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04.3

Collective mission

Europe is keen for ESG - but there is still more noise than follow-through among VCs.
European entrepreneurs want to move the needle on social and environmental challenges. But, while more is being invested in purpose-driven companies, the share of total funding they receive has decreased relative to other areas. It’s been a fantastic year for investing in climate, but funding lags on other Sustainable Development Goals.

Insights
Europe has the largest share of global early-stage investment in purpose-driven tech companies
Europe has the largest share of total capital invested in early-stage purpose-driven tech companies on a global basis, accounting for 61% of all funding at Pre-Seed and Seed stages (<$5M) and 53% of total funding invested in aggregate across Pre-Seed to Series B (up to $20M) stages.

But the share of European capital flowing into purpose-driven tech has declined
Despite a significant acceleration in the level of investment in purpose-driven companies in absolute dollar terms, it has been outpaced by the increased funding amounts raised by more mature companies that do not have purpose embedded into their business models. As a consequence, the relative share of total capital invested in purpose-driven tech companies in Europe in 2021 has declined by 5 percentage points compared to 2020.

Europe’s purpose-driven unicorn herd grows
Europe now has 21 purpose-driven unicorns, of which 13 were added in 2021 alone. Stockholm attracted the most capital for purpose-driven startups in 2021, followed by London and Paris.

Only by ensuring the leadership on the new wave of innovation, Europe will be able to be in control of its own future. What happened with the previous wave of innovation around digital startups cannot happen again.

I am convinced that although regulation is indeed an important element, we should focus our EU efforts on ensuring that Europe becomes the leader of the new wave of innovation around deep tech startups with a hardware component and focused on the SDGs. We need to look less abroad, and look more inside and support our great innovators and startups. We need to have more deep tech unicorns per capita than any other regions of the world.

To make this goal a reality, we need to build a pan-European Innovation Ecosystem where industry, universities, founders and investors work together. It would allow any founder to din customers and investors from anywhere in Europe. This ecosystem should ensure territorial innovation cohesion beyond big cities and into rural areas. The implementation of this ecosystem will require synergetic work among European, National and Regional authorities coordinating all EU Funds.

Mariya Gabriel

European Union | EU Commissioner for Innovation, Research, Culture, Education and Youth

Source

In collaboration with Dealroom, this report has developed a methodology to measure entrepreneurial activity and capital invested in purpose-driven tech companies across Europe. This is based on a simple framework aligned with the United Nations Sustainable Development Goals ('SDGs') extending across all 17 SDGs. For each of the individual SDGs, Dealroom's team has manually assigned keywords to tag companies on 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. As always, we understand the methodology has limitations and welcome feedback both in terms of scope and methodology for 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 platform

Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. Companies are counted against each SDG they are targeting.
Investors are increasingly backing purpose-driven European tech companies

The total value of cumulative capital invested into purpose-driven European tech companies over the past five years stands at $34B, growing consistently year-on-year throughout that period. At an expected annual total of more than $12B in 2021, investment levels have grown 4.7x since 2017. Although Europe trails North America in terms of total investment, Europe is seeing a higher share of investment in purpose-driven tech companies relative to the total value of capital invested. In 2021, 16% of capital invested into European tech went to purpose-driven companies, versus 10% in North America.

Capital invested in purpose-driven tech companies per year and per region, 2017 to 2021

  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 is annualised based on data to September 2021.

Building sustainability into a company's DNA isn't just the right thing to do, it's what a generation of customers and employees now expect.

Every company and every individual has a role to play in fighting climate change, and at Zapp we decided very early on to utilise an all-electric fleet, forge local partnerships to reduce food waste, and invest in carbon tracking and offsetting for emissions we can't yet avoid. To further embed sustainability, and with the help of our new Head of Sustainability, we'll soon be launching our sustainability champions network made up of employees right across Zapp's various business functions.

Steve O'Hear

Zapp | VP of Strategy

Climate tech has grown 5x in the last five years

Globally, the volume of investments in climate tech has grown significantly in the past five years. However, this growth is not evenly distributed. While climate tech investments in North America and Europe have grown by an estimated 5x, Asia is lagging behind with no growth in the same time period.

Capital invested ($M) into climate tech companies by region and by year, 2017 to 2021

  • Europe
  • North America
  • Asia
  • RoW
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.

We can compete with the US and Asia on multiple fronts. I am specifically excited about climate tech and Web3 where I believe Europe can lead the way and become the hotspot internationally.

It is amazing to see how the European startup space has evolved over time to become the vibrant ecosystem it is today. It is not all wins, though. Growth remains limited at pre-seed and seed stages, where the unicorns of tomorrow are created today. Women also continue to receive less funding than their male counterparts, and people of colour fare even worse. While there’s ample proof that diverse companies perform better, network, bias, stereotypes and pattern matching still drive VC decision-making. A more diverse environment in tech will foster innovation and raise the bar for everybody. There are green shoots that provide hope for the future, but we still have a long way to go to make the European startup ecosystem diverse and inclusive.

Janneke Niessen

CapitalT | Co-Founder

Europe has the largest share of global early-stage investment in purpose-driven tech companies

Europe has the largest share of total capital invested in early-stage purpose-driven tech companies on a global basis, accounting for 61% of all funding at Pre-Seed and Seed stages (<$5M) and 53% of total funding invested in aggregate across Pre-Seed to Series B (up to $20M) stages. In later-stage rounds ($20M+), however, the picture is inverted with North American purpose-driven tech companies capturing 63% of total capital invested on a global basis. Early-stage investment activity is a strong forward-looking indicator of future funding patterns and so as Europe's more recent, earlier cohorts of purpose-driven tech companies mature and raise larger rounds, they should help drive increased investment levels.

Capital invested in purpose-driven tech companies by stage and by region in 2021

  • Europe
  • North America
  • Asia
  • RoW
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
But the share of European capital flowing into purpose-driven tech has declined

Despite a significant acceleration in the level of investment in purpose-driven companies in absolute dollar terms, it has been outpaced by the increased funding amounts raised by companies that do not have purpose embedded into their business models. As a consequence, the relative share of total capital invested in purpose-driven tech companies in Europe in 2021 has declined by 5 percentage points compared to 2020.

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

  • Core purpose-driven
  • Side purpose-driven
  • Non purpose-driven
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
More and more purpose-driven European tech companies are raising megarounds

The top 10 largest rounds closed by Europe's leading purpose-driven tech companies in 2021 to date have raised in excess of $4.8B. The increase in round size has meant that the bar to enter the top 10 largest rounds in 2021 has leapt from $87M in 2020 to $130M in 2021. Northvolt's giant funding round of $2.8B represented the single largest funding round raised by any tech company in Europe in 2021.

Top 10 largest deals raised by purpose-driven tech companies in 2021

Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.

I am most interested in investing in topics that have a positive impact and aim to reach any of the sustainable development goals whilst providing attractive returns.

I am a big believer in decarbonisation. The next generation of decacorns will come from this space! There is no lack of funding here however, it is the companies that are missing so far. One thing is for sure: we will not recover from the Covid crisis by rebuilding the world as we knew it before. We must build new, and better. That’s why we asked European countries to invest 20% of the recovery money they would receive from the EU into their digital transition, and 37% into their Green transition. Because investing in those two transitions is the best - if not the only - way to come out of this stronger, more resilient to future crisis and more competitive on the global market. This isn’t just good thoughts, it’s concrete actions and hard measures.

Gesa Miczaika

Auxxo Female Catalyst Fund | General Partner

Stockholm: the hub for purpose-driven capital

Thanks to the impact of Northvolt's massive funding rounds, as well as other success stories such as Kry, Stockholm has become the leading city for investment in purpose-driven tech companies on a cumulative basis over the past five years. Interestingly, Vilnius joins the top 10 cities based on cumulative capital invested despite only having 13 identified purpose-driven tech companies, according to Dealroom. It is propelled to this position by the outsized impact of Vinted, which has raised two large growth rounds, both in excess of $100M.

Top 10 European cities by funding and number of purpose-driven European tech companies in 2021

Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
More founders are placing an increased importance on implementing ESG goals into their day-to-day operations

Our survey asked founders to share how the importance of implementing goals related to ESG into their day-to-day operations had changed over the past 12 months and revealed a clear shift in founder sentiment with around half of all founders indicating it has become more important.

How has the importance of the implementation of social and/or sustainability goals changed over the last 12 months in your day-to-day operations?

Notes
Founder respondents only. Numbers may not add up to 100 due to rounding.

Source

Consumer businesses in this day and age must tap into an authentic purpose and values that their customers can identify with.

At Depop we enable people to buy and sell, and to build a business if they want to, but in a bigger sense - beyond the transactional - we enable them to be part of a systemic shift in the fashion industry, and a more sustainable way to shop. We’ve seen a real appetite, from younger consumers in particular, to embrace not just our platform but what it represents - a move towards more mindful, creative, community-based consumption. Lots of the most successful consumer-focused tech businesses in recent years - from Bulb to Olio, Babylon Health to HURR - offer a new generation of buyers access to a new way of doing things, and to a mission they want to buy into. For me, this is integral to the future of consumer tech.

Maria Raga

Depop | CEO

Companies addressing SDGs related to climate and sustainable practices dominate funding flows

The top-funded Sustainability Development Goals (SDGs) have seen a significant jump in funding in 2021. Affordable and clean energy (SDG 7) surpassed $5B in annual funding for the first time in 2021. Affordable and clean energy (SDG 7), climate action (SDG 13) and sustainable cities and communities (SDG 11) have now all surpassed $10B in cumulative funding since 2017.

Cumulative capital invested in purpose-driven European tech companies per SDG addressed, 2017 to 2021

  • SDG 7: Affordable and clean energy
  • SDG 13: Climate action
  • SDG 11: Sustainable cities and communities
  • SDG 12: Responsible consumption and production
  • SDG 9: Industry, innovation and infrastructure
  • SDG 3: Good health and well-being
  • SDG 2: Zero hunger
  • SDG 15: Life on land
  • SDG 14: Life below water
  • SDG 17: Partnerships
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. Companies are counted against each SDG they are targeting. 2021 is annualised based on data to September 2021.
Investments in Planet Positive SDGs have stepped up in the last few years

SDGs aggregated under the 'Planet Positive' theme have seen a significant increase in investment over the past 5 years with the greatest concentration of funding flowing to Sweden, the UK, Germany and France. Outside of the top 10 countries by total capital investment, however, there is a long tail of European countries that have seen little to no funding in startups addressing 'Planet Positive' SDGs.

Capital invested ($M) for Planet Positive SDGs by country, cumulative since 2017 and per year

  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.

In Europe, it feels like the stars are aligning for sustainable companies.

I think European consumers of technology are definitely looking for a higher purpose but both European demand and supply are aligning when it comes to electric vertical take off and landing technology. Our very first investors were European, we are building and testing our Jet in the heart of Europe, we are hiring engineers from across Europe, there are other eVTOL companies being built in Europe and National and local governments across Europe are promoting more environmentally friendly transport policies.

Daniel Wiegand

Lilium | Co-Founder and CEO

Sweden punches above its weight in terms of Planet Positive investments

Sweden leads the pack in terms of per capita investments - at roughly 4x ahead of closest runner-ups Finland and Estonia - thanks to the success of Stockholm-based Northvolt.

Per capita capital raised in the last five years for Planet Positive SDGs by country

  • Per capita L5Y investments in Planet Positive
  • Europe's average
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
Stockholm is the top city for Planet Positive

On a city level, Stockholm comes in first for Planet Positive, largely thanks to being the hometown of Northvolt, followed by European tech hubs London, Paris and Berlin.

Capital invested ($M) for Planet Positive by city, cumulative since 2017 and per year

  • 2017
  • 2018
  • 2019
  • 2020
  • 2021
Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.
Climate tech companies are most sought after

Across all SDGs, the most common by total deal count over the past five years is climate action (SDG 13). In Berlin, investment in climate action is double the second SDG - in this case, affordable and clean energy (SDG 7).

Top SDG per city by last five years total deal count

Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. 2021 figures show data up to September 2021.

The mission for a better future for all resonates deeply with me and it sits at the core of our identity as Europeans. It also informs our work as investors in two ways.

First, to build European companies that can become bigger than companies in the US or Asia, we must learn to leverage the collective European strength. Unfortunately separate Nation States with different agendas and a lack of unity, for example in the digital or labour market, are still reality for companies operating in Europe, especially those wishing to attract non-EU talent.

Second, I believe companies that go beyond just answering our needs as consumers have the perfect breeding ground in Europe. From childcare, education, to health and elderly care, or production line workers, Europe is championing one of the most progressive welfare systems globally. Yet, too big of a part of the workforce in these segments has so far been left out from the benefits of digital transformation. To realise a real European promise of progress for all and for companies to have a chance to innovate, the EU must learn to better align its regulation expertise with entrepreneurial freedoms.

Judith Dada

La Famiglia | General Partner

VCs are excited about Swedish climate tech

And in fact when slicing the themes VCs are most interested in by country, Sweden stands out on climate with 49% of respondent VCs indicating excitement towards investing in companies tackling the climate crisis.

Share of VCs indicating excitement towards investing in Planet Positive, by respondent country of residence

Notes
VC respondents only.

Source

Despite fantastic news for climate, funding is lacking in some SDGs

While funding has flooded into companies tackling affordable and clean energy, there is a significant gap between the top and bottom goals targeted, with the leading five SDGs receiving 87% of funding as of September 2021.

Capital invested in purpose-driven European tech companies per SDG as a share of capital invested in SDG affordable and clean energy (SDG 7)

Notes
All Dealroom.co data excludes Israel and the following: biotech, secondary transactions, debt, lending capital, and grants. Companies are counted against each SDG they are targeting. 2021 figures show data up to September 2021.

More and more investors are realising that if they want to future proof their portfolios and contribute meaningfully to combating climate change, they’ll need to broaden their time horizons, have more patience and take bigger swings.

Traditionally, European investors tend to be more conservative than US investors who place major importance on the founders’ vision and growth potential. Atomico has been a pioneer in helping to broaden and burnish the European tech scene by championing individual founders’ potential to create ground-breaking solutions that benefit people and the planet. Delivering on our ambitious plans to reimagine how food is grown in cities via a modular, data-driven approach to farming has required us to find forward-thinking, visionary partners.

The support we received from impact-focused VCs like Atomico and other early investors has been decisive in delivering on that vision. In the 5 years since we built our first in-store farm, Infarm has created the world’s largest cloud-connected vertical farming network. The capex that companies like Infarm require to scale did initially limit the pool of potential investors. However, we’ve seen a remarkable change in the past three years, as more and more investors are realising that if they want to future proof their portfolios and contribute meaningfully to combating climate change, they’ll need to broaden their time horizons, have more patience and take bigger swings.

Osnat Michaeli

Infarm | Co-Founder and Chief Brand Officer

Purpose-driven $1B+ companies

Europe's got purpose. The region now has 21 $1B+ purpose-driven companies (core focus) of which 13 were added in 2021 alone.

Founded in 2019

Reached $1B+ in 2021

Founded in 2018

Reached $1B+ in 2021

Founded in 2016

Reached $1B+ in 2019

Founded in 2016

Reached $1B+ in 2021

Founded in 2016

Reached $1B+ in 2021

Founded in 2015

Reached $1B+ in 2020

Founded in 2015

Reached $1B+ in 2020

Founded in 2015

Reached $1B+ in 2021

Founded in 2014

Reached $1B+ in 2021

Founded in 2014

Reached $1B+ in 2021

Founded in 2013

Reached $1B+ in 2019

Founded in 2013

Reached $1B+ in 2019

Founded in 2013

Reached $1B+ in 2021

Founded in 2012

Reached $1B+ in 2016

Founded in 2012

Reached $1B+ in 2021

Founded in 2011

Reached $1B+ in 2021

Founded in 2011

Reached $1B+ in 2021

Founded in 2008

Reached $1B+ in 2019

Founded in 2008

Reached $1B+ in 2021

Founded in 2006

Reached $1B+ in 2015

Notable exits in 2021 of purpose-driven companies

Four purpose-led companies went public in 2021 with one $1B+ acquisition.

IPO

via $4.2B SPAC on the NYSE

IPO

via $3.3B SPAC on NASDAQ

IPO

via $1.5B SPAC on the NYSE

IPO

via $1.4B SPAC on the NYSE

Acquired

by Etsy fo $1.6B

Select purpose $1B+ alumni founders

Although these 'purpose' unicorns are still young with a median age of 7 years since their founding date, we are already seeing the effect of talent recycling with operators turning into founders of next generation of purpose-driven companies.

Reeva Misra

Alumni of Benevolent AI

Chad Jennings

Alumni of Babylon Health

Ceanne Fernandes-Wong

Alumni of Vestiaire Collective

Annika Werneman

Alumni of Northvolt