Fundraising target increases by 50% for second fund in the UK-focused venture capital series
Clean Growth Fund (CGF) registered CGF II with Companies House on 28 January, in preparation for launching the second iteration of its clean technologies venture capital fund.
The final close of CGF I occurred on 31 March 2022, after the investment vehicle reached £101 million. CGF I made its first investment in December 2020 and has deployed £61 million across 19 investments. The fair value of the portfolio is £74 million, according to CGF.
The fundraising target for GCF II is £150 million. The minimum initial investment size is increasing from £3 million in CGF I to £5 million in CGF II.
Managing partner Beverley Gower-Jones said: “The primary goal of the fund is return on capital. It’s a fully commercial fund seeking to deliver an IRR above 20%. But as an impact fund, we invest in technology companies that can significantly abate greenhouse gas emissions. We’ve made four or five investments each year, so we’ve invested a significant portion of our capital.”
We need to exploit the opportunities around climate, rather than just focus on the negatives. You only have impact in the real world if you’re investing in the technologies that can make the transition happen.
George Graham, South Yorkshire Pension Fund
Investment manager Connor Duffy said: “While we’re increasing the size of initial investments, the strategy is broadly similar. All investments will be UK-focused and it will cover all the main climate technology sectors. Most will be invested in Series A. If we achieved a first close in May 2025, that would align well with the end of CGF I’s investment period.”
CGF I attracted a mixture of pension funds, insurance companies and investment managers. The expected investor base is similar for CGF II, including existing and new investors. “A good number of the investors from fund one will be re-upping into fund two,” said Gower-Jones. “I am also delighted to be a fair way through the steps with some new investors.”
Speaking at PMP’s Inside the Deal event, George Graham, a director of the £11 billion South Yorkshire Pension Fund that has invested in CGF I, said: “We’ve set quite an ambitious and aggressive net-zero target. To achieve that, we need to exploit the opportunities around climate, rather than just focus on the negatives. You only have impact in the real world if you’re investing in the technologies that can make the transition happen. That’s a material focus for our investment strategy.”
CGF is the lead investor in approximately 80% of its deals, according to Gower-Jones. “We find that other sources of capital become more comfortable when we’ve done our due diligence and decided it’s something we really want to do. It helps other pools of private money to feel comfortable investing in climate-based deals.”
The South Yorkshire fund allocates approximately 12.5% to climate opportunities, split between private debt, private equity and infrastructure. “The idea that venture capital is too risky doesn’t fly,” said Graham. “We have at most 2% of the fund in venture capital. That’s a big sum of money, hundreds of millions of pounds, but its only slightly riskier than private debt so it’s not massively increasing our risk.
“We don’t put massive amounts of money into any one fund. We make sure we do proper due diligence on managers and carefully look at the sectors we invest in. From my point of view, climate tech is lower risk within the venture space than something like life sciences, where there’s more risk in original invention.”
Investment strategy
Some LPs may be drawn to the fund by its UK focus. Many UK institutional investors have lower allocations to venture capital than their international peers, according to Duffy, and the UK government has become more supportive of economically productive, local investing as well as decarbonisation.
Gower-Jones: “We invest in companies that aren’t reliant on policy or regulatory drivers, as much as possible, and look for commercial business models that stand on their own two feet. But having a government that understands the potential impact of climate change and the opportunity represented by its abatement is huge.”
Most of the funding it provides is at the Series A stage. “We have also made a couple of seed investments, when we saw a compelling opportunity and it made sense to come in a little bit earlier,” said Gower-Jones.
“Our team and the founders are all very aligned on the climate mission. When founders talk to us, they don’t need to start from scratch as we already know a lot of the background. Companies come to us because they know we are a smart investor that brings more than just money.”
CGF I has invested in 19 companies including Sunswap and Clean Food Group. Sunswap manufactures solar and battery powered refrigeration trailers for heavy goods vehicles, to replace diesel powered units. Clean Food Group uses a yeast to ferment sustainable fats and oils, which displace products such as palm oil and cocoa butter.
Duffy said: “Although our north star is emissions abatement, many of our investments unlock co-benefits. Clean Food Group’s technology fits squarely within climate, as the emissions associated with vegetable oils are immense. But it also has massive social and ecological benefits by negating the pressure to chop down tropical rainforests.”
Another of CGF I’s investee companies is Above, which utilises drones to inspect solar installations. “Above uses existing technologies to do something very useful for the climate transition,” said Graham. “It’s innovative, but it’s not inventing [technology] from scratch. We see this as less risky than other types of venture.”
Creating value
CGF has a close association with Carbon Limiting Technologies (CLT), a consulting business with more than 20 years’ experience commercialising clean technologies. CGF carves out a portion of its management fee to procure CLTs consulting services for its portfolio companies at zero cost.
Gower-Jones said: “We use CLT as clean technology isn’t a single sector – it covers all sectors. Its deep sector expertise – having experience, understanding the problem and quickly pinpointing solutions – is the differentiating factor. It’s critical and fundamental.”
CGF has held roadshows in Newcastle, Leeds and Wales and is holding ones in Exeter and Edinburgh in March. “We try to invest across all the regions of the UK, not just the Golden Triangle,” said Gower-Jones, referring to the London-Cambridge-Oxford region. “It’s all about looking for the best climate innovation across the UK and supporting them to scale commercially, helping grow local GDP and create jobs. That is a key part of what we’re seeking to do.”
Graham added:“There’s a tendency in the industry to adopt a ‘nobody gets fired for buying an IBM’ approach to private markets allocations. This means you see a lot of commonality, making investments in big managers. But the managers that will deliver impact in this space are probably not going to be the usual suspects.
“[It is better to be…] open to a wider range of managers that are focused on niches or places. There are places of great innovation outside the Golden Triangle. You’re more likely to deliver returns if you look in places you don’t usually look.”