Startup sustainability & growth do not have to be mutually exclusive, despite a perception that one cannot go hand in hand with the other. Investors recognize the importance of sustainable growth and the focus on sustainability. But what trends are emerging in detail?
Trend 1 – Sustainability startups and investments as crisis winners and bearers of hope?
Compared to areas such as eCommerce and Crypto, which are currently suffering from down-rounds and hesitant investments, Purpose-, Impact- and Sustainability-players present themselves as more resilient. We are in the middle of an energy transition, moving away from fossil fuels and towards decarbonization. The focus is on efficient energy management, digitalization of grids and alternative mobility offerings. Especially in Europe, this wave is accelerating – as confirmed by a recent snapshot on this topic at the NOAH conference in Zurich. Yet, this space is still highly fragmented and often characterized by long development cycles – but many investors (VCs as well as private equity and banks) are investing in sustainability and the future. The order of the day? Yes – especially in Europe, where the Europan Innovation Council (EIC) is also sending strong signals and setting the course (Gernot Schwendtner, author, is also expansion coach at the EIC Scaling Up Program for 100 high potential players in the Sustainability and DeepTech sector).
Trend 2 – Software accelerates sustainability – investors as turbo?
Software-as-a-Service (SaaS) startups and scaleups from areas like ClimateTech, Food & Waste Management, Mobility, EV-Charging, GreenTech, Food & AgriTech, and FinTech are revolutionizing and disrupting the space. Examples from Europe? Dutch circular waste company Seenons (Top 5 European Startups according to Emerce) makes one man’s trash another man’s treasure – literally. Everysens from France, now successfully launched in Germany, aims for decarbonizing freight, one train at a time. Or take the fledgling but rapidly growing Austrian startup EfficientIO which is reducing heating costs in commercial buildings with its smart software – or Canadian scaleup BrainboxAI, expanding into Europe and making buildings smarter, greener and more energy efficient. Alternative asset classes for private investors are also developing in this area, such as Amsterdam-based CarbonEquity shows. One thing is clear, without risk capital, subsidies and currently fair valuations, this movement is stuttering. Good news and as seen at the NOAH conference: The interest of more than 500 investors attending in this area, a definite acceleration.
Trend 3 – Blitzscaling is over. Sustainable growth as the magic word?
Growth itself can also be examined as sustainable – or not. “Blitzscaling is over – sustainable growth drives value”, says Gernot Schwendtner from Amsterdam and Vienna. He is the CEO & Co-Founder of weGrow International, an expansion and growth advisory which works for many European scaleups.
‘Growth at all costs’ is no longer considered the best mo. Both the market and investment environment (keywords runway optimization and delayed funding rounds) dictate a more sustainable strategy. And that is partly a good thing, because a lot of resources (i.e. money, time, energy and trust) can be wasted during scaling and international market rollout – if founders and investors press the growth accelerator pedal come hell or high water and expand into the wrong markets, for example.
Startups and scaleups have to grow, that is in the nature of things and in their disruptive character. To mitigate risk, a well-prepared go-to-market strategy can help – testing international markets before hiring new teams is definitely worthwhile. “We often see that startups (have to) withdraw again from recently opened international markets,” says Gernot Schwendtner. “Unfortunately, a lot of money and value – but also time and personal energy – is destroyed there.” Also for capital providers it is essential that, despite all the risk appetite, their money is invested in expansion in a sustainable and value-enhancing way. Instead of ‘spray & pray’ when expanding, a more targeted – and thus sustainable – growth is on the agenda.
Trend 4 – Radical shifts are necessary.
It’s difficult to look into the future – but startups are at the forefront of innovation. Is a shift from ClimateTech to NatureTech, from Carbon neutral to Nature positive, from reuse & recycle to reserve, restore, rewild thinking too far? Absolutely not – and hopefully we will see many more exciting startup initiatives growing in this area, as already demonstrated by the startup Damn Plastic as an alumni of the Austrian Born Global Academy (which supports scaling startups for international expansion) with a successful international market roll out on their way – or Dutch-based Orbisk, preventing food-waste in professional kitchens.
Conclusion – How can founders and investors align sustainability & growth?We’re seeing the market make a gradual shift right now in real time. Things that used to be cheap like gas, are becoming much more expensive. In turn, this makes more sustainable options competitive in ways that weren’t possible before. HySiLabs, a French company on the brink of disrupting the hydrogen storage and transportation industry, and participant of weGrow & EIT’s Rocket Up Program, is a great example. Investment in the drivers of a new economy, one that is both sustainable and profitable, are increasing all the time. New ways of measuring impact and solutions are changing our perspective on what something really “costs”. As more sustainable startups grow and expand, investors should be thinking creatively about how profit can be accrued with positive solutions. These solutions will have global applications.