Nordic Impact Startups 2021 MAY 2021 Why this report The Nordics have a strong reputation for creating innovative startups working to create a sustainable impact in the world. But what’s the real state of play? Do Nordic countries really over-index for impact innovation? What is an impact startup anyway? And can they offer investment returns as well as real world change? Every year Danske Bank supports the creation of a report examining in detail development of the Nordic impact startup scene, to assess and nuance the common perception of the ecosystem. Predictably, not all myths hold true. With this report we wish to bring data and facts about the Nordic Impact startups to the table, with an added focus on ‘Green Growth’ startups. By doing so we hope to shed light on the challenges and opportunities in the Nordic and broader Impact ecosystems. In the following, you will see the most detailed analysis of the Nordic impact ecosystem to date, based on data from 1,230 startups, 1,365 funding rounds, supplemented by qualitative insights from experts and industry players. Page / 2 Executive summary Nordic impact Green Growth PARTIALLY FALSE Myth 1: FALSE Investment into Nordic impact startups skyrocketed to Myth 1: Nordic countries are global leaders Sweden leads in all green clusters except in Materials and €1.6B in 2020, driven by Sweden. However, the combined The Nordic countries each specialise within the impact space. Resources where Finland takes a leads. Norway punches region still trails behind the UK. in different Green Growth clusters. above its weight in Energy & Utility. Myth 2: FALSE Impact startups will stay small and In 2020, impact startups accounted for ~10% of all startup FALSE not create a significant number of job openings. Yet, this has increased 5x in five years ago, Myth 2: Green Growth startups have the same median size for early jobs. and proved resilient in the Covid crisis. Green Growth is more capital stage rounds compared to benchmark, increasing from intensive than traditional tech. Series B. FALSE Myth 3: Seed stage impact startups were more likely to raise a Impact cannot scale at the Series A round within 36 months (39%), than non impact rate needed by VCs. TRUE startups. Myth 3: In the Nordics, public funding is highly concentrated in the Green Growth startups are heavily early stage segment, TRUE dependent on public funding at early Myth 4: making up 46% of seed stage funding. It is also more likely Nordic Deep Tech Impact startups have higher and more stage. Within impact, Deep Tech startups are granted to Green Growth startups compared to benchmark. rapid conversion rates to series A than non Deep Tech a safer bet. impact peers. FALSE FALSE Myth 5: The founders of every major Nordic impact startup have Myth 4: VC investment into Green Growth startups, is 2x higher Nordic impact teams lack significant commercial experience, and Nordic corporates VCs don’t invest into Green Growth compared to 2019 and 12x higher than 2016. commercial experience. and established startups are becoming breeding grounds of entrepreneurial talent. TRUE Myth 5: Myth 6: TRUE Green Growth startups receive double the proportion of Corporate investors are particularly Impact startups are better at Impact startups can form better teams and also benefit funding from Corporate investors as non Green Growth active in Green Growth. forming diverse and strong teams. from increased founders’ diversity. startups. Page / 3 The myths represent a set of perspective from stakeholders in the startups ecosystem. If a myth is False, it does not mean that it is negative, likewise True doesn’t mean it’s positive. Table of contents Nordic Impact page 06 ● “Nordic countries are global leaders within the impact space.” page 12 ● “Impact startups will stay small and not create a significant number of jobs.” page 17 ● “Impact cannot scale at the rate needed by VCs.” page 24 ● “Within impact, deep tech startups are a safer bet.” page 29 ● “Nordic impact teams lack commercial experience.” page 35 ● “Impact startups are better at forming stronger and more diverse teams.” Green Growth page 41 ● “The Nordic countries each specialise in different Green Growth clusters.” page 46 ● “Green growth is more capital intensive than traditional tech.” page 52 ● “Green Growth startups are heavily dependent on public funding at early stage.” page 60 ● “VCs don’t invest in Green Growth.” page 65 ● “Corporate investors are particularly active in Green Growth.” Page / 4 Impact is to have sustainability at the core In this report, an impact startup is a company that addresses one or more UN Reducing Sustainable Development Goal (SDGs) at harm the core of its business and the potential to Environmental, Social and Corporate scale. Our litmus test: if you remove the Governance (ESG) impact you also remove the business. Doing good Green Growth refers to startups specifically Impact seeking to improve environmental Doing conditions as part of their main business environmental activities. good Impact and Green Growth both sit within a Green broader framework of Environmental, Growth Social and Corporate Governance (ESG) which seeks to reduce the harmful impact of business. The full methodology and definitions are available in the appendix glossary. Page / 5 Source: dealroom.co Source: dealroom.co Myth 1 “Nordic countries are Investment into Nordic impact startups global leaders skyrocketed to €1.6B in 2020, driven by Sweden. However, the combined region trails behind the UK. within the impact space.” it's complicated PARTIALLY FALSE Page / 6 Matteo OK Nordic impact startups have seen a step change in investment in the last two years, and has grown 25x in the last 10 years. Yearly venture capital investment into Nordic impact startups €1.6B €1.5B €498M €362M €232M €99M €65M €18M €35M €46M €70M 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Page / 7 Dataset: 1,230 companies. Source: dealroom.co Venture capital in the Nordics is significantly more impact focused than in other regions, and has become a major portion of all VC activity. Impact investing as a percentage of total VC investment 34% Nordics 17% Europe 15% United Kingdom 10% 8% 9% United States 7% 4% 5% Asia 3% 2015 2016 2017 2018 2019 2020 Page / 8 Dataset: 6,200 global impact companies. Source: dealroom.co 40% 30% 20% 10% 0% Venture capital’s focus on impact investing has been growing in every Nordic country, with the highest growth in Sweden. Impact investing as a percentage of total VC investment 43% Sweden 30% Norway 19% Denmark 18% Finland 9% 0% 0% 0% 2012 2014 2016 2018 2020 Page / 9 Dataset: 1,230 companies. Source: dealroom.co 50% 40% 30% 20% 10% 10% Matteo OK However; the UK alone receives more impact investment than all the Nordic countries combined. VC investment into impact startups €2.0B United Kingdom €1.9B €1.6B €1.5B Nordics €925M €672M €498M €391M €395M €362M €203M €232M €126M €111M €99M €65M €67M 2010 2012 2014 2016 2018 2020 Page / 10 Dataset: 1,911 impact companies. Source: dealroom.co Key takeaways: Myth ● Investment into Nordic impact startups grew significantly over 1 the last decade, skyrocketing from €65M in 2010 to €1.6B in 2020. ● Impact investing is now a core part of VC investment in the “Nordic Nordics, making up for ~30% of all VC investment in 2019 and 2020. countries are ● Within Nordic countries, Sweden is the clear front-runner, the global leaders others are on par with the UK and European average when it comes to impact investing as total of VC funding. within the ● Yet, impact startups in the United Kingdom received more VC investment than all the Nordic countries combined. impact space.” ● The Nordics punch well above their weight and could be considered an impact powerhouse, but not yet a global leader. Page / 11 Myth FALSE 2 FALSE “Impact startups In 2020, impact startups accounted for ~10% stay small and of all startup job openings in the Nordics. Yet, do not create a this has increased 5x in five years ago, and proved resilient in the Covid crisis. significant number of jobs.” FALSE Page / 12 Source: dealroom.co Job vacancies at impact startups are making up a greater share of all startup openings in the Nordics, up 5x from 2% in 2016 to 10% in 2020. Percentage of job openings by Nordic startups type (excluding internships) Non impact Impact 90% 98% 97% 17% 95% 10% 5% 2% 3% 3% 2016 2017 2018 2019 2020 Page / 13 Dataset: 29.485 job openings. Source: The Hub by Danske Bank Nordic impact jobs proved resilient during the Covid-19 pandemic. By December impact jobs accounted for 16% of startup job vacancies in the Nordics. Number of job openings in 2020 (excluding internships) Start of the Covid-19 pandemic 522 495 490 456 428 410 418 400 Non impact startups 365 348 316 301 98 82 82 52 Impact startups 36 27 38 38 19 23 24 32 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Page / 14 Dataset: 29.485 job openings. Source: The Hub by Danske Bank Considering startups launched in 2020, impact startups make up 24% of all job openings by this group. Percentage of job openings (excluding internships) by startup launch year Non impact startups Impact startup 76% 86% 88% 95% 96% 24% 14% 12% 5% 4% 2016 2017 2018 2019 2020 Page / 15 Dataset: 29.485 job openings. Source: The Hub by Danske Bank Myth Key takeaways: 2 ● Job vacancies at impact startups are making up a greater share of all startup openings in the Nordics, up 5x from 2% in 2016 to 10% in 2020.