22 June 2021
Blog 2. The results of 7 years of impact investing
22 June 2021
At PDENH, we managed to close a series of no less than seven parallel follow-on investments in Q1 2021. Therefore, in this second blog, I'd like to take you through the results of 7 years of impact investing and benchmark them against the industry.
The innovative 3D printers from MX3D
Growth results:
With a Growth factor of 4.0x on average over a period of 1.9 years (from the first investment by PDENH up to the measurement moment of 31/12/2020) you can state that the majority of these companies are scaling up rapidly, well above the required 20% per year. Only a few have broken the $€10m revenue barrier of Deloitte, a logical consequence of the early stage in which investment was made relatively recently (on average 3 years ago): mostly tech companies with very low revenue (<€300k) and a still unproven product-market fit at the time of entry. According to the most common definition in the Netherlands (Emerce/Wikipedia), thus Seven startups have earned their ‘right of passage’ with the scale-up stamp.. Een 20 (Deloitte) – 70% (Wikipedia) ‘scale-up conversieratio’ is een bovengemiddelde score volgens elk van de genoemde definities. Waarbij er overigens nog meer in het vat zit: met grote afnamecontracten in het vooruitzicht en innovatiekredieten op zak kunnen bedrijven zoals Chaincraft en MX3D binnenkort ook de ‘Wikipediavink’ groen kleuren. En met de relatief grote follow-ons van Q1 heeft het hele rijtje van E-magy tot en met Asperitas goede kans om binnen 1-3 jaar te versnellen richting de $10m grens. Voor Covadem (een recente pre-revenue investering) is het nog te vroeg om een conclusie te trekken.
The team behind battery technology innovator E-magy
The above overview is certainly no ranking of success to date: For some companies, the growth factor cannot be clearly demonstrated, as they have started from an early R&D phase or have recently entered the market with beta/POC (proof-of-concept) products, so that the 20% growth rule has not been tracked for three years. E-magy, for example, logically still has relatively little turnover in its current R&D phase, but with its proven technology, it already has full traction in the form of qualification processes with automotive manufacturers. If you look at funding for such a company as a better KPI for growth (with a recent investment round of €5 million), this company will undoubtedly already be considered a scale-up in the investment world.
Impact results:
As impact investors, we are naturally curious about the social impact alongside the financial results (revenue and/or funding growth) of these companies. Although it is still too early to compare the CO2 impact of this relatively early-stage portfolio against the original business plans (small pilots etc. are not measured in R&D phases), the growth in employment (also a significant social factor) has been measured against the original expectations. Up to the measurement point in December 2020, the investments have resulted in 75 extra FTE led, a growth of 74%. Looking at how this growth compares to the original business plans, you can see that at the end of 2020, approximately 84% of the intended growth overall employment was achieved. The fact that this figure is slightly lower is, in my opinion, partly a consequence of management cases often being more optimistic than reality, and partly a consequence of the purse strings being tightened in some cases over the past year due to the coronavirus crisis, with a logical consequence of a reduction or a brake on the growth in the number of FTEs.
All in all, these are social and financial results that make me appropriately proud, but until the exits are actually made, the saying holds: “The jury is still out.”
Darts Lessons Learned
In a future blog post, I'll gladly share the lessons I learned on the journey from start-up to scale-up with the above portfolio. Would you like to know more about Impact Investing via StartGreen? Feel free to connect. on LinkedIn you can read all about it here ons Impact Report 2020. You can Here's my first blog read, in which I take stock of the shift from M&A to impact investing.
The innovative 3D printers from MX3D
2. The results of 7 years of impact investing
Specifically, I'm examining the degree of success with which start-ups have or have not grown into ‘scale-up status’. In my view, the recently concluded ‘uprounds’ for many companies meant the definitive rite of passage to the ‘scale-up’ label, but is this true? Furthermore, since we're talking about impact investing, how much impact have they made in proportion to the plans we invested in? To keep it clear, I am specifically looking at the eleven startups where, as an Investment Manager, I myself initiated the first investment and which companies I manage (or have managed). These have all been early-stage investments in my focus areas energy storage (E-magy, EST-Floattech), Grid balancing (Sympower, Dexter Energy Services), circularity (Chaincraft, Fairphone, MX3D), sustainable heat (Triple Solar, Asperitas, RGS) and sustainable mobility (Covadem, EST-Floattech). I have excluded the eight project financings and investments in project developers that I was directly involved with. This is because, by definition, these are companies that cannot become scale-ups. Investments that I indirectly supported as Investment Director, nor the many other VC investments from StartGreen Capital and its funds, have been included in this blog. Scale-up definition Striking fact: The percentage of companies that successfully grow from startup to scale-up is only 16 percent in the Netherlands, where this figure 51 percent is in the US. This is not a criticism of the quality of Dutch entrepreneurs, but in my opinion simply a consequence of the fact that the home country is small and the European market is very fragmented. In any case, it is important to increase this percentage through smart collaboration. Exactly the purpose of my next blog in this series. What exactly is a scale-up? A Google search for ‘scale-up definition’ shows that the interpretation of this term varies considerably:- Deloitte: Deloitte researchers and leadership programme THNK wanted to know how to recognise a rapidly growing startup. To do this, data from no fewer than 400,000 startups from 24 countries were scrutinised. Half of these were still in existence after 5 years, which is relatively many when looking at other studies on startups, incidentally. Regardless, the median revenue after 5 years was approximately €300,000, with average revenue growth of 5% in the subsequent years. Deloitte labelled the top 2,000 as scale-ups, namely those companies that after 5 years a minimum of $10 million in turnover;
- Emerce Een scale-up is een bedrijf met at least ten employees during which three years at least 20 percent per year grows. This definition appears to be the most common and prevalent (see also Wikipedia, Quote, etc.);
- Young Business Award “Startups that survived the first phase and also theirs achieved initial success. Often, a scale-up has already had several investor rounds. In fact, a scale-up is a startup that is no longer searching for a Repeatable and scalable business model and scaling up”.
Growth results:
With a Growth factor of 4.0x on average over a period of 1.9 years (from the first investment by PDENH up to the measurement moment of 31/12/2020) you can state that the majority of these companies are scaling up rapidly, well above the required 20% per year. Only a few have broken the $€10m revenue barrier of Deloitte, a logical consequence of the early stage in which investment was made relatively recently (on average 3 years ago): mostly tech companies with very low revenue (<€300k) and a still unproven product-market fit at the time of entry. According to the most common definition in the Netherlands (Emerce/Wikipedia), thus Seven startups have earned their ‘right of passage’ with the scale-up stamp.. Een 20 (Deloitte) – 70% (Wikipedia) ‘scale-up conversieratio’ is een bovengemiddelde score volgens elk van de genoemde definities. Waarbij er overigens nog meer in het vat zit: met grote afnamecontracten in het vooruitzicht en innovatiekredieten op zak kunnen bedrijven zoals Chaincraft en MX3D binnenkort ook de ‘Wikipediavink’ groen kleuren. En met de relatief grote follow-ons van Q1 heeft het hele rijtje van E-magy tot en met Asperitas goede kans om binnen 1-3 jaar te versnellen richting de $10m grens. Voor Covadem (een recente pre-revenue investering) is het nog te vroeg om een conclusie te trekken.
The team behind battery technology innovator E-magy
The above overview is certainly no ranking of success to date: For some companies, the growth factor cannot be clearly demonstrated, as they have started from an early R&D phase or have recently entered the market with beta/POC (proof-of-concept) products, so that the 20% growth rule has not been tracked for three years. E-magy, for example, logically still has relatively little turnover in its current R&D phase, but with its proven technology, it already has full traction in the form of qualification processes with automotive manufacturers. If you look at funding for such a company as a better KPI for growth (with a recent investment round of €5 million), this company will undoubtedly already be considered a scale-up in the investment world.
Impact results:
As impact investors, we are naturally curious about the social impact alongside the financial results (revenue and/or funding growth) of these companies. Although it is still too early to compare the CO2 impact of this relatively early-stage portfolio against the original business plans (small pilots etc. are not measured in R&D phases), the growth in employment (also a significant social factor) has been measured against the original expectations. Up to the measurement point in December 2020, the investments have resulted in 75 extra FTE led, a growth of 74%. Looking at how this growth compares to the original business plans, you can see that at the end of 2020, approximately 84% of the intended growth overall employment was achieved. The fact that this figure is slightly lower is, in my opinion, partly a consequence of management cases often being more optimistic than reality, and partly a consequence of the purse strings being tightened in some cases over the past year due to the coronavirus crisis, with a logical consequence of a reduction or a brake on the growth in the number of FTEs.
All in all, these are social and financial results that make me appropriately proud, but until the exits are actually made, the saying holds: “The jury is still out.”
Darts Lessons Learned
In a future blog post, I'll gladly share the lessons I learned on the journey from start-up to scale-up with the above portfolio. Would you like to know more about Impact Investing via StartGreen? Feel free to connect. on LinkedIn you can read all about it here ons Impact Report 2020. You can Here's my first blog read, in which I take stock of the shift from M&A to impact investing.
