By the numbers, the United Kingdom’s start-up technology ecosystem has a lot to be proud of. By value, it is the largest in Europe, employing over three million people and surpassing $1 trillion in valuation in 2024. Much of start-up technology investment in the United Kingdom goes to climate technology businesses, which have a positive environmental impact at their core. With over 5,000 budding climate technology start-ups and scale-ups, second only to the United States, the United Kingdom is home to one of the most promising innovation ecosystems in the world.
The UK climate technology sector has clusters of emerging leaders in segments such as nuclear fusion, green hydrogen, and carbon capture, utilization, and storage (CCUS). It attracted £2.6 billion in funding in 2023, trailing slightly behind France but ahead of Germany and Canada. The country’s energy sector received just over £1 billion1 of investment in 2023, and its government committed £1.2 billion to the Green Industries Growth Accelerator, focused on sectors including offshore wind, CCUS, and nuclear energy.2
Nevertheless, the United Kingdom has a scaling problem. Innovative technologies have proliferated, but many have struggled to scale from promising start-ups to industry leaders. This article draws upon nearly 100 conversations with climate technology entrepreneurs, investors, and companies, as well as our experience working with executives in developing businesses. We describe the challenges and offer insights and practical tips to bring about a foundational shift in how the United Kingdom’s entrepreneurs, incumbent companies, and investors can together accelerate the path to profitability and scale.
The United Kingdom’s hyperscaling challenge
A recent McKinsey report underscored that the largest UK companies have a significant opportunity to scale more effectively than their US and European peers. It also stressed that productivity in the United Kingdom has persistently lagged behind comparable nations. The nation had 2 percent growth in productivity from 2015–21, just a quarter of the 8 percent in the United States. Both these trends hold true in the climate technology sector, in which the United Kingdom has produced four unicorns—including BeZero Carbon, Octopus Energy, and OVO—compared with 35 in the United States. A climate technology start-up is three times more likely to become a unicorn in the United States than in the United Kingdom (Exhibit 1).
Based on our analysis, three common challenges explain this trend: a culture of risk aversion, limited scale-up capital, and fragmented ecosystems.
The first challenge: A risk-averse investor community that is skewed toward dividends
A recent McKinsey analysis of the earnings releases of US and UK companies reinforces the notion that the United Kingdom is more risk averse than the United States. Statements from the largest 50 US corporations in the S&P 500 were compared with those of the largest 50 UK corporations in the FTSE 100; the American businesses had twice as many references to “ambition” and 1.2 times as many mentions of “innovation.” The report also highlights a skew in UK investor returns toward dividends, which suggests a strong pressure to operate profitably at an earlier stage than US counterparts.
Indeed, UK start-up founders and technology companies often find that UK investors are typically more risk averse, shy of committing to being the lead investor, focused on near-term profitability, and, as a result, less ambitious.3 In the United States, past failures may be viewed as a rite of passage providing lessons for future success, whereas in the United Kingdom, they generate a concern among investors about their ability to protect against significant downside.
The second challenge: Limited late-stage capital for breakout growth
The United Kingdom has a vibrant venture capital (VC) sector: Across all funding rounds, UK start-ups raise more than their European peers. The United Kingdom also continues to be a focal point of foreign direct investment for big corporates. For example, Nissan is expanding its local electric-vehicle (EV) capacity. However, UK early-stage investment does not scale up to fund breakout growth, hampering the ability of start-ups to scale to the same levels seen in the United States.
Despite the United Kingdom outperforming other countries within Europe, US firms dominate the hundred largest funding rounds globally. The United Kingdom’s share of the top 100 decreases at later rounds, reflecting the difficulty of UK scale-ups in raising the large amounts of capital needed to grow (Exhibit 2). This shortfall matters even more in climate technology, where solutions are often industrial and the journey from start-up to unicorn is capital intensive.
The third challenge: Gaps in climate technology ecosystems
The UK government’s ambition to be a global climate technology leader requires creating productive ecosystems of start-ups, incumbents, private investors, and public sector catalysts. Its vision covers several climate technologies, including offshore wind energy, hydrogen, software-led renewables flexibility, CCUS, and lithium and EV batteries, among others.
To harness the full potential of these ecosystems, the United Kingdom can seek to solve challenges in planning, infrastructure, supply chains, and skills. Gaps in critical control points—such as access to essential materials, infrastructure, and captive demand—increase costs and slow the commercialization of technologies. Cultivating ecosystems to bridge these gaps requires businesses to develop robust supply chain and go-to-market strategies, as well as public sector catalysts to advance a solid industrial strategy.
Let us take the example of lithium and battery manufacturing. Both are critical to the United Kingdom’s ambition to double the country’s EV adoption by 2030, meaning the automotive sector will need 59 kilotons of lithium annually. The United Kingdom is actively exploring domestic resources, with start-up miners—British Lithium, Cornish Lithium, and Northern Lithium—leading the search. Government initiatives, such as the £610 million Faraday Battery Challenge for innovators, also help to develop the United Kingdom’s competitive position. Nevertheless, the country still primarily imports key battery components such as cathodes and anodes and has only a few planned large-scale battery manufacturing sites, such as those anticipated in Coventry and Sunderland. To support the hyperscaling of start-ups and maximize growth and returns on the expected surge in EV demand in the United Kingdom, the country could seek to develop a robust and self-sufficient domestic value chain for critical battery components.4
Another example is CCUS. The United Kingdom enjoys a structural advantage as a global leader. It benefits from 78 gigatons of storage capacity, favorable North Sea geology, and strong legacy experience in oil and gas. There are eight industrial clusters designed to capture and store emissions from industrials and power generation. The government pledged £22 billion in October 2024 to projects in Merseyside and Teesside. CCUS start-ups—including C-Capture and CCU International—are also finding innovative ways to capture and reuse emitted carbon. And global CCUS market leader Mitsubishi Heavy Industries chose the United Kingdom as its European base of operations, demonstrating the country’s attractiveness.
However, overcoming CCUS’s capital intensity and high costs remains a challenge. An estimated $40 billion of additional investment is needed to complete planned CCUS projects. A key lever for the CCUS industry is long-term offtake agreements with heavy emitters that can derisk projects and move them down the cost curve. C-Capture’s recent £10 million funding round—which included BP Ventures, Drax, Kiko Ventures (launched by IP Group), and Northern Gritstone—shows a path that start-ups can pursue.5
Harnessing the full potential of climate technology ecosystems requires reindustrialization. At a national level, the United Kingdom’s historical ambition to lead in services and its resultant economic structure are reflected in its technology businesses and its unicorns. They are strong on exportable services and technology platforms such as fintech, health tech, and insure tech but have a smaller presence in manufacturing. The United Kingdom’s “Invest 2035” industrial strategy, released for consultation in October 2024, emphasized cultivating domestic manufacturing.6 A strong manufacturing backbone will be crucial to developing climate sectors critical for decarbonization, such as green cement, hydrogen, and sustainable fuels, and will remain an indispensable driver of the United Kingdom’s competitiveness as a climate technology launchpad.
Overcoming the challenge and solving for take-off
Lessons from successful climate technology disruptors shed light on what needs to happen to overcome these challenges in the United Kingdom and generate sustained economic growth. We build on the experiences of these disruptors, as synthesized into McKinsey’s hyperscaling formula, and identify the actions most crucial for this to happen.
Lead with game-changing ambition
Many successful climate technology players set a goal from the beginning to contribute to the industry of the future and affect the wider economy. A rightsized ambition balances the outrageous with the attainable. It serves to motivate teams, create a structure for growth, and send a clear signal to the market and investors that the scale-up means business. A game-changing ambition is, first, straightforward, such as becoming the supplier of lowest-cost CCUS technology. Second, it is grounded in clear metrics that distill a bold long-term ambition into realistic short-term milestones that define how the whole business operates. Climate technology companies such as Octopus Energy and Tesla have become leaders in their respective businesses with a clear ambition that has allowed them to excel in their market.
“Homegrown champions”—prominent domestic businesses spearheading growth—are critical to galvanizing ecosystems around climate technologies. In pursuing their game-changing ambitions, they catalyze growth in their supply chains and transform purchasing trends across end users. The United Kingdom’s well-developed wind sector, for example, does not have a homegrown supplier, which brings supply chain risks and challenges to rapidly developing its infrastructure. Tapping into the United Kingdom’s true sources of strength to help these champions emerge—in the wind sector and beyond—can help unlock the United Kingdom’s climate technology ambition and, with it, its evolution as a climate technology superpower.
Secure capital for hyperscaling
Scale-ups should demonstrate the ability to back their game-changing ambitions with hard proof to secure capital. Three elements of our hyperscaling formula stand out in how to do this most effectively in the United Kingdom: signing up captive demand early, securing a cost advantage, and building talent to out-execute.
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Sign up captive demand early to cement the upside. A critical lesson from successful scale-ups is the importance of unrelenting customer focus. Companies that excel in scaling have an in-depth understanding of their customers, speak their language, and tailor their products so that they can secure offtake agreements with leading incumbents. This early captive demand is an important element for successful hyperscaling. Doing so shows the path to revenue generation, which is indispensable for securing low-cost financing. A standard test of climate technologies by investors is to evaluate the intensity of corporate demand for the product and whether it can retain that competitive distance in the future through technical or economic distinctiveness.
Fervo Energy (Fervo), a next-generation geothermal start-up in Houston, Texas, is a case in point. Building upon research funding, Fervo proved its technological capability early. In 2021, it signed the first corporate enhanced geothermal system agreement with Google. Building on the successful commercial power generation from its pilot sites, Fervo also gained credibility from its well-known partner. It soon agreed to three more offtake agreements, securing a future revenue stream from supplying power to multiple customers. Meanwhile, the Department of Energy awarded it $25 million to further derisk the technology. Fervo also raised private capital of $244 million in February 2024 and an additional $255 million in December 2024.
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Secure a cost advantage to access markets. Successful green business builders set a North Star of cost parity with fossil-based or traditional alternatives and drive down unit costs and capital expenditures against realistic, near-term milestones. This opens access to markets where user choices are heavily cost driven. A McKinsey analysis found more than 80 percent of customers were not willing to pay a 10 percent premium for green logistics products, and only 10 percent would be willing to pay a 20 percent premium. Where convincing evidence for long-lasting green premia is elusive, reaching cost parity with traditional alternatives is the fundamental driver of demand and investment worthiness.
Among industry leaders, Tesla owes much of its success to being a pioneer in reducing costs to increase sales. By moving from incremental improvements to absolute “minimum technical solutions,” Tesla cut lead times by 75 percent and reduced capital expenditures across its EV battery plants. To drive the cost curve down plant by plant, Tesla applied continuous learning to scale up best practices, focusing on modularization, standardization, and best-in-class ways of working. It took Tesla roughly 730 days to build its first plant and just 168 days to build its third plant in China. This resulted in rapid growth, with profit margins outpacing those of the wider industry (10.5 percent versus 7.0 percent industry average in 2022).
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Build talent and capability to out-execute. In the current investment environment, investors have placed a premium on the experience and track record of top teams. In the United States, VC deal sizes have risen across seed, early, and late stages,7 with the momentum carried by companies and top teams that can demonstrate solid forward plans and a record of commercial traction. Time and time again, we see top talent as a staple of the most successful climate technology teams. To compete, UK climate technology players must attract and retain top talent by seeking the best talent globally, offering attractive remuneration, and structuring pay to best motivate results.
Octopus Energy, one of the United Kingdom’s climate technology unicorns, emphasizes professional development—for example, at its heat pump R&D and training facility—and the creation of specialized teams, fostering an environment where employees can thrive. An equity options scheme also gives employees a stake in the business, aligning their success with the company’s. This strategy helps attract and retain top talent and has been instrumental in scaling the start-up, allowing Octopus Energy to innovate and maintain a competitive edge in the energy sector.
Actively pursue green business building to activate ecosystems
Start-ups, incumbents, funds, and public sector catalysts can reap outsize benefits—beyond simple financial arrangements—from working together as green business builders.
For start-ups, the financial benefit from funds is obvious. Additionally, start-ups that receive corporate venture capital (CVC) within their first three financing rounds have a higher chance—between 21 and 64 percent—of making a successful exit than those relying solely on traditional VC. The benefits go the other way, too. McKinsey found that 80 percent of the new value generated by corporates between 2017 and 2022 came from new ventures.8
For incumbents, there is an untapped opportunity in working with start-ups. The United Kingdom lags behind other Western European countries in corporate investments in domestic start-ups: 41 percent of corporate-backed funding rounds in the United Kingdom involve no UK corporates. This is higher than in France (26 percent) and Germany (31 percent). Despite the potential, the United Kingdom saw a 40 percent drop in CVC investments in start-ups in 2023 compared with previous years.
Successful corporate leaders offer two lessons to maximize value created from working with start-ups. The first is to build an effective M&A engine to acquire growth-stage companies that complement and scale the corporation’s core businesses. The corporation needs an M&A team that can identify and integrate targets effectively, as well as an internal innovation team that knows where the most value can be unlocked at the core.
The second lesson is to make the CVC a “buy and build” center for strategic growth and innovation for the parent company. To do this, the CVC’s vision and strategy encapsulate the mandate to work actively with promising start-ups and build and scale them through the parent company’s operations or external networks. This is in sharp contrast to the typical CVC setups we often observe that take on the role of “passive investors” and can be hindered by misaligned and competing priorities between the CVC unit and the parent company. As a buy-and-build center, the CVC can provide richer market intelligence, technical knowledge, and supply chain or end-user access.
For funds, both domestic and international, there is a crucial role to play in supercharging early-stage start-ups by securing the scaling capital needed to derisk projects and transition climate technology from labs to pilot facilities to commercial enterprises. In addition to financing, funds can take a driving seat in business building at their most promising portfolio companies. They can bring additional expertise and capabilities to help maximize start-ups’ chances of success and their own returns on invested capital. An FTSE 250 investor in science and technology-based businesses, for example, plays an active role through the boards of its start-ups and scale-ups. At its most promising portfolio companies, it not only facilitates the partnerships that are integral to offtake agreements and superior project development and execution but also complements their typically technical executive teams with much-needed commercial and execution heft.
Finally, public sector catalysts are critical. The UK government can be a pivotal catalyst for domestic ecosystems. While there is robust assistance for early-stage technologies and innovative ideas—through a variety of grants and tax mechanisms—help beyond the early stages can be markedly smaller and slower. Broadening support from individual businesses to entire sectors can help establish “champions” in mature sectors such as renewable energy. It can also empower high-potential technologies such as fusion energy, which can be an answer to many climate questions but will also need significantly more support than has historically been provided. Public sector catalysts, such as the National Wealth Fund or Great British Energy, can mobilize private investment through forward-leaning investment strategies for sectors, robust technical and economic due diligence on individual technologies, and leading investment rounds for the most promising scale-ups in a sector. Public sector catalysts can also facilitate blended finance or shape economic and financial frameworks that derisk specific technologies through well-defined commercial models (for example, contracts for difference).
As a technology and innovation leader, the United Kingdom has produced some climate technology unicorns, but there remains significant potential for more. With a concerted effort from private and public players to plug gaps in the United Kingdom’s climate technology ecosystems and support potential fast movers, the United Kingdom has a chance to propel its outstanding technological edge into sustained reindustrialization and economic growth.
