at least one impact fund , at a record £368m. This marks a 109% increase on 2020 (£176m) and 504% increase on 2011 (£60.9m).
Fast-growing impact businesses that have secured the greatest backing so far include Imperial College London spinout BBOXX, which provides renewable energy to communities with unreliable electricity supplies across the world. The scaleup company has raised at least £111m in announced and unannounced equity fundraisings, £10.1m of which was secured in a round involving UK impact fund Ceniarth.
Meanwhile, what3words has raised more than £95m in equity funding, £6.32m of which came from a round involving Mustard Seed. Man-made leather manufacturer E-Leather has secured at least six equity rounds, amounting to £90.3m, two of which (totalling £75m) saw participation from Environmental Technologies Fund. Fraud and financial crime analytics company Featurespace has raised a similar amount, at least £82.5m, including £10.7m in rounds with Nesta Impact Investments.
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How has COVID-19 affected impact investing?
At the onset of the pandemic, the impact investment market was hit harder than the wider equity funding landscape. In June 2020, we reported a 37% drop in the number of announced deals made by impact funds since the start of the year, compared to the same period in 2019. This decline was markedly worse than the 25% drop seen across all announced deals.
But once the initial shock subsided, impact investing rebounded. Whilst deal volume for rounds involving impact funds did plateau in 2020, overall, this was in keeping with wider trends in the market. Purpose-driven companies could even be better placed to weather the storm of COVID, with investors typically applying more risk-averse strategies during times of crisis, and impact investments increasingly being recognised as a safer bet.
In our annual equity market update, The Deal, we heard from ReGenerate, an organisation that aims to make it easier to start, grow, and lead a purpose-driven business. They emphasised how “the pandemic has strengthened the now overwhelming case that purpose-driven companies not only do good, but they are also more likely to be successful and sustainable.”
Impact investments are less likely to fail
The dual objective of meeting financial goals and having a positive impact on the planet and its people is what sets impact investing apart from other forms of investment. Impact investing is sometimes mistaken for a charitable pursuit, but the potential for financial returns from purpose-led investments should not be understated.
Here in the UK, high-growth companies that secure equity investment are considerably less likely to cease trading or become inactive if they’re backed by an impact investor—11% of companies that secured an impact round between 2011 and 2020 are now classed as ‘Dead’, versus 17% of those that received conventional investments.
Meanwhile, 23% of companies that received investment from impact funds in the same time period have since progressed to a later stage of evolution, compared to just 18% for those raising funds from conventional investors. The proportion of companies that are still active but have not progressed to a later stage is similar for both impact and conventional investments, at 55% and 57%, respectively.
Most active impact funds in the UK
UK impact investors are taking on all kinds of responsible investment opportunities in 2021, from urban farming startups to microfinance firms, including triple bottom line B Corps and social enterprises supporting the UN’s Sustainable Development Goals (SDGs). But who are the most active funders in the UK’s impact investment space?
Our data indicates that, since 2011, Low Carbon Innovation Fund has completed the most announced equity fundraisings into UK impact ventures (49), followed by Nesta Impact Investments (42) and ClearlySo Angels (30). Fellow angel network Green Angel Syndicate is also very active, with 29 deals so far, whilst fund manager Ascension has made 28 deals through its impact fund Fair By Design.
Low Carbon Innovation Fund
Managed by merchant bank Turquoise International, Low Carbon Innovation Fund (LCIF) is a co-investment initiative that supports SMEs developing environmentally-beneficial technologies. According to our research, LCIF has backed 43 high-growth UK companies so far, including green energy startups Sustainable Marine Energy and Future Transport Systems.
To be eligible for funding from LCIF, companies must have an operational base in the East of England (or be willing to relocate to the region), whilst being committed to low carbon emissions—for instance, developing low carbon products or providing carbon reduction services. The fund provides growth capital for business development, typically investing between £25k and £1m.
Nesta Impact Investments
Impact-led Nesta describes itself as “the UK’s innovation agency for social good”. Nesta’s investment arm, Nesta Impact Investments, has been active for more than 20 years, supporting tech ventures that aim to deliver positive social or environmental impact, alongside a financial return, through innovative products and services. It’s backed over 30 businesses so far, including 27 high-growth UK companies, such as BibliU and BaseKit.
The fund makes initial investments of £500k-£1m in Seed or Series A rounds, into technology companies operating in the edtech, foodtech, healthtech, climate tech, or future of work and productivity sectors. Investee companies must also have a sustainable business model, support inclusive impact, demonstrate early evidence of product-market fit, and incorporate impact metrics into daily decision making.
ClearlySo Angels is a network of high-net-worth individuals and sophisticated investors. It’s supported by corporate advisory firm ClearlySo, which connects entrepreneurs and funds to deliver positive social, ethical, or environmental impact. According to our data, ClearlySo Angels has backed 29 high-growth UK impact ventures so far, including Bulb, Ieso Digital Health, and Third Space Learning.
The group typically invests between £300k and £1.5m, backing businesses based in the UK, Ireland, Belgium, Switzerland, Sweden, The Netherlands, Italy, and Spain. Alongside growth capital, it also provides its portfolio companies with business support and advisory services, such as business plan reviews and financial performance projections.
Green Angel Syndicate
Green Angel Syndicate claims to be the only angel syndicate in the UK specialising in the fight against climate change. The fund will invest between £150k and £500k into UK-based businesses that are developing green technologies or solutions, to reduce greenhouse emissions. Its portfolio currently includes 26 high-growth UK companies, from Piclo, a peer-to-peer marketplace for renewable energy, to solar solutions firms Power Roll and Naked Energy.
Fair By Design
Ascension is an early-stage venture capital firm that backs promising tech and impact founders. Its Fair By Design fund is focused on ending the poverty premium by providing growth capital to innovative companies that aim to make markets fairer. Active since 2017, Fair By Design has already backed 18 high-growth businesses in the UK. These include fast-growing fintech startups Wagestream, Credit Kudos, and Youtility.
Alongside collaborating with the public and private sector, Fair By Design invests in companies from Seed stage through to Series A and beyond, providing loans and equity funding. It will consider both for-profit and not-for-profit ventures, including community interest companies (CICs) and charities, as well as co-investment opportunities with other funds.
Download our free PDF to see every active impact fund in the UK.