The last 10 years the 25 million people region has advanced also in startups with sustainable solutions and in impact investing. Today a fourth of all venture capital in the Nordics has a mandate for impact, mostly deployed by business angels, family offices and VC funds, but also by governmental investment bodies that supply a mix of blended finance in grants, debt and equity.
Have being a serial entrepreneur in the Nordic innovation ecosystem since mid-1990’s, and specifically in impact investing since 2015, both as founder of Impact Business Modeling System™ and as impact investor, it has been pretty mind blowing to see all these new technologies and solutions evolve around the clock.
Stockholm, Sweden ©Annie Spratt
Investments in Nordic impact startups are growing year by year. This can be read in the latest edition of Dealroom’s and Danske Bank’s annual report “State of Nordic Impact Startups” from September 2022. The report is enjoyable reading if you are interested in the green transition.
Compared to the rest of Europe, the Nordic region is far ahead in the technology evolution and innovation needed to design and develop sustainable solutions. And investors have discovered that.
Since 2018, venture capital for Nordic impact startups has increased by an average of 45 percent per year from USD 0.6 billion US in 2018 to USD 2.4 billion in 2022.
Sweden and Norway lead the way. And as a region, we are well ahead of the curve. In the Nordics, 26 percent of venture capital goes to impact startups, while the figure is 18 percent in Europe as a whole. In the US, the report states, only 8 percent of venture capital goes to sustainable solutions.
This is obviously a good trend. It means that small, startup companies that have set out to change the world are able to attract investment that enables their innovative, sustainable solutions.
And it’s good for another reason too. It means that these startups can also attract more employees.
In 2018, postings from impact startups made up 4 percent of all job postings from Nordic startups. In 2021, the figure was 17 percent. This is an increase of more than 300 percent in just three years. Every tenth of the employees in startups today work in companies with a focus on creating a positive impact.
More and more of the companies that have seen the light of day in the past handful of years are not so small anymore.
With the help of venture capital, they grow very quickly. In Sweden in particular, a number of impact startups have grown fast and are today “impact unicorns”. For example, Oatly, which makes oat-based dairy products, Polarium, a developer og energy storage systems and batterieswhich , Eiride who manufactures autonomous electric trucks and Voi, which works with electrified transportation.
Overall, the market value (based on invested capital) of the Nordic impact startups has according to the report, grown from USD 21 billion in 2017 to USD 78 billion in the first half of 2022.
In other words, we are talking about a significant market that, in addition to providing solutions to some of our biggest social and environmental challenges, employs tens of thousands of people and contributes good tax revenues.
So far so good.
But not good enough.
Going forward, it is completely different figures than the size of the investor capital that we must focus on.
Imagine that the market analyzes that Dealroom and Danske Bank and others bring are also emphasizing how big an impact these future oriented startups have. How many tons of greenhouse gases they reduce, how much food waste they reduce, how many vulnerable citizens they help to find jobs, how many transport vehicles are electrified or how many tons of plastic packaging are replaced by degradable material.
That, I believe, will be the most important signal that we as a society are heading in the right direction.
The report by Dealroom and Danske Bank sends very clear signals that commercial companies today contribute significantly to the sustainable transition. But we are far from a reality where we assess progress on the impact that companies create.
In my view, it doesn’t matter how many billion dollars or euros are invested in impact startups if we don’t analyze how big a difference the companies make.
The will to allocate investor capital to the sustainable transformation of our society with new technology is not enough. We need to get the right measurement systems in place, internationally referred to as “impact metrics”.
These are frameworks that can eventually become legislation that demands that you can show exactly what impact comes out of every dollar invested.
Those numbers have enormous value for us as citizens, society and investors. More than how many billions are invested in sustainability.
Why exactly?
Because we jointly need to ensure that we all can make the right daily choices about our consumption, trade and investments. We need to know which of our actions have the greatest impact.
If I buy oat drink instead of cow’s milk, it is important to me whether Oatly, Nestle or any other brand reduce the most greenhouse gas per liters oat drink.
If my company replaces its car fleet, it will matter a lot going forward whether a Tesla S, a Volkswagen iD3 or a Polestar has the longest battery life.
The absolutely decisive point is that more and more investors will make increased demands that all the impact startups they invest in can measure and report on their impact and what it costs to create that impact. How else would they be able to benchmark which technology in terms of reduced food waste or increased use of nature-based packaging to invest in?
We need to invest much more in sustainable solutions and technology, which can adjust our society to be in balance and reduce the negative effect on our climate systems, nature, environment and citizens. But increased investor capital is not a goal in itself. It is a remedy. And it only works if we know what positive effect each individual solution and technology creates, and we can quantify it.
I fully support the report’s analyses, which I have read with great interest since 2018. They promote development.
In the next report on global impact startups, I hope to see some analyzes of which technologies and startups create the greatest impact per USD.
