The landscape of venture capital in Europe is evolving with a distinct focus on positive impact and sustainability. According to a recent report by European Women in VC, in 2023, a third of the €53B VC investment raised in Europe was directed towards startups addressing one or more of the United Nations SDGs.
The surge in impact-driven investments is evident across various sectors. Investment in European climate tech startups has tripled over the past three years, reaching more than €20B. Similarly, investments in deep tech startups, including AI-driven drug discovery and quantum computing, have more than doubled to €16.5 million over the past five years.
This Is Not Enough
However, this is not enough, Kerstin Jorna, Director General at the European Commission believes.
“Despite the steady growth of the European VC market, we are still lagging behind other global players. This gap is particularly visible for late-stage financing, especially in clean tech, quantum computing and AI. To meet our investment needs, we need to channel more money into the EU capital market. We need bigger funds with more firepower, and we need to attract more investors into venture capital.”
The report, which surveyed 300+ European VC partners and LPs, highlights the growing appetite for impact among the investment community. It explores their diversity and ESG strategies. Europe currently boasts over 2,400 active VC firms, with these firms contributing to the creation of 6.3M jobs in the company they’ve backed and nearly 200 unicorn companies.
87% Vote for Diversity in VC
A significant finding from the report is the strong belief among VCs and LPs in diversity. 87% of respondents agree that increased diversity in venture capital leads to better investment decisions and financial returns. Additionally, 82% of VCs and 77% of LPs consider the diversity of the founding team of startups or funds they invest in to be important.
88% Use Impact Investing Frameworks
Impact investing frameworks are widely adopted within the European VC community. According to the survey, 88% of VCs utilize such frameworks or tools to guide their investment decisions, driven by personal values or their fund’s impact mission goals. Environmental concerns are also a major motivator, with 31% of respondents prioritizing the reduction of carbon footprints and 52% identifying climate change initiatives as a top priority for the next year.
Kinga Stanislawska, co-founder of European Women in VC, comments:
“Despite record levels of venture funding and a strong track record bringing breakthrough innovation to market, the venture asset class remains underfunded. In particular, funds with diverse teams and women leaders offer unparalleled returns and drive positive impact, warranting far greater investment. It is crucial for the largest pools of capital to engage with the venture ecosystem, participating at all levels, from fund of funds to direct investing and across the capital stack. It is time to think in systems to solve some of the world’s most pressing challenges. There has never been a better time to be a venture investor.”
Viktoriya Hristova from Fund of Funds Bulgaria echoed this sentiment, stating, “As an institutional investor, our goal is to support riskier projects and facilitate the attraction of private capital by public capital. I would say that venture capital is the catalyst of the new world, where bright ideas come from bright minds.”
Next Steps for Enhancing VC
The European Women in VC report concludes with several recommendations to enhance the impact and inclusivity of venture capital. These include catalyzing more institutional investment allocators into venture capital, emphasizing diversity in VC teams, supporting the role of VCs in positive societal and environmental impact, implementing impact frameworks to support scaling companies.
