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The investment landscape is set for a huge shake-up in 2024, but don’t fear it. Embrace it.

The UK’s investment landscape in 2024 is facing new challenges, whether that’s the tightening of investor purse strings or increased restrictions and policies within heavily legislated sectors. The lagging effects of interest rates and uncertain economic conditions are plaguing markets around the world, with the Office for National Statistics reporting that UK business investment decreased by 3.2% in Q3 of 2023, and other economic indicators pointing towards a turbulent journey for the continent in 2024.

However, if we’re to cut through the noise and increased market volatility, there’s definitely value in taking a step back and adopting a longer-term perspective. What are some of the enduring themes that are set to shape the world for the better, and are any of those destined to be pivotal drivers of future market returns? For emerging industries like climate tech, the ocean economy and life sciences, there are a number of promising opportunities already beginning to open up, many of which are set to incorporate new trends and technologies as they evolve.

When Future Planet Capital started out in 2016, we were one of only a handful of groups that defined ourselves as an impact investor – a firm investing in for-profit businesses that can deliver positive social or environmental impact with their innovations. Today, however, many of the funds that we interacted with five years ago have also begun to describe themselves in that way. Impact investing is becoming normalised and prevalent, and mission-driven founders solving global issues are more in demand than ever.

With the surging demand to find solutions that address society’s greatest challenges, investment is undoubtedly the key to unlocking traction. But how can we navigate 2024 for the benefit of the start-up, wider society and the investor community?

Be clear in your mission.

Since the late 90’s the venture markets have become increasingly awash with investors chasing software deals, consumer apps and digital technologies like the blockchain. We believe that is changing. Silicon Valley started to fund semiconductor companies – transformational hardware that would precipitate an industrial revolution, and we’re seeing a hail back to hardware and the problem-focused founder. As the existential risks of climate change, soaring health costs and security arms races rage on, the opportunity to leverage technology to create true value for people and the planet, as well as shareholder value, is greater than ever. You can see this in where the capital is: DeepTech investors now make up 20% of Venture Capital, 2x up in a decade (BCG), and much of this capital is directed at the challenges above.

As the demand from investors for disruptive large-scale, disruptive business opportunities grows, there is a real appetite for mission alignment. Firstly concerning overall product and service impact, and to some extent ESG (Environmental, Social, and Governance), right from the early stages. At the same time, we’re seeing founders increasingly focused on doing good. Part of their entrepreneurial drive and story centres around positive change. It’s what helps them get out of bed in the morning and work a 16-hour day.

We encourage all founders we meet to articulate this mission in their investor conversations. Demonstrating in dollar terms the external impact you create is a great complement to going after a large growing market, especially if you can describe the regulatory and economic tailwinds associated. If founders can communicate their impact well and can articulate a vision beyond “this is what the product does and this is the market”, it can make all the difference in fundraising and importantly, hiring and culture.

Don’t get me wrong – simply demonstrating a company’s social or environmental impact isn’t sufficient enough to win a deal on its own. Companies must still balance this with tangible evidence that their solution is going to deliver returns – that’s where the real weighting lies when viewing a new prospective investment. The key is to align the two and demonstrate business model fit with impact creation.

Take note of standardisation and regulation changes around ESG.

Over the last couple of years, we’ve seen the emergence of Corporate Social Responsibility (CSR) reporting here in the UK, and in the EU, there’s the Sustainable Finance Disclosure Regulation (SFDR). Now, as a result of these new regulations, you can’t simply slot yourself into an impact or ESG fund without actively reporting on it.

This shift aims to distinguish those genuinely committed to creating an impact from those who merely use it as a branding tool, combatting the major issue of greenwashing and raising the bar for adopting transparent processes at the same time.

For founders, it may mean increased reporting requirements associated with a significant portion of the Venture Capital available. Beginning to measure and incorporate ESG metrics early is a smart move.

The opportunity is huge for the ClimateTech sector.

Most impact investors will continue to focus on large challenges like the environment, health, and education. However, it should be said that across the investment landscape, there is set to be a lot of belt-tightening in 2024. Investors will be doubling down on their initial portfolio companies and new deals will likely become harder to negotiate. Having said that, we will likely see a concentration of capital into certain companies and sectors where the opportunity is more secular. In our view, climate tech is a clear one.

As technology continues to advance, the combination of artificial intelligence, cheaper computing and the availability of renewable energy will continue to play a pivotal role in creating feasible climate solutions. Investors are wise up to this and we believe there will be a strong venture market for differentiated technologies with a de-risked route to proving their technology.

The coming years are likely to witness a heightened focus on initiatives that harness the power of AI and hardware to address environmental concerns, making it a key area for strategic capital allocation.

So, what’s to come?

We’ve seen governance be at the forefront of 2023, with events like the Open AI debacle, the rise of antitrust suits and regulators in the UK, EU and US becoming increasingly active. All of this has repercussions down into the start-up market, so one of the key learnings that we should take from this is that having good governance procedures in place from a very early stage is so very important. Doing things simply and doing things right. It not only ensures compliance with emerging standards but also facilitates a sense of trust among stakeholders.

The future of impact investing is bright. The emergence of numerous new funds reflects a continual demand for capital and innovative solutions in various sectors, whether that’s with shipping companies needing to decarbonise by 40% by 2030, or the vital re-imagination of supply chains to reduce waste.

Global headlines underscore the urgent need for change, especially with increasing regulations aiming to address these issues, so there is a compelling need for established corporations, governmental bodies, and start-ups to collaborate on developing novel solutions.

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