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Investors

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Builders

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Diversity & Inclusion

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Regulation & Policy

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Resources

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02.3

Tech with Purpose

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Last year, in collaboration with Dealroom, this report proposed a methodology to measure entrepreneurial activity and capital invested into purpose-driven tech companies across Europe. This was based on a simple framework aligned with the United Nations Sustainable Development Goals (“SDGs”).

The first iteration in 2019's report focused on a subset that started with seven of the 17 SDGs. Since last year's report, Dealroom has continued to develop the methodology and build out its coverage of purpose-driven tech companies to enable an analysis that is now extended across all 17 SDGs.

For each of the individual SDGs, Dealroom's team has manually assigned keywords to tag companies in its platform with relevant categories. Each company is then individually reviewed and assigned to either “core” or “side” depending on the business model alignment with the SDGs, in other words whether it is core to a company's business model, or simply a peripheral or indirect aspect of the business model. By extending the analysis in this way, Dealroom has grown the dataset from 528 unique venture-backed, purpose-driven tech companies analysed in the 2019 report to over 3,000 in this year's report. As always, we understand the methodology has limitations and welcome feedback both in terms of scope and methodology in future iterations. The dataset and methodology are accessible on the 'Impact & Innovation' section of their website.

Overview of SDGs included in analysis and mapping to keywords on Dealroom's platform

Total capital invested in purpose-driven tech companies is expected to exceed $6B in 2020. 80% of this capital has been invested in purpose-driven companies where impact is at the core of their business model.

Capital invested


$6B
capital invested in purpose-driven companies

Capital invested ($B) in purpose-driven European tech companies per year

Note:
"Core" purpose-driven start-ups have impact at the core of their business model while "side" have it as a peripheral focus. 2020 is annualised based on data up to September 2020.

Over $20B has been invested in purpose-driven tech companies over the last five years across more than 3,000 rounds. In 2020, approximately 17% of total capital invested in European tech companies went to purpose-driven companies, of which those with purpose at their core accounted for the lion's share of investment.

Capital invested (2016-2020)


$20B
capital invested in purpose-driven tech companies in the past 5 years

Capital invested and deals in purpose-driven European tech companies per year as a share of total capital invested and deals (%)

Legend

  • Core
  • Side
  • Other
Note:
All Dealroom.co data excludes the following: biotech, secondary transactions, debt, lending capital, and grants. Please also note that the data excludes Israel.

European entrepreneurs and investors appear to be responding to the global climate crisis. European tech companies targeting climate action (SDG #13) have attracted greater sums of investment than purpose-driven start-ups addressing any other SDG with more than $11B invested cumulatively since 2016. This is followed by investment into companies addressing SDG #7, affordable and clean energy, which have attracted $9.7B of cumulative investment since 2016.

Climate action


$11B
capital invested into European tech companies targeting climate action since 2016

Capital invested ($M) in purpose-driven European tech companies per SDG addressed

Legend

  • SDG 13: Climate action
  • SDG 7: Affordable and clean energy
  • SDG 3: Good health and well-being
  • SDG 11: Sustainable cities and communities
  • SDG 12: Responsible consumption and production
  • SDG 2: Zero hunger
  • SDG 9: Industry, innovation and infrastructure
  • SDG 14: Life below water
Note:
Companies addressing more than one SDG are counted against each individual SDG they are targeting. 2020 is annualised based on data up to September 2020.

On climate specifically, we see a lot of forces at play in making this one of the most attractive investment opportunities in Europe, both in terms of profit and impact.

On climate specifically, we see a lot of forces at play in making this one of the most attractive investment opportunities in Europe, both in terms of profit and impact. Multiple European countries have committed to going carbon neutral before 2030, and there are notable changes in policies and regulations forcing businesses to shift gears and come up with new ways to operate in more sustainable ways. At the same time we see a raised awareness in consumers demanding change and more founders are moving to climate as being the most urgent problem for us to solve. All of these are contributing in giving Europe a competitive advantage in becoming the leader in climate tech.

Heidi Lindvall

Pale Blue Dot

General Partner

Climate action accounts for roughly 29% of all capital invested in purpose-driven tech companies since 2016 cumulatively. The extent to which European tech investors are embracing climate action, affordable and clean energy, and sustainable communities is increasing and is reflected in the pace and scale of investment in the last two years, nearly doubling the capital invested between the three years in 2016-2018. Interestingly, although less than $500M has been invested in SDGs targeting life on land since 2016, the capital invested in this segment since 2019 has more than doubled since that of three years prior.

Capital invested ($M) in purpose-driven European tech companies per SDG addressed, 2015-2017 versus 2018-2020

Legend

  • 2016-2018
  • 2019-2020
Note:
2020 is annualised based on data up to September 2020.

European purpose-driven companies have raised a number of mega-rounds this year.

Top 10 largest deals raised by purpose-driven tech companies in 2020

Being purpose driven is not an advantage anymore: it’s a must.

Being purpose driven is not an advantage anymore: it’s a must! For consumers, investors, talents, and companies altogether. Nowadays, entrepreneurs cannot launch a company without a strong purpose driven mission. In France, we even modified our law with « La loi Pacte » to encourage companies to be more purpose driven and integrate their social and environmental issues in their business model. It is a radical change which shows how serious environmental and social issues are to us.

On the financing front, a look at some of the biggest amounts raised in 2020 show how attractive purpose driven Tech companies like Ynsect, Ecovadis, Backmarket or Alan have become. Tech for good founders have no problem raising big rounds in order to scale their companies. They are brilliantly demonstrating that profits and impact are compatible. In the Galion project we are thrilled to help scaling Tech for good founders: the first Impact Unicorns will be European!

Agathe Wautier

Galion Project

Co-Founder

Still, European tech entrepreneurs have not taken up all the SDGs with the same gusto. For example, the combined level of investment into the eight SDGs that rank lowest is equivalent to just 27% of the total investment into the top-ranking SDG, Climate Action (SDG #13). Though the level of entrepreneurial activity and investment around many SDGs today remains low in comparison to others, it's reasonable to increase this as purpose-driven entrepreneurship continues to scale in Europe. For example, it's likely that there will be increased activities around SDG #4: Quality education given the way that education is delivered today has come into the spotlight during the pandemic. In fact, more angel investor survey respondents selected this area as the sector they are most excited by than for any other.

Capital invested in purpose-driven European tech companies per SDG as a share of capital invested in Climate action

Note:
Based on a set of over 3,000 unique companies identified by Dealroom. 2020 is annualised based on data up to September 2020.

Pictet has developed its own ESG assessment framework that we consistently use to evaluate GPs on the same basis. The assessment has three pillars: what is the commitment of the GP towards ESG; how ESG is taken into considerations in the investment activity; how does the GP report its ESG activity to LPs. We provide feedback to the GP based on our assessment and how they compare within our internal benchmark. Over time, as the assessment is reviewed, we track progress and continue to provide feedback.

Maurizio Arrigo

Pictet Alternative Advisors

Head of Private Equity

A further tailwind for increased investment into purpose-driven tech companies comes from the institutional investor layer and LPs. LPs are increasingly focused on environmental, social and governance ('ESG') considerations when deploying capital. In fact, 45% of LP respondents to the survey stated that they require their GPs (i.e. the fund managers they have invested in) to report on the social and environmental impact of their portfolio, while a further 41% are considering implementing this requirement. Established fund managers are also more likely to be required this type of reporting from their LPs in the future with 47% stating this as a requirement and 53% considering this practice. As such, it is becoming an increasingly important part of the LP mandate for VCs in Europe.

Do you require GPs to report on social and environmental impact?

Source:
Note:
LP respondents only. The responses to this question have been aggregated based on how respondents answered the following question: "What type of fund managers do you normally invest in?"

Absolutely, we see LPs consistently developing greater sophistication across sustainability. We engage in a two-way conversation with our LPs, with both parties pushing the other to think more deeply about sustainability and our respective roles as advocates. For example, our Growth Equity team weaves sustainability into term sheets, mandating quarterly reporting of financial metrics alongside impact metrics. To us, measuring the full value of a company includes considering how value will accrue to all company stakeholders. We report on these metrics to our LPs, including through an annual sustainability report, portions of which we make public and house on our website.

We are deeply committed to measuring outcomes against our sustainability objectives of planetary health, people health and financial inclusion, and work diligently alongside our portfolio companies to do so. We measure not just what a company does (i.e. the products and services they deliver) but also how a company operates (i.e. the sustainability of their organisation and practices). In turn, our portfolio companies find this process valuable to help embed sustainability KPIs into their core product, management systems, and long term goal setting.

Shalini Rao

Generation Investment Management

Director, Growth Equity