- Europe is the world’s leading region for Venture Capitalist (VC) and growth positive impact investing: a third of the €53bn VC investment raised in 2023 went to startups which directly address one or more of the UN Sustainable Development Goals.
- The Report 2024, sponsored by EIT Urban Mobility, European Institute of Innovation and Technology (EIT), a body of the European Union, highlights that 88% of VCs say they use an impact investing framework or tool to guide their investment decisions due to their own personal values or their fund’s impact mission goals.
- This influence is evident across critically important sectors such as climate tech, where startups raised €18.2bn in 2023 and investment has tripled to more than €20bn in the past three years.
- 87% of VCs and LPs say that increased diversity in venture capital leads to better investment decisions and financial returns, and 82% of VCs and 77% of Limited Partners (LPs) say the diversity of the founding team of the startups or funds they invest in is important.
More VC money is going to positive impact driven startups than ever before, and Europe has already surpassed the US as the world’s leading region for VC positive impact funding.
The flagship ‘Beyond Returns’ Report 2024 – a collaboration between European Women in VC, Founders Forum Group and Tech Nation, sponsored by EIT Urban Mobility, European Institute of Innovation and Technology (EIT), a body of the European Union, – provides the latest investment data and analysis alongside a survey of Europe’s leading VCs and LPs, to uncover the broad and transformative impact of venture capital on European tech, business and society.
Investors in private markets are increasingly prioritising sustainability in their allocations. A total of €53 billion was raised by European tech startups in 2023, with a third of this raised by startups that directly address one or more of the UN Sustainable Development Goals (SDGs). The report found a third of VCs and Limited Partners (LPs) surveyed use the UN’s SDGs to guide their investments. ‘Climate Action’, ‘Industry Innovation’, and ‘Good Health & Wellbeing’ are the SDGs prioritised most in investment decisions. 88% of the VCs surveyed said they use an impact investing framework or tool to guide their investment decisions due to their own personal values or their fund’s impact mission goals.
The positive impact of venture capital is evident across critically important sectors such as climate tech, where startups raised €18.2bn in 2023 and investment has tripled to more than €20bn in the past three years. VCs and LPs are motivated by the desire to make a positive environmental impact in their investment decisions: a third (31%) of survey respondents said reducing carbon footprint is a top priority when choosing a fund or company to invest in, and more than half (52%) identified advancing climate change initiatives as a top priority in the next 12 months.
Diversity and inclusion within venture continues to be a focus, with 87% of the VCs and LPs surveyed saying that increased diversity in venture capital leads to better investment decisions and financial returns. 82% of VCs and 77% of LPs said diversity of the founding team of the startups or funds they invest in is important. Women-led and co-led VC funds provide superior returns as found by European Women in VC’s 2023 research.
European VC and growth funds raised €23.7bn in 2023 and €30.8bn in 2022, the highest annual figures on record. With more than 2,400 active VC firms in Europe, and over 1,000 funds raised in the past five years, it’s no surprise the European tech market is worth more today than ever before and has more than doubled in value across the same period. Cambridge Associates has reported venture capital as the best performing asset class of the past 25 years.
Kinga Stanislawska, Co-Founder of European Women in VC said: “Despite record levels of venture funding and a strong track record bringing breakthrough innovation to market, the venture asset class remains underfunded. In particular, funds with diverse teams and women leaders offer unparalleled returns and drive positive impact, warranting far greater investment. It is crucial for the largest pools of capital to engage with the venture ecosystem, participating at all levels, from fund of funds to direct investing and across the capital stack. It is time to think in systems to solve some of the world’s most pressing challenges. There has never been a better time to be a venture investor.”
Kerstin Jorna, Director General at the European Commission said: “Europe has set ambitious goals regarding green digital transformation, and success will not only limit the existential risks of climate change, it will also be key to strengthening the EU’s global leadership role in the new, net-zero economy. For this to happen, we need more public and private investment; to meet the objectives of the Green Deal and RepowerEU, additional investments of over €620b annually will be required and the lion’s share of this must come from private funding. Venture capital has a key role to play in financing innovative companies developing technologies that are key to this transition.”
Fredrik Hanell, Director Impact Ventures of EIT Urban Mobility said: “In the push to shift mobility toward climate neutrality, we impact investors are a driving force. In addition, we continually push for gender parity in our portfolio. We have reached 44% women-led companies and recognise there is more to do. Especially in the mobility sector, which lacks adequate representation of women. Impact must be considered holistically, not only in companies and products but also people. In doing so, we bid to promote the upward mobility of women in this space.”
The flagship ‘Beyond Returns’ report is based on a comprehensive survey of nearly 400 VC investors and LPs, alongside feature-length interviews with industry and ecosystem leaders in venture capital. To capitalise on the momentum and in response to a pressing global urgency, at a time of unprecedented value creation opportunities, the report recommends implementing a five-step action plan.
Five Step Action Plan
- Catalyse more institutional investment into venture
Policymakers and tax payer-led institutions must create a favourable pan-European regulatory environment to incentivise a broader variety of asset allocators to participate in the venture capital ecosystem. Simultaneously, fund managers should highlight success stories and demonstrate their track records of both returns and positive social impact.
- Prioritise diversity in VC teams
Though progress has been made, women (co-)founded startups still only raise approx 10% of total VC funding in Europe, and women general partners only manage 9% of European VC assets. Policymakers and ecosystem players across Europe must support women and diverse general partners to raise greater capital more rapidly. Increased parity will deliver both financial and societal returns.
- Champion venture capital’s positive societal and environmental impact
Europe has surpassed the US as the world leader for VC positive impact funding, with VCs prioritising climate action and healthcare. We should champion regional success stories and startups driving social impact through disruptive technology to attract global investors.
- Implement impact frameworks to support scaling companies
While the rules of the impact space are still being written, let’s work together to create simplified reporting tools that best align with impact goals.
- Build a better connected, more inclusive investor community
European taxpayers were the biggest investor in European VC funds in 2023, but by nature, venture and startups are not national endeavours as neither challenges nor opportunities are geo-restricted. To realise the full potential of European VC, cross-border investing and collaboration should be prioritised.
BACKGROUND
The Main Partners of the report are: UBS, Visa Foundation, JP Morgan, BP Ventures, European Institute of Technology – EIT Urban Mobility and EIT Digital, SAP
