A decade ago I experienced what is described as ‘multiple discovery’ – the idea where most discoveries or inventions are made independently and more or less simultaneously. On a trip to the US I met a couple of other people who were working on almost exactly the same idea that I was planning in London. It turned out that it wasn’t just me who had spotted the opportunity to support and invest in tech ventures tackling social and environmental problems. Tech for good, as it is now known, was simultaneously springing up on both sides of the Atlantic.
In the ten years since, a lot has happened. The wider impact investing market has grown 100 fold, from $8 billion in 2012 to $715 billion in 2020. As a key part of that sector, impact venture capital has tracked this growth. Both established and new VC firms are increasingly launching funds with impact mandates. Take Union Square Ventures announcing a US$162 million climate fund earlier this year. Meanwhile many managers who spotted the impact venture opportunity early have already proven their success and are now on their second or fifth.
There’s no denying this is a global movement, but as with traditional venture capital, the largest concentrations of impact VC investors remain in the US and Europe. This is no surprise as tech for good ventures have been able to benefit from existing startup ecosystems, accessing tech talent, support and investment. But as the impact investing and tech for good sectors have matured, how have they developed in these two key geographies? There are some subtle and not so subtle differences.
Impact framing. Firstly, the framing of impact funds has diverged in the US and EU. We’ve observed that in the US impact tech investors have tended to use the word ‘impact’ less, instead competing with mainstream funds head on. Meanwhile in Europe, self-identified impact funds are more common, and there are increasingly specialist funds focusing on the likes of climate tech.
Public catalyst. Another factor that has affected how the respective sectors have developed is government support. In the UK this has been particularly strong. Successive UK governments have supported impact investment and given support to venture investing through tax reliefs such as Enterprise Investment Scheme and Seed Enterprise Investment Scheme and wholesale impact investors like Big Society Capital have played a pivotal role in the ecosystem. Across the channel in France the European Investment Fund has played a similar role and government support has also been shown with annual gatherings for tech for good leaders.
Business to government. There is also the question of how private and public systems influence the opportunity for tech for good businesses. At Bethnal Green Ventures, approximately a third of our portfolio is ‘B2G’ – business to government. We find this particularly with health-tech companies who benefit from having the Nation Health Systems as a customer. While selling to the NHS is not without its challenges, there is something to be said for having such large public bodies, and their spending power, as potential customers.
U.S. concentration. Given the US’s forefront position in the wider VC industry, however, it still seems to be in the lead when it comes to impact VC, according to Giant Leap Fund. From a global analysis they found that more than half of the firms were based in the US and that nine out of the largest 10 impact VC funds were US-based. But the story doesn’t end there, because in Europe it seems that impact VC is overrepresented in relation to the wider venture market with European funds managing 29% of global impact VC despite attracting just 16% of global VC as a whole. Indeed anecdotally we are hearing of American LPs increasingly heading across the Atlantic to access this growing pool of European impact funds.
There are certainly strengths in each geography and a stronger global impact venture ecosystem is beneficial to everyone. For LPs, by understanding the similarities and differences in the US versus Europe it is possible to identify the unique opportunities presented by each.
With that in mind, on 7th October we will be hosting a webinar to take a deeper dive into this topic. Wes Selke from Better Ventures will be speaking, as well as our friends Andy Lam from San Francisco based fund Uprising and Zoe Peden from Germany/UK based fund Ananda. We’ll aim to explore everything I’ve touched on here in addition to more thoughts on how regulation affects the two markets, how different impact verticals have emerged such as deep tech, and where we think this sector is headed over the next ten years.
Paul Miller is managing partner and CEO of Bethnal Green Ventures.