For a time of economic uncertainty and inflation, with factors like the war in Ukraine spooking markets, do VCs still value sustainability?
“There’s a lot of momentum on sustainability and ESG more broadly in the startup world right now,” Aditi Singh, Head of Direct-to-Consumer Startups at Amazon Web Services, says Tamisé. “Companies large and small are evolving their business models and products to stay relevant.”
In Europe, investments exceeded $8 billion last year, and according to Dealroom it’s the continent fastest growing vertical startup. We asked VCs how the Sustainable Development Goals influence their investment decisions and why ESG principles can strengthen businesses.
Make a profit and do something good
Amazon Launchpad conducted quantitative research with over 600 European venture capitalists and early-stage investors to understand the role ESG plays when making investment decisions.
The survey found that 59% of these investors turned down an investment opportunity in the past 12 months due to sustainability concerns.
“Our investors expect us to a large extent to make profits…but not just profits, to make profits and do something good.
Synthesis Capital is a London-based venture capital firm focused on food technology companies that solve problems in global food systems. It only invests in companies they consider to be sustainable startups.
“We believe sustainability is critically important,” says Co-Founder and Partner Rosie Wardle. “Our mandate is to find an alternative protein ecosystem, so basically anything that can replace an animal in the food chain, because we believe that’s where there are the greatest inefficiencies and the biggest challenges when it comes to sustainability from a food standpoint.”
Adam Niewinski, co-founder and general partner of Amsterdam-based OTB Ventures, a deeptech fund investing in European startups, says out of around 800 investment opportunities a year, his fund only completes four to six deals. He tells Sifted that his investors increasingly want to do good while making money: “Our investors expect us to a large extent to make a profit…but not just a profit, that we make a profit and do something good.”
Although London-based investment firm Hambro Perks does not position itself primarily as an impact fund, its partner Tom Bradley also says it’s important that their investments don’t damage the planet.
“The baseline of impact investing as ground zero is to do no harm,” he says. “So everything we do is aimed at having minimal to neutral impact from a sustainability perspective.”
Sustainable startup = sustainable growth
Return on investment and sustainability are also linked. Amazon has found having a strong sustainability profile means startups can achieve a higher valuation – around 16% on average compared to other companies.
“Venture capital is a marathon, not a sprint”
“If you think about the ultimate financial success of companies, we think ESG will be a multiplier,” says Wardle. “We never think it’s too early to start laying those foundations, because even though it’s a very simple basic foundation, it’s something to build on later as you go along. as the business grows. For many of these large incumbents, it is very difficult for them to go back.
Niewinski agrees, adding that being sustainable also means being able to operate and make a profit in the future.
“Venture capital is a marathon, not a sprint,” he says. “The best technologies are those that actually do something good, like make our planet more efficient, while being economically sustainable.”
Singh adds that a key factor for sustained growth is hiring and training the right talent. A third of startups viewed talent retention as a top challenge, and with growing consumer awareness of environmental impact, attracting talent is easier for a startup with a clear sustainability strategy.
“92% of investors said companies that use practices to reduce their environmental impact are more likely to attract and retain top talent,” she told Sifted.
Measure the impact
When it comes to calculating the impact of startups, the tools can help both businesses and investors.
“There are a number of services and tools that help startups predict their environmental footprint and calculate their impact,” Singh says. “Startups can make these reports and insights available along with their financial, employment, and market growth forecasts.”
The Amazon Launchpad Sustainability Acceleratorfor example, calculates it through a measurement and validation tool called Climate Impact Forecast, designed by Climate-KIC, which measures and forecasts CO2 product savings. This framework was used by the companies selected for the accelerator.
“There’s probably more negative sentiment around ESG this year…but we believe everyone should be an ESG investor”
“When we were shaping the sustainability accelerator, we spent a lot of time working with EIT Climate-KIC, discussing how best to define a sustainability-focused start-up,” Singh said. “It was important because sustainability can have various implications and impact.”
Synthesis Capital uses its own internal measures. “We have our own framework that we developed in-house,” says Wardle. “We believe that if startups aren’t able to demonstrate their sustainability credentials in a quantitative, objective, and data-driven way, then that’s a big risk for those companies.”
Wardle adds that VCs also have the opportunity to help startups — especially at the seed stage — with their sustainability data.
“There’s huge potential in the business to really drive sustainable practices because you’re involved in the business at such an early stage in its lifecycle,” she says. “As far as we know, a lot of funds don’t really go very far with portfolio companies on this stuff, but funds and companies are going to be scrutinized a lot more in the future.”
Bradley agrees, adding that even though the ESG met critical recently, investors have no choice but to board.
“There’s probably more negative sentiment this year around ESG than there was last year, in terms of definition and stuff, but we think everyone should be an ESG investor,” says -he. “It’s inevitable.”
Register your interest in the Amazon Launchpad Sustainability Accelerator here.
Amazon Launchpad Sustainability Accelerator