VC investment for impact pulls back in 2022 worldwide – new research

Following record investments in 2021, deals are lower this year, Dealroom’s Impact Database reveals this week. Yet impact startups remain collectively valued at more than US$2tn and “impact unicorns” have reached 200.

Global venture investment in impact startups has dropped in 2022 after a record high last year, amidst a general slowdown in the venture capital market, the latest figures from startup data platform Dealroom reveal. However, venture investment in 2022 is still expected to outperform 2020 as the general trend continues upwards.

The report, Impact Startups 2022, bases its findings on the Dealroom Impact database, which gathers information on nearly 10,000 “impact startups”, defined as companies that address one or more UN Sustainable Development Goal (SDGs) at the core of their business and have the potential to scale.

The platform says its “litmus test” to determine whether a company is an impact startup is: “if you remove the impact you also remove the business”. Companies included on the Impact Database range from plant-based cheese company Willicroft to Kenyan social enterprise Copia Global and electric carmaker Tesla.

The report, released at ImpactFest in the Hague this week, shows impact startups raised US$35bn in 2022 so far, down from a record US$68bn in 2021, but already above the amount raised over the whole of 2020. Researchers estimate that the total figure for 2022 will reach more than $47bn – representing a 30% drop year on year.

If you take out the extreme year of 2021, it's still, so far, going up

Impact startups collectively are valued at US$2.3tn, down from US$2.5tn last year, according to the data.

Liselore Havermans, head of research at Dealroom, told Pioneers Post: “We don't see the numbers of 2021 any more in this year. But still, if you look at the enterprise value of impact startups, it hasn't dropped that much yet. At US$2.3tn that's bound to make an impact on the world.”

She added: “In terms of trends, if you take out the extreme year of 2021, it's still, so far, going up – but we don’t have a crystal ball, so we don’t know what will happen next.”

Dealroom Impact 2022 enterprise value chart
Above: combined enterprise value of impact startups has dropped slightly since 2021. Source: Dealroom, 2022.
 

The drop is felt most keenly among investments with larger ticket sizes – deals from US$100m upwards. This might be due to some larger fundraising rounds being revised lower, according to Louis Geoffroy-Terryn, government research lead at Dealroom. 

The drop needs to be seen in a global context where venture capital investment has receded in the past year. “Impact has not been the industry that suffered the most… if you compare it to all other industries, you see that the drop is quite moderate,” said impact specialist and consultant Camilla Falanesca.

The number of “impact unicorns” (impact startups that have reached a valuation of US$1bn or above, such as circular economy platform Backmarket) founded since 1990 has now reached 200 – but Havermans questioned whether that was really cause for celebration: “Will impact unicorns save the world? Or do we need more than that?”

Watch our interview with Liselore Havermans at ImpactFest in the Hague below:

 

SDGs targeted

Investors overwhelmingly focus on impact startups tackling climate change, in particular those targeting the UN SDGs on “climate action” and “clean and affordable energy”. Those raised an aggregated US$129bn since 2017.

Impact startups targeting SDGs focused on purely social issues tend to lag behind. Startups targeting “reduced inequalities” raised just US$3.3bn this year; those focused on decent work and economic growth only attracted US$1.8bn and those working towards “quality education” only raised US$1.7bn.

The fastest growing SDGs when it comes to venture investment are “life below water” and “decent work and economic growth”.

Havermans said: “I'm happy to see that some of the more underfunded sustainable development goals are the fastest growing. But if you look at how much more goes into the top two, and really into green, I doubt they'll really catch up to that level any time soon.”

 

Hotspots

Venture capital investment is most impact-focused in Europe, which boasts the highest level of impact venture investing as a share of the total venture capital market (18%, compared with 8% for the US and 4% for Asia). 

The US remains the largest market overall, with US$116.3bn raised by impact startups so far this year, closely followed by Europe with US$114.4bn raised. But the US has also seen the biggest drop since last year from US$39bn invested in impact startups in 2021 to US$16.3bn raised in 2022. Africa is the region where impact venture investing is developing the fastest – growing eight-fold in the past five years, albeit from a small base.

 

Top image: VC investment in impact startups has dropped in 2022 after a record high last year. Source: Impact Startups 2022, Dealroom.

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