UK Cleantech's Seed-Stage Drought Threatens Future Scale-Ups

The numbers behind the early-stage collapse

On the surface, UK cleantech looks healthy. Total sector investment reached £7.2 billion in 2025, comfortably ahead of Germany (£1.7 billion) and France (£1.4 billion), according to Cleantech for UK (CTUK) data published in May 2026. Total equity investment in cleantech rose 58% year-on-year to £3.9 billion.

Beneath those headline figures, the picture fractures. The value of early-stage deals, those seed and pre-Series A rounds that turn laboratory concepts into viable businesses, halved over the same period. The number of transactions fell from 188 in 2024 to just 94 in 2025, CTUK's research shows.

The bulk of equity capital flowed instead to software businesses and proven, late-stage operators. Among the standout rounds were a £750 million raise by Kraken, the energy technology platform owned by Octopus Energy Group, and a £130 million round for energy infrastructure specialist Highview Power. Even so, total equity investment remains well below the £11.9 billion peak reached in 2023, according to CTUK.

Strip away the mega-deals and the funding environment for the youngest cleantech firms is the weakest it has been in half a decade.

What the 'triple squeeze' means for founders

CTUK, established in 2023 to bridge the gap between Whitehall and the venture community, attributes the early-stage collapse to a convergence of three pressures it terms a "triple squeeze".

First, industrial energy costs. UK electricity and gas prices for industrial users remain among the highest in Europe, according to CTUK. That is a particular burden on capital-intensive cleantech sub-sectors such as battery manufacturing and carbon capture, where energy is a significant input cost before a single unit of revenue is earned. Westminster's recent decision to decouple gas and electricity prices may offer some relief. Sarah Mackintosh, director of CTUK and a former head of innovation at the Department for Business, Energy and Industrial Strategy, told BM Magazine the move should deliver a "fairly immediate impact". But it does not close the structural gap with European competitors.

Second, the disappearance of public grant funding. The Government's Net Zero Innovation Portfolio, which channelled public money into pre-commercial green technologies, was quietly closed in 2024 without a successor programme. For founders still proving their technology at laboratory or pilot scale, the loss of non-dilutive grant capital narrows the already slim set of options for bridging the gap between concept and commercialisation.

Third, investor caution driven by higher interest rates. The cost of capital rose sharply from 2022, and although the Bank of England has begun to ease, rates remain elevated by the standards of the post-2008 era. Venture capital firms face tighter economics on every deployment. The increase in employers' national insurance contributions that took effect in April 2025 compounded the pressure, adding to the operating costs of portfolio companies and fund managers alike.

"If we allow the pipeline to dry up now, it means we'll have no new innovation in cleantech coming through in five years' time. Funders will be sitting there waiting for scale-ups and none will come."

Sarah Mackintosh made the warning in comments reported by BM Magazine.

Late-stage plenty, seed-stage famine

The structural mismatch is stark. Capital is concentrating in businesses that have already de-risked their technology and proved a route to revenue. That is rational behaviour for investors managing returns against a higher discount rate. But it creates a widening gap between the laboratory and the factory floor, the stretch of the funding journey often called the "valley of death".

Mackintosh pointed to firms such as battery-technology developer Anaphite, materials specialist Immaterial, and carbon-removal venture Supercritical as examples of early-stage British businesses now at risk, as reported by BM Magazine.

The danger is not abstract. If the early-stage pipeline stays dry for two or three more years, the UK will face a shortage of investment-ready scale-ups by the end of the decade. At that point, late-stage capital, whether from domestic pension funds, sovereign wealth vehicles, or international private equity, will have nothing homegrown to back. The likely consequence, according to CTUK, is that Britain ends up importing the green technologies it needs for its net-zero commitments rather than exporting them.

For a government that has placed green industrial strategy at the centre of its economic programme, the implication is uncomfortable. Headline investment totals mask a hollowing out of the innovation base.

What the National Wealth Fund and British Business Bank could do next

Two public institutions sit at the centre of the policy response. The National Wealth Fund signalled in January 2026 that it intends to channel up to £5 billion a year into green energy projects, according to the fund's public statements. The British Business Bank already operates several venture and growth capital programmes aimed at knowledge-intensive businesses.

The open question, and the one CTUK is pressing hardest, is how much of that firepower will reach pre-revenue firms.

Large-scale infrastructure deployment, offshore wind farms, grid connections, hydrogen electrolysers, absorbs capital efficiently and generates measurable returns. Seed-stage technology bets do not. They are smaller, riskier, and harder to appraise. Public institutions face their own accountability pressures; writing cheques for unproven technology carries political as well as financial risk.

CTUK is urging both bodies to deploy capital more aggressively at the earliest stages. Possible mechanisms include co-investment alongside angel and seed funds, expansion of convertible grant instruments that blend public subsidy with private equity, and dedicated allocation pools ring-fenced for pre-Series A cleantech.

None of this is straightforward. The closure of the Net Zero Innovation Portfolio removed the most direct channel for public money to reach early-stage cleantech. Replacing it requires not just budget but institutional design, a programme with the technical expertise to assess deep-tech propositions and the mandate to accept a higher failure rate than conventional deployment finance.

The British Business Bank's existing programmes, including the Future Fund and regional angel co-investment vehicles, offer a partial template. Scaling those specifically for hardware-intensive cleantech, where capital requirements are larger and timelines longer than in software, would be a meaningful step.

Whether the political will exists to act before the pipeline damage becomes irreversible is the question that matters most. The data from CTUK suggests the window is narrowing.