Lucy Wilson, 28 September 2022
Over the last decade, impact investing has become an increasingly popular avenue of deploying capital in the UK. Yet just 6% of UK equity funds meet our definition of impact investors, despite evidence suggesting that purpose-led investment strategies are not just beneficial to the world but also less likely to fail.
Here, we explore the latest data on impact investing in the UK, and spotlight the most active impact funds in the high-growth ecosystem.
‘Positive impact’ means different things to different people, so it’s difficult to establish a precise definition of this type of investment. For the purposes of this article, we’ve focused on intent: we only included funds that explicitly state that having a positive social or environmental impact is central to their investment decisions, and not just a byproduct of philosophy or sector restrictions. We’ve also excluded any funds that are simply investing in an environmentally and socially-responsible manner (ESG investing).
Download the full list of UK impact funds.
For a list of investors generating a positive social impact by backing underrepresented founding teams (as opposed to companies whose products or services are impact-led), take a look at these 12 diversity-focused funds.
The Global Impact Investing Network (GIIN) estimated in its 2020 Annual Impact Investor Survey that social impact investing had a global market size of around $715b, with particular progress being made in impact measurement and impact management. And research by EY and the Impact Investing Institute suggests that the UK market for impact investments reached £58b in AUM by the end of that year.
Based on the 46 active impact funds we’ve identified, plus those that are no longer operating, we’ve analysed impact investment trends in the UK private sector. Similarly to GIIN’s research findings, we’ve seen a huge rise in the number of announced equity deals involving UK-based impact investment funds—from just 12 rounds (worth £60.7m) in 2011, to 86 rounds (worth £527m) in 2021. And 2022 is on track to become another record year for impact investing, with 66 deals (totalling £484m) already announced before the end of Q3.
Fast-growing impact businesses that have secured the most equity funding so far include Wagestream, whose financial wellbeing platform and mobile app helps employees manage their earnings. The “tech for good” startup has secured £194m in equity investment so far, across five fundraisings, including £1.04m from the Fair By Design impact fund.
Then there’s BBOXX, which provides renewable energy to communities with unreliable electricity supplies across the world. The so-called soonicorn has raised £127m so far, including a £10.1m equity and loan round involving impact investor Ceniarth. Meanwhile, what3words has secured £168m, through 17 equity deals, with backers including impact fund Mustard Seed.
At the onset of the COVID-19 pandemic, impact investment activity was hit harder than the wider UK equity market: in June 2020, we reported a 37% drop in deals announced by impact funds since the start of the year, compared to the same period in 2019. This decline was markedly worse than the 25% decline across all announced equity deals.
Once the initial shock of the pandemic subsided, however, impact investing rebounded. In fact, it may have been better placed to weather the storm—as funds typically apply more risk-averse investment strategies during times of crisis, and impact investments are increasingly being recognised as a safer bet. According to impact organisation ReGenerate, “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.”
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 these deals should not be understated.
In the UK, companies are considerably less likely to fail if they’re backed by an impact investor: last year, we found that just 11% of businesses that secured equity investment from an impact fund between 2011 and 2020 had since ceased trading or become inactive, versus 17% of those that received funding from conventional investors. At the other end of the scale, 23% of companies that received investment from impact funds had progressed to a later stage of evolution, compared to 18% for those raising funds from conventional investors.
Impact investors in the UK are taking on all kinds of responsible investment opportunities, from urban farming startups and microfinance firms to triple bottom line B Corps and social enterprises supporting the UN’s Sustainable Development Goals (SDGs). But which funds are the most active in the UK’s impact investment space?
Our data indicates that Nesta Impact Investments is the most active UK impact fund to date, having announced 45 equity deals with high-growth UK companies since 2011. Nesta is followed closely by Green Angel Syndicate, with 42, while fund manager Ascension has made 40 investments through its impact fund Fair by Design.
Previously, Turquoise International’s Low Carbon Innovation Fund (LCIF1) ranked top, having invested over £20m in early-stage sustainable companies—its second impact fund (LCIF2) is still active. Our ranking does not include impact funds that only invest in companies which have attended their accelerator programmes, such as Bethnal Green Ventures, which has backed 65 high-growth UK companies to date.
Nesta describes itself as “the UK’s innovation agency for social good”, offering incubation and advisory services, and helping to scale impact-led solutions. Nesta’s investment arm, Nesta Impact Investments, has been active for more than 20 years, supporting technology companies that aim to deliver social or environmental benefits, alongside a financial return for stakeholders.
The fund typically invests between £250k and £1m into technology providers operating in the edtech, healthcare technology, greentech, future of work, and foodtech 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. Nesta Impact Investments has backed 30 high-growth UK companies so far, including Featurespace and BibliU.
Green Angel Syndicate claims to be the largest angel network in the UK that specialises in the fight against climate change. Focused on sustainable investing, it has backed the likes of peer-to-peer renewable energy marketplace Piclo, eDNA testing firm Nature Metrics, and agritech company Better Origin. In total, Green Angel Syndicate’s portfolio includes 33 high-growth businesses in the UK.
The fund will typically invest between £150k and £1.5m into UK-based businesses. It looks for companies that are developing green technologies or sustainability initiatives to reduce greenhouse emissions, while also demonstrating strong financial performance.
Ascension is an early-stage venture capital firm that backs promising tech and impact entrepreneurs. Its Fair By Design fund is focused on ending the poverty premium by providing growth capital to innovative companies that aim to make economies fairer. Active since 2017, Fair By Design has already backed 21 high-growth companies in the UK—alongside Wagstream, these include fellow fast-growing fintech startups SteadyPay and Youtility.
Fair By Design invests in companies from seed stage through to Series A and beyond, providing both equity and loan funding. It will consider both for-profit ventures and nonprofits, including community interest companies (CICs) and charities, as well as co-investment opportunities with other funds.
Download our free PDF to see every impact fund in the UK.
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