We had a great chance last Tuesday, June the 14th, to discuss the status of the Impact and Sustainability startups ecosystem with a variety of founders and inspiring stakeholders such as Leehe Skuler from GITA, Niccolò Schlueb from SEIF, and Ricardo Monagas, co-founder of TotalCtrl and Uppersky. This was done in one webinar of the Impact and Sustainability chapter that I lead, for the Founder Institute (the link for the video recording is at the bottom of the article)
We recognized that Impact investors, and purpose-driven startups, looking to use technologies to solve some of the biggest environmental and societal challenges we have, are a growing ecosystem made of actors that are just starting to collaborate, and they need to take care of the downturn that economy is facing now. Multiple international crises one after another, including pandemics, disruptions in supply chains, and the war in Ukraine have slowed or halted progress on the Sustainable Development Goals. While economies were not yet fully recovered from the impact of the pandemic, the war brought spillover consequences on food security and energy prices. Many countries are now facing increasing inflation and growing levels of poverty and food insecurity. Labor shortages and currency devaluations put additional risks in several countries and add even more risk to the achievement of Sustainable Development Goals by 2030.
Impact investments have a great potential to contribute to building recovery and resilience in these challenging times. Until recent years the growth of investment in impact-driven enterprises and projects was experiencing difficulties due to misperceptions and prejudices in the investor ecosystem, and mainstream strategies were neglecting the positive correlation between resolving societal challenges and increasing economic returns. In more recent years, we have been witnessing an undergoing transformation in this perception: and while financial institutions and private firms are constantly announcing new ESG funds, a new investor profile balancing profit and value also emerges.
We also expect major contributions from financing sustainable development, which is of utmost importance and requires dedicated planning and cooperation of governments, the private sector, and investors. US Treasury Secretary Janet Yellen highlighted the importance of capital from all financing parties and the need for scaling up funding in a speech in April 2022, stating that:
“the response to date is just not to the scale that’s needed. Experts put the funding needs in the trillions, and we’ve so far been working in billions.“
I am more than happy to see that the impact investment ecosystem has been evolving and growing in these challenging times we are facing, but I do recognize as well that we miss an order of magnitude yet. During our event, we discussed some of the figures on impact startup investments reported by Dealroom.co, and I would like to share some key insights and my interpretations.
- The volume of impact investments shows steady growth. Impact startups have raised €16B in 2020, this amount reached a record level of €39B in 2021. This is a new height that cannot be underestimated and can be the start of an impressive growth trend for the decade.
- Proceeding from this breakthrough moment, impact startups have been continuing to attract more funding to their business and their cause. In the first three months of 2022, they have raised a further $12.9B. Although this amount is down 15% year on year, it is still impressive compared to 2020 figures.
- The main theme attracting the most of the funding was the climate. Considering that environment is the major risk according to the latest Global Risk Report by the World Economic Forum, and one of the themes that got the most attention from the media in the last decade, investments in startups with a climate focus are not a surprise.
- The amount of funding that startups tackling climate change, affordable and clean energy reached a total of $47B in funding in 2021 and the first quarter of 2022, which corresponds to 57% of the total investments.
- Growing funding flow to impact startups is driving an increase in the combined value of the impact companies. The combined enterprise value of the ecosystem is now worth $2.4 trillion, 70% high compared to 2020 levels.
- Not surprisingly, Europe – leading an economic model change with the Green New Deal – is appeared as the most impact-focussed ecosystem, with 15% of all funding going to impact startups.
- Europe is the region with the highest share of impact investing as a total VC investment. Yet, North America attracts the highest amount of impact funding compared to other geographies. The graph below from Dealroom Report shows regional trends in impact investments share.
My bet? Latam is the most growing region and still, Africa has to unveil all of its potentials. Africa is a great place to create a startup due to the entrepreneurial mindset of its inhabitants, and I am keen to look for more startups in such regions to support them through the Founder Institute.
Let’s take a look at some of the startups that opted for a sustainable future and recorded successful rounds raising significant capital:
Mainstream Renewable Power
Mainstream Renewable Power is a Dublin-based company, providing project design and management services for renewable and alternative energies. They announced that €575M has been raised from Mitsui & Co in the form of new common shares which corresponds to a 27.5 % equity stake in the company.
Mainstream and Mitsui are expected to work on new business areas contributing to net-zero commitments such as energy trading, energy management, battery storage, and green hydrogen.
Plenty
Plenty is a San Francisco-based startup in the indoor vertical farming business. Walmart Inc announced a $400 million investment and purchase agreement to buy leafy greens from Plenty for its stores in California.
Quite amazingly, the number of impact unicorns increased to 179 by the end of the first quarter of 2022. These are promising achievements, which can serve to attract greater investments from a more diverse and expanded investor community, while their founders can be role models for everyone seeking Impact while creating a sustainable and profitable business.
The growth path of the impact investment ecosystem is promising. Impact startups and investors will have a critical role in accelerating the recovery from emergencies and the World’s ongoing challenges. Yet lastly, it is imperative that we should and can achieve more. As is seen in impact investment flows as well, developing countries are significantly underfunded. The financing divide is curtailing our collective ability to respond to shocks and achieve SDGs. We should all think about how the impact investing ecosystem can drive a greater change, by leading a discussion on how to generate business value while creating transformative impacts in developing and underdeveloped areas of the world.
If you are purpose-driven, please join me in this journey and contact me to find a common ground to collaborate.
