NGP Capital report “Why sustainability pays”

Purpose-driven startups are less likely to fail and attract 2-3x more funding than non-purpose-driven startups – NEW REPORT REVEALS

• SDG-relevant startups are more likely to raise Series A funding rounds but are less likely to exit
• Funding for SDG-relevant startups has doubled since 2020, and European SDG-relevant startups are attracting more funding than their counterparts in the USA
• Sweden, the UK, and Germany stand out as the best places to set up an SDG-relevant business

NGP Capital, the global, growth-stage investment firm, announced the results of its latest research into how environmental, social, and governance (ESG) goals – including adherence to the UN’s Sustainable Development Goals (SDGs) – can affect a startup’s ability to attract investment in today’s global investment market and make it as a sustainable and viable business.

The research, which analysed 2,292 startups from across Europe, the USA and Israel, which were founded no earlier than 2015 and had raised at least one equity funding round, revealed the following key insights into global startup and scaleup investment trends:

• SDG-relevant start-ups are less likely to fail 4.5% of non-SDG-focused startups founded since 2015 have ceased operations. By comparison, only 2.6% of SDG-relevant, purpose-driven startups have closed shop. Startups focused on Climate Action, Consumption and Production, and Affordable and Clean Energy are especially robust.
• SDG startups (36.6%) are more likely to raise Series A or growth funding rounds than their counterparts without an ESG focus (26.1%).
• SDG-relevant startups do not have a similar edge on exits. With 7.3% non-SDG relevant startups founded in or after 2015 having exited in the last 7 years, compared to 5.5% SDG relevant startups.
• SDG-relevant startups raise 2-3 times more than their non-purpose-driven counterparts. Typically, the average venture round size of SDG-relevant startups is larger than those of non-SDG-relevant companies. Zero Hunger, Affordable and Clean Energy, and Life on Land stand out as categories which raise the most growth-stage funding

“There is a recognition that sustainable change and the interconnected crises of climate change, Covid-19, poverty, and inequality will not be solved, unless governments, businesses, innovators, and investors work together in a coherent way.”

comments Bo Ilsoe, Managing Partner of NGP Capital

Even in the current investment market, our analysis shows that climate change and other global issues are getting the attention of the world’s entrepreneurs and investors. As is evidenced by the fact that investment in companies that identify with one or more of the UN’s Sustainable Development Goals (SDGs) has more than doubled over the last two years.

SDG relevant startups are proving that they have the potential to reshape the world’s economy in the next decade and offer investors robust investment opportunities in the current economic climate.

NGP Capital’s new report also reveals:

• Europe is leading the way. In terms of share of total funding, European SDG startups are raising more funding than their American counterparts. Reaching 14.7 % in 2021, compared with 6.2 % in the US. However, overall investment in SDG-relevant startups in both markets is increasing year on year.
• Funding for SDG-relevant startups has doubled since 2020 and, in absolute terms, SDG-relevant startups founded on, or after 2015 raised $24.2 billion in venture funding last year (2021).
  • Between 2015 and 2021, SDG-relevant startups’ share of total global funding has increased from 1.4 % to 8.4%.
  • Both the share of SDG relevant funding and the actuals have increased every year in the period, with a massive increase between 2020 and 2021 (from $10.5B to $24.2B), aligned with a general increase in VC funding in parallel.

• Sweden is currently the best place to set up an SDG-relevant startup and access investment. SDG-relevant startups in Sweden ($3.6 B), the United Kingdom ($2.4 B) and Germany ($2.1 B) have received the most funding.
  • While SDG-relevant startups in Israel ($0.7 B, 11% of total) and France ($0.6 B, 8% of total) have attracted less-than-average amounts of funding.  

• Just under 3000, SDG-relevant startups have been founded in the USA, Europe, and Israel in the last 7 years (since 2015).
  • Climate Action (SDG #13) is the most common cause or function amongst SDG-relevant startups (881 businesses). Responsible Consumption and Production (SDG #12) is the next most popular issue (465).
• Climate Action and Clean Energy-focused startups receive the most funding.
  • Comparing funding levels, startups focused on Climate Action (SDG #13) have raised the most funding $13.1 B since 2015.
  • Affordable and Clean Energy (SDG#7) startups raised $10.7 B.
  • Industry, Innovation, and Infrastructure (SDG #9) startups raised $4.9 B.

Our research shows the importance of sustainability and that startups’ purpose and impact matters to investors, employees, and customers. 

The UN’s Sustainable Development Goals (SDGs) offer an ESG framework that can be applied and adhered to globally, so startup founders should think about the SDGs that are most relevant to their businesses early on, then increase that focus and report on their progress, as they scale.

All companies can contribute to SDGs within their operations. Diversity and inclusion, education, carbon consumption and health are a few of the areas you can embed SDG awareness and action in your company’s mission.

comments Monica Johnson, Operating Partner, CFO and ESG lead at NGP Capital.

The SDG data for NGP Capital’s report was sourced from Dealroom.co. The global fundraising data was sourced by NGP Capital’s own data and analytics platform, Q, which scans and combines data from hundreds of different data sources. With $1.6Bn under management, NGP Capital is a global venture capital firm founded in 2005 investing in Europe, the U.S., and China that specializes in growth-stage venture investing and beyond.